China can be rightly credited as a land of opportunities. People of not only developed countries but now investors from less developed countries can also count on China for business opportunities. According to the International Finance Corporation, China was ranked at number 99 out of 189 economies for ease of doing business in 2014. Before entering the market one should be very well aware of the kind of industries that are flourishing in China.
Guide to Forming a Company in China
Forming a company in China is the first hurdle in the process of transacting business in China. If you set up a company using the wrong structures, it can cost you. Failing to acquire the correct license or permit for your business can result in a fatal blow. If your company does not collapse, its ability to expand and become successful can be greatly impeded.
If you are willing to invest in China, you must consider the following actions for setting up a company. First of all, you require locating if the planned endeavor will run a company authorized by the Chinese administration. For example, previously China prohibited privately owned firms from endeavors in foreign trade. In the past, nearly all export trade was handled by different state-owned trading companies. China somewhat recently discontinued these policies, and at present, both foreign and local firms can create trading companies.
Guide to Foreign Investors
Laws on foreign trading companies have essentially been removed. However, you will discover trading companies that can boost expenses and costs. Since these plans were only recently altered, the resident regulators who ought to concur with these agreements do not have much sensible experience with the assistant problems.
Generally, any justifiably planned foreign company is endorsed to offer money to a company in China. China mostly invites investment that endorses the export of Chinese manufactured stock. The sellers have to present papers from their residence country, prove that it is truly formed and running, and have details of the representative who is capable of executing it on behalf of the shareholder. The shareholder should give the paperwork proving the development.
Investor confidentiality isn’t an option in China. However, the record for the Chinese corporation will simply point out the name of the foreign investing company as the proprietor. Precisely where broad public exposé is concerned, the investor confidentiality might be sealed.
Chinese law allows a hundred percent foreign company ownership. However, it heavily regulates and limits foreign-owned companies’ activities. Such companies can only transact in the business operations listed on their company license. The amount of capital required by a foreigner to commence any Chinese company formation can be determined by the firm’s location and its business operations.
Business Entities to Apply To
When foreign investors want to set up a company in China, it is advisable for them to review their investment plans and ideas to ensure that the business entity they choose will be in accordance with the China investment regulations and World Trade Organization market access regulations. This can be achieved with the assistance of Chinese consultancy firms who are familiar with the local market. These firms will break the language barrier and make you understand the business culture, government controls, and help you maintain a good relationship with the government.
Some of the Several Businesses That Can Help You Set Up a Business in China:
Wholly Foreign Owned Enterprise (WFOE): This is a limited liability company wholly owned by foreign investors. WFOEs were initially meant for manufacturing activities that were either export oriented or for advanced technology. However, with China’s entry into the WTO, these conditions were gradually abolished, and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading.
Equity Joint Ventures: They are usually established to exploit the market knowledge, preferential market treatment, and manufacturing capability of the Chinese side along with the technology, manufacturing know-how, and marketing experience of the foreign partner. In a joint venture, shareholdings are non-negotiable and cannot be transferred without approval from the Chinese government.
Co-operative Joint Ventures: The parties involved may operate as separate legal entities and bear liabilities independently rather than as a single entity. There is no minimum foreign contribution required to initiate this venture.
China Resident Representative Offices: A representative office is an office of a foreign enterprise that is set up in China as a liaison between Chinese businesses and customers on behalf of the representative office’s home company. Its establishment is subject to approval by the relevant authorities under Chinese law.
Obtaining a Business License
You need to complete an application form to obtain your registration certification in China. Other necessary documents include:
• A lease or any other document that can act as proof of your company’s office.
• A notice of approval showing your company name.
• An appraisal report or capital verification certificate.
• Representation authorization documents.
• The identification document of your officers and your shareholder’s identity cards.
• Articles of association obtained from each shareholder.
• Identification and appointment documents of your company’s legal representatives.
• Identification and appointment documents of your directors, officers, and supervisors.
If your initial contributions are in the form of non-monetary assets then documents that certify transfers of the relevant property titles of these assets are required. Other documents may be required depending on the issuing authorities.
Quality and Bureau Code Certificate
You must apply for your company’s organization code certificate in a period of thirty days upon obtaining your business certificate. Your application form must be completed and filed with the Shanghai organization code management center. This is a branch of the Quality and Technology Supervision Bureau. Other supporting documents include an original and copy of the legal representative’s identity card and a copy of the business license.
Local and State Tax Registration
The procedures for tax registration have become simplified since 2004. This followed the implementation of the tax registration administration measures which were conducted by the State Taxation Bureau. Two taxation authorities now exist; these are the Local Taxation Bureau and the State Taxation Bureau.
However, as the founder of a company, you are required to file tax registration just once to any of these authorities. The stipulated time limit is only 30 days from the date that you receive your registration application. You then need the approval of the authorities to make your company seal.
In the case that all shareholders in the Chinese company formation are individual investors, then the registration file will have a duplicate business license. This will be in addition to your legal representative’s identification card. If the registration is approved, you will receive a notice making the company a limited liability company. You need to settle payment for the fee for your organization code certificate. The issuing authority is the Quality and Technology Supervision Bureau. You can then obtain the company seal.
Pros of Starting a Business in China
If you manufacture products, it’s always been true that you can make them in China for less money than in other countries. While wages in the country have been increasing for the last few years, you can still employ relatively skilled labor force for around $200-300 USD a month. The bulk of the costs in most production areas will be dramatically offset by low-cost labor.
With millions unemployed in the country, the Chinese government and provincial authorities are often willing to subsidize market entry for foreign companies that are willing to form joint-venture partnerships. This is particularly true in areas that have been earmarked for economic development such as the Chongqing/Chengdu industrial zone where over 40,000 square kilometers have been singled out for massive industrialization.
High Skill Base
The Chinese have not wasted the thirty years available to them since the market opened up. The country has invested heavily in education, qualified engineers, and scientists who are available in large numbers. This means that salaries for even highly skilled workers are still relatively low because of the volumes of university graduates entering the workforce every year.
China offers a wealth of experience in manufacturing that is not commonly found elsewhere in the developing world. The country is already making pretty much everything that can be made, excluding a few very high technology sectors, and that means it’s easy to find companies and partners with the right expertise to deliver what your customers need.
Availability of Raw materials and Market for Products
China has some incredible advantages regarding trade. It has easy access to raw materials and cheap labor. Its economic base is growing, and there is little that China can’t produce. Secondly, it is a massive and growing market for all sorts of products and services with an increasing taste for western brands.
The business environment in China is geared towards taking advantage of an export-driven economy, and while it’s not all plain sailing with the bureaucracy, it is a supportive environment for those companies willing to take their time to integrate properly with the domestic corporate culture.
Chinese manufacturing generally doesn’t bring high margins for the producers; ruthless competition ensures that production margins remain low. That means exporters retain most of the profit for their own domestic markets, which makes doing business in China a very attractive prospect indeed.
When foreign investors want to expand companies in China, it is advisable for them to review their investment plans and ideas to ensