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Starting a Business in China
China’s Business World — Do Your Homework
China’s economy is strong at the moment, and it is tempting to just start a new life there, complete with your own business. It might seem like a great idea what with the good economic conditions. However, you won’t get very far if you don’t plan your new life in China properly.
Luckily, there are other expats who have “paved the way”, making it easy for you to follow in their footsteps. Try to connect to other expats in China who have started their own business or are working as freelancers and find out which steps they took, what worked for them and what didn’t, and, most of all, ask them about the mistakes they have made.
Of course, you should also do your own research to find out which paperwork you need, which agency is responsible, etc. (more on that below). But expat entrepreneurs can actually give you advice that reaches beyond visa requirements and business registrations.
Understand the Business World
It’s easy to make assumptions about what your customers will want and what will make your business successful but instead of making assumptions, you should do your own research. Find out what goes well or what is missing in your future home-to-be. Keep in mind that not only demographic factors apply but also cultural and social factors.
You should for example learn more about the “barter economy” in China (as some call it). It is customary to trade in little favors here and there to get your business up and running. While you should be prepared for this, make sure to draw a line and not let people take advantage of your generosity. The other thing you need in order to be successful in China is Guanxi , or business relationships. These are essential for doing business in China. You should give yourself (and your potential business partners) some time to network and build a business relationship. This means that you should not miss out in expat events and be patient during business meetings which are usually rife with small talk.
Play by the Rules
There are a lot of laws you have to abide by when you open a business in China and a lot of paperwork to get approved. Sometimes it may seem like an unnecessary hassle and you might get tired of jumping all these hurdles but keep in mind that complaining will just cost you time. At the end of the day, the only thing you can do to not run into trouble or end up paying a hefty fine is to be prepared.
Knowing exactly which documents you need (this might vary depending on the city and the type of business you want to open) and where you have to submit them or get them approved, can save you a lot of time.
Types of Businesses Entities
Once you have an idea of what type of service or product you want to offer, you have to register your new company with the government. There are different types of business entities you can choose from, the most common among foreigners being representative offices, joint ventures, and wholly foreign owned enterprises. Each one of them comes with its own upsides and downsides.
The Joint Venture
The joint venture, which may seem like a safe route, can turn into a disaster for some. In order to open a joint venture, you need a business partner who is a Chinese citizen. With a joint venture, you have the opportunity to use foreign currency and equipment, and you can decide freely on the distribution of property between you and your business partner.
Although this might sound great at first, many experts warn against choosing a joint venture as your business model. Most of them fail due to different aspirations, and, as your business partner knows how to navigate China’s business world, they will most likely take over your business in the end.
The Representative Office
Representative offices are easy to establish and usually come at a low-cost. However, if you choose this type of business entity in China, your options will be somewhat limited as you will not be allowed to engage directly in any profit-making activities. This means that you will not be allowed to accept payments for any goods, write invoices, or close a contract in the name of the headquarters.
After all, a representative office only has the purpose of representing a foreign company in China. Therefore, it doesn’t allow you to do much beyond building and representing your brand, and is not an ideal choice.
The Wholly Foreign Owned Enterprise (WFOE)
This is by far the most popular type of business entity among foreign entrepreneurs in China. It gives business owners the biggest amount of freedom while being able to keep control of their company. As with the joint venture, you have the option to use foreign currency and equipment. Your profits can be remitted abroad and you can have an independent management and operation.
Unfortunately, the WFOE is also the most complicated business entity to set up. Each city or region has different requirements. There are a lot of documents that will have to be approved by the authorities and in any case, you will have to provide proof of having minimal capital in a Chinese bank account. This amount can, again, vary strongly depending on the type of your business and the location.
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