The level of difficulty in setting up your company depends on your industry. The reason is that China encourages foreign investment in certain industries while discourages it in others.

There are several different registration classifications for foreign companies doing business in China. You will need to decide which one best suits your needs. The main classifications are Wholly Foreign Owned Enterprise (WFOE), Joint Venture (JV), Representative Office and Partnership Enterprise (PE).

A Wholly Foreign Owned Enterprise is a business that is 100% owned by a foreign company or companies. These are often established in Special Economic Zones. Only businesses in certain industry categories are allowed to set up as a WFOE. A WFOE requires a minimum capitalization, can generate income, pays tax in China and can repatriate profits. (Ref. 2)

A Joint Venture is a partnership between a foreign company and a local partner. A Joint Venture may be appropriate if WFOEs are not permitted in your industry classification.

A Representative Office is easier to set up than either a WFOE or JV. It costs less and does not require capitalization. However, Representative Offices may not engage in trade, receive fees for service, sign contracts or directly generate income. They are typically used for market research, promotion, and establishing or maintaining China business contacts.

A Partnership Enterprise is a new classification that came into effect March 1, 2010. It allows partnerships between foreign companies and individuals, and Chinese companies and individuals. (Ref. 2)

It typically takes 4 to 6 months to register a WFOE or JV, depending on scale and industry. (Ref. 3)

A number of government offices are involved in the process including the Ministry of Commerce or its subsidiary, the Local Industry and Commerce Administration Bureau, the State Taxation Bureau, the Local Taxation Bureau, the Foreign Administration Office of Police, the Bank, the Foreign Exchange Administration Bureau, the Public Security Bureau, and the Customs Office. (Ref. 3)

Basic Steps

Here is an outline of the basic steps to setting up a WFOE or JV in China. (Ref. 1) The process is simpler for Representative Offices.

1) Name Approval
2) Approval to Establish Company
3) Registration of Business License
4) Filing and Carving Seals
5) Enterprise Code Certification
6) Statistics Bureau Registration
7) Foreign Exchange Approval
Registration with City Tax Bureau
9) Setup of Bank Accounts
10) Customs Bureau Registration
11) Capital Verification
12) Business License Update

References

1. Orientation China Guidebook, First Edition, American Chamber of Commerce in Shanghai

2. Types of Business Presence in China, Path to China

3. Register a Company in China: Full registrations, Authority and Timeframe, NSW Chamber

Recommended Reading

How to Start a Business in China – WFOE, China Law Blog

How To Start A Business In China — The Minimum Capital Requirements For A WFOE, China Law Blog

Setting Up a Representative Office in China, Export.gov, US Department of Commerce, International Trade Administration

How to Form a Representative Office in China, China Law Blog

8 Must-Knows about Business Set-up in China, NSW Business Chamber

Starting a Business in China, International Finance Corporation, World Bank Group

How to understand Guanxi

Whenever you read or hear about China you cannot get around the Chinese word Guanxi (关系).

For non- Chinese it is difficult to understand what this little word really stands for.

The original meaning is “relationship”. But most dictionaries mention that it can also mean “concerning something”, “condition” or “involvement”. And that is where most foreigners have trouble understanding how relationship can also mean “condition”.

Guanxi is used as a term for a personal network. Those networks influence almost all decisions made in China while contracts and agreements are seen as guidelines which can be questioned or changed.

Most foreigners find it hard to believe that Guanxi is not a synonym for the Western term “corruption”. In China they use the word Huilu (贿赂) for this illegal process.

So what is Guanxi, if it doesn´t mean corruption?

Guanxi- Relationships are unlike corruption not based on unions, groups or institutions but are concerning the link between two individual persons. From there on the network can be expanded to the people the other one has Guanxi with.

The dangerous thing about introducing other people to the people you have Guanxi with, is that you could lose your face (honor, credibility) in case the introduced person is not trustworthy or reliable.

This kind of relationship needs a long time to be built up but when established it can be on a very high level. Some of the relationships are based on living together in the same village or because two people were studying in the same university.

But unlike the western definition of friendship or companionship, Guanxi can only exist if the help one gives to the other is equal to the received favor. Eventually you have to “pay back” your Guanxi- Partners.

Time and consistence play an important role in this process which involves work and caretaking. It could be compared to a fire. You have to put wood into the flames to keep it going.

People you have good Guanxi have the skill to know when to get new wood and when it is time to use the fire. That’s why it is very important for Chinese to categorize people as family, friends or foes.

All this is normally unnoticeable for foreigners who are most of the time outside of this very Chinese network.

Interesting enough “Mei Guanxi” which could be wrongly translated as “no relationship” means actually “don´t worry”, “never mind” or “doesn´t matter. So don´t be insulted if someone on the street appears to tell you “We have no relationship”.

In China, Volvo Car Corporation’s management team led by Freeman Shen is well established and Volvo Car China has now grown from a national sales company into a full-fledged organisation with its headquarter in Shanghai. Now when we are talking about Volvo Car China Operation, we are talking about a subsidiary in China which includes sales and marketing, manufacturing, purchasing, product development and all other supporting functions.

We have started building the Chengdu plant, and investigations are ongoing for a potential plant in Daqing. It will be extremely important to use the Volvo manufacturing and quality systems in these plants so that we will build the same quality Volvo cars and engines as those being built for Volvo elsewhere.

Our R&D organisation in Shanghai will become the centre for product development, engineering, design and sourcing in China, and an important and integrated part of our global product development network. Our diversified product development team has taken on engineering tasks in new product design and local sourcing as well as supporting global teams in new product and new technology development.

Meanwhile, we are developing and optimising the supply base in China not only for the China plants but also for Volvo Cars’ entire global operation. Currently, it is our priority to hire new staff to work with product development for the Chinese market and support local production and purchasing activities. We will implement the same quality standards as those in Europe and are willing to build a long-term relationship with our suppliers in China. A design center is being located in Shanghai to support the global design team in understanding the market trend in China and the preference of Chinese consumers.

There is also full focus to increase sales in China by strengthening sales and marketing activities, including expanding the dealer network, recruiting and training sales consultants and improving customer experience and satisfaction.

China Growth Plan Progress
We have made lots of progress in China in the past year. Sales increased by 36 per cent, to 21,000 units by the end of June, compared with the same period last year. Our sales network is expanding systematically, with increased interest and enthusiasm from dealers across the country. In the first half of 2011, 11 new dealers joined our sales force and turned the total dealer number to 117 nationwide. We are also working on further improvement of customer satisfaction together with our dealers.

Road ahead
China overtook the United States as the world’s largest car market in 2009, and continued a strong growth momentum in 2011, especially in the market segment where we are competing. In the luxury car segment, the sales boom has provided tremendous opportunities for us. However, our goal of selling 200,000 vehicles per year from last year’s amount of 30,000 vehicles will not be an easy job. This requires lots of hard work, passion for our customers and cars, speed to market and smart thinking from all of us.

Nobody has ever done what we are doing today. We are not just another multinational company in China. Here we are making history together. Facing the market and fierce competition, we need to have a strong sense of urgency and install great courage to achieve our ambitious goals in China.

My colleagues and I are committed to writing a new chapter in China’s auto industry. We will work very hard and smart, with customers, partners and other stakeholders to unlock the tiger of Volvo and regain its glory. Together with our global team, we will make Volvo Cars a most admired brand and one of the most successful businesses in China.

How to purchase a property in China (Ch…

In loose terms, you can think of face as reputation, honor or respect. You could also think of it as public image, particularly through the eyes of one’s close connections.

Face can be given, gained, lost or saved.

It’s easy to lose face. For example, face can be lost through a public insult or public contradiction or by failure to receive the proper level of respect. It is not really the act that causes a loss of face but the fact that the act is public, and there is public humiliation or loss of prestige involved.

Loss of face must be avoided. Sometimes, Chinese go to great lengths to preserve face. It’s acceptable to lie to preserve face. In fact, lying is considered the better option, especially when it is understood that it is being done to preserve face.

You may have noticed how Chinese business people don’t like to say “no” outright, even when that is their answer. This is because saying “no” would cause the rejected party to lose face. By not saying “no” directly they are preserving face.

One good reason for not doing anything that would cause someone to lose face is that it could result in some form of retaliation. The face loser may attempt to regain face by doing something to cause the initial infractor their own loss of face.

Face can be gained through public showings of respect or praise to a third party. See again how the simple act of giving praise isn’t what gives face, it’s the fact it is done publicly or via a third party. Face can also be gained by doing what others cannot do or by being exceptionally knowledgeable or wise.

In China, it is not just individuals that have face, the concept applies to companies and government ministries too. In this case, think of it as the organization’s good reputation that they aim to preserve.

To learn more about mianzi, see the following article which does an excellent job of explaining face in non-business situations from both Chinese and Western perspectives:

http://middlekingdomlife.com/guide/mianzi-guanxi-china.htm

Source: dragonbn.com

1) Look to your current contact base

I think the first place you have to look to build your China network is your current contact base. Take a look through your Facebook and Linkedin accounts and see if your current contacts are doing anything in China. When I first announced on Linkedin that I was doing business in China, I had several contacts who said they knew someone I should meet.

If you attended college, make sure to tap into your alumni network. The Chinese really believe in their alumni network so it is natural for the expat alumni networks take a more important role in China. I think a good alumni network might be the best possible source of building the right contacts in China.

2) Join online networking groups with a China focus

Join online networking sites and, after you join, be active and participate in online discussions. Keep your profile current and actively seek new contacts.

Here are the main online networking groups for China business. Join several if you can.

Dragon Business Network
www.dragonbn.com

The China Business Network
www.thechinabusinessnetwork.com

China Groups at Linkedin
www.linkedin.com

China Groups at Xing
www.xing.com

3) Join a chamber of commerce

I think joining a chamber of commerce is a must. Chambers really do a great job of providing seminars. And their networking opportunities are unparalleled.

Here’s more information on chambers of commerce in Shanghai: www.dragonbn.com/articles/3

4) Attend live networking events

Attend networking functions organized by private networking groups like FC Club (www.FCclub.com), OK Deal Club (www.Okdealclub.com), Oriented (www.oriented.com) and Next Step (www.nextstepshanghai.com). Many of these events are held at fashionable drinking venues. What a great way to meet contacts and have a good time.

Though not billed as business networking events, local get-togethers like ShanghaiExpats.com’s Wednesday Beer Mixer and weekend coffee meetings are also good for making contacts.

Various chambers of commerce also organize events.

Here’s a link to the most complete, up-to-date list of in-person networking events in China:www.dragonbn.com/events

5) Reach out to government organizations

Relevant government organizations in your country, such as ministries of trade and technology, are generally easily approachable. More importantly, key staff at these organizations, such as trade officers, tend to have a great number of contacts they can help you meet.

6) Join business associations or industry groups

Most major cities around the world have business associations or industry groups with an interest in China. One example is the Vancouver Business Network Forum (www.vbnf.com) in Vancouver, Canada.

7) Socialize

I met some great contacts while watching football games at expat bars like Malones and the Big Bam Boom in Shanghai.

Ask consultants

Be sure to touch base with market entry consultants, lawyers and accountants that deal with foreigners. These service providers are helpful for meeting the right connections.

9) Join expat centers

Join expat-oriented groups such as Community Center Shanghai. Expat communities are highly integrated — knowing one person means you will be introduced to several others.

10) Get an MBA or EMBA

Go get an MBA or EMBA. I have met a lot of people who got their MBA in China who said the contacts they made at school made their MBA worth it.

Source: www.dragonbn.com

“You have to be a leader, not a follower…timing is everything,” said Huang Xiaoqing, generalmanager of China Mobile’s Research Institute, in an interview with Xinhua.

With more than 600 million subscribers, the mobile giant, which is both listed in Hong Kong andNew York, is pushing for China’s home-grown 4G standard, known as TD-LTE, or ”TimeDivision-Long Term Evolution,” to be a globally accepted standard.

The technology is expected to provide faster broadband wireless services to meet theexplosive future demand in data communication that the current 3G network is unable todeliver, Huang said.

“Demand for mobile communications, especially for mobile internet, is rapidly growing, totallybeyond our expectation and forecast,” he said.

The TD-LTE network is believed to be ”ten times lower in price and ten times better inperformance” than the current 3G service, he added.

The upgraded version of TD-LTE, or TD-LTE-Advanced, is now among the three international4G standards accepted by the UN’s International Telecommunication Union(ITU). The othertwo are LTE FDD and WiMAX, which are dominated by Europe and the United States,respectively.

Currently the company has arranged large-scale TD-LTE trials in six Chinese cities and set upa demonstration network in Beijing. It has also developed a TD-LTE mobile network in Taiwanwith the local Far EasTone Telecommunications for testing purposes.

According to Huang, telecommunication operators worldwide are seeking a single and unifiedglobal standard and tend to agree to the LTE standard.

China Mobile joined with seven other operators to form Global TD-LTE Initiative(GTI) at theMobile World Congress in Barcelona in February, he said.

The GTI now has 22 members, including telecommunication giants like the UK’s Vodafone,Japan’s Softbank, and Axiata from eastern Europe. Currently, trial networks of TD-LTE havebeen established in 29 countries.

Goldman Sachs is also optimistic about TD-LTE’s future. In a report released late June, theinvestment bank said TD-LTE is becoming the global solution for unpaired spectrum due to its3G inter-operability, large data capacity, and leverage of the LTE FDD system.

The report expects China Mobile, Bharti (India), and Softbank to launch TD-LTE services inlate 2012 or 2013, which would cover nearly 2.7 billion people, or 39 percent of the world’stotal population, in the three countries.

China is leading the global promotion of the TD-LTE standard, therefore, tests on the networkare fully open, said Cao Shumin, vice director of the Telecommunication Research Institutionunder with the Chinese Ministry of Industry and Information Technology(MIIT).

The test site at the MIIT institution has gathered not only domestic cell phone manufacturersbut also multinational tycoons like Motorola, Ericsson, and Nokia Siemens Networks.

The LTE FDD network, which is promoted by European operators, is seen as a strongcompetitor to TD-LTE. But as the two technologies are based on the same LTE system, theyare able to share R&D results and subscribers at a global level, Cao said.

The company is also pinning hope on the 4G technology to gain back its high-end subscriberslost to China Unicom and China Telecom in the 3G business.

China Mobile, whose 3G network technology isn’t supported by the iPhone, has announced itwill work with Apple on a TD-LTE-type iPhone.

Currently, China Mobile’s iPhone users can only run their device on the 2G mobile network.

But the Chinese government has not given a clear timetable for the commercial launch of TD-LTE.

Miao Wei, minister of the MIIT, said in April that China plans to commercially promote the TD-LTE technology nationwide within three to five years.

The government has only issued the 3G licenses in 2009, with China Mobile getting the self-developed TD-SCDMA standard.

“The regulator is afraid that China Mobile is becoming stronger, gaining more market share and monopolizing the market,” Huang said.

China Mobile had 611 million subscribers by the end of May, of which 32 million were 3Gusers. China Unicom had 22.1 million 3G users in May, while China Telecom came in third with19.7 million.

Ever wonder why Chinese companies sometimes seem slow to make a business decision? In this article, Dr. Vi explains the difference between the individualistic decision making process used by Western companies and the collective decision making process of Chinese companies.

Perhaps the best way to describe and explain individualistic vs. collective decision making process is to compare McDonald’s individual combo meals to a Chinese wedding banquet meal (if you have ever been to one, you will know what I mean). The American business practice is that when you are the manager or director, you are paid to make good decisions yourself to solve problems for the company. You may take on profit and loss responsibility. You may search for options and solutions. You make decisions for the company because you get paid for doing it. Just like one is choosing McDonald’s combo meal with a number 1, 2 or 3. You choose that combo for yourself and you pay for it.

Whereas, the Chinese business practice is that when you are the manager and director, you always consult all the other managers and directors in the team before making any decision. They will have group meetings to share the decision making process. They discuss each problem with possible alternatives and solutions. They will come up with a collective decision at a round table after hours of meeting. The leaders all share profit and loss responsibilities based on company performance. If one disagrees to the proposal, the rest of them will not proceed further until all members in the group agree on the same approach to move forward.

Yes, this can be a very time consuming collective decision making process. Just like a Chinese wedding banquet, it can take 3 to 4 hours to finish a 10-course meal with 9 to 11 other people at a round table. That’s why it is very important for you to know who are the key decision makers at your round table at the very early stage of your negotiation process.

Tip 1: Check the bank account

If your suppliers have a foreign currency company account to accept your payment, and the bank account is opened in one of the state-run banks (Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, Bank of Communications and China Construction Bank), this is positive. As we know, only companies with an import and export license can apply for a foreign currency company account in the state-run banks.

If your supplier doesn’t have an import and export license, they won’t have a foreign currency company account. But they should have an RMB company account in a Chinese bank. As foreign buyers, you can’t send RMB to China, but you could ask your agent in China to send a sample fee to their bank account to test if their RMB company account is real.

Tip 2: Be cautious of shell companies

When you see Hong Kong companies on Alibaba, with contact information in Shenzhen or Guangdong province (the address is in Shenzhen and/or the phone number start with 0755, not 852), that is a shell company, be cautious.

Tip 3: Secrets in the company name

If you see a company with “trading” or “trade” in its name, then it is obviously a trading company, not a factory.

If a company has “group” in its name, then it is a big corporate. So if you are small buyers, keep away from them.

According to Chinese law, all Chinese companies should add the geographical location in the company name. The geographical location is related with registered capital. In our province (Zhejiang), for registered capital less than 2 million RMB, you can’t use the prefecture-level cities in your name (for example, if a factory is in Ninghai county, Ningbo city, Zhejiang province, China).

Judging by the company name, you can tell the company size (or at least the registered capital):

China Mobile Limited (huge size)
Jiaoguang Group (big corporate)
Zhejiang XXX Co., Ltd. (big company but smaller than group company)
Ningbo XXX Co., Ltd. (decent company)
Ninghai XXX Co., Ltd. (ordinary or small size)


About the author

Steven Chow, has more than 10 years working experience in factories, trading and sourcing companies. He is the founder of Chinawhy, which offers sourcing, verification, QC and other trade-related service in China. Steven Chow is a columnist for Alrroya Newspaper, Sourcer magazine.

Source: http://www.dragonbn.com/

A branch office in China is one that is used for business purposes for which the main company office holds responsibility. It is not a legal entity and it can only carries out liaison and coordination work. Such a situation would involve the existence of an offshore “parent”, the People’s Republic of China would be denied control of the entity – a situation which it seeks to avoid. In this way, China does not officially recognise branch offices, nor does it officially allow them to operate. Therefore, the difficulties posed by such restrictions and lack of legal standing mean that the branch office cannot be recommended as a vehicle for investment.

Sino-Foreign Equity Joint Ventures

These are enterprises established in China with joint investment from foreign companies, enterprises or other economic bodies and Chinese economic bodies. As the name suggests, such enterprises involve joint investment, operation and share of risk in proportion to the amount of investment inputted by the respective parties. Each party is accordingly jointly responsible for the profits and losses of the enterprise. Investment can come in the form of (amongst other things) currency, buildings, industrial property or equipment. In general, the level of investment offered by the foreign company should not be less than 25%.

The corporate form of such joint ventures is the limited liability company, with a Board of Directors as its supreme body of power. Some joint ventures in China have now adopted this corporate form.

Sino-Foreign Co-operative Joint Ventures

Sino-foreign co-operative joint ventures also refer to Chinese- foreign contractual joint ventures. They are enterprises established in China with investment or conditions for co- operation jointly offered by foreign companies, enterprises or other economic bodies as well as by Chinese economic bodies.

The main difference from the equity joint venture we have just discussed is that the investment of the parties involved will not necessarily be converted into ratios of investment.

The rights and obligations of the parties involved with regards to such issues as distribution, investment, operation and sharing of risks and profits is determined by the contracts signed by the parties from the outset of the venture. These ventures tend to involve the foreign partner providing most or all of the funds whilst the Chinese partner contribute land, facilities and a perhaps a limited amount of funding. The usual approach is to stipulate in the contract that the Chinese party will own all the assets of the venture once the date of expiry of the venture is reached, with the foreign party recouping its investment within the duration of the venture.

Such forms of co-operative joint venture are universally attractive, for they allow the Chinese partner to have a source of investment whilst permitting the foreign company to recoup its investment.

Wholly-Owned Foreign Enterprises

These also refer to wholly foreign- owned enterprises. They are enterprises set up in China by foreign companies or economic bodies in accordance with Chinese law with the investment entirely provided by foreign investors.

Such enterprises must be conducive to the development of China’s national economy; they must also meet one of the following requirements:

1. The application of internationally advanced technology

2. The orientation of most of the products for export

The corporate form of foreign enterprises in China is generally the limited liability company. Although China has been late on the scene in terms of providing a system of establishment for foreign enterprises, they have grown in number rapidly over the past few years.

Chinese Holding Companies

Approval has recently been given to multinational corporations by China’s Ministry of Foreign Trade and Economic Cooperation (MOFTEC) to establish foreign-invested holding companies. Though mostly analogous to Western Holding Companies, there are a couple of differences. Multinational companies may wish to set up holding companies in order to increase investment or reinvestment in China, as well as to coordinate investment companies already established in China.

A Holding Company in China may invest in such fields as industry, agriculture, infrastructure and energy, provided that the State encourages foreign investment in these sectors.

Typical work undertaken by a Holding Company might include action as a purchasing agent, distribution or the provision of after sales service, amongst other things. Provisional Regulations dictate that a Chinese Holding Company may enjoy the preferential treatment of a foreign- invested enterprise, and as such is awarded both a foreign- invested enterprise certificate and licence.

Shares

Chinese government allows foreign investment to acquire shares of special category, B shares, of approved list companies in the Stock Exchange. However, ownership and management are separated. Chinese government is considering allowing foreign invested entity in China to be listed in the Stock Exchange, but it takes time for the government to come at this decision.

Special approved foreign JV

Foreign nationals are generally not allowed to hold equity of private companies in China unless with special consent from the government. A merger and acquisition exercise involving foreign fund will convert a private company into a foreign JV.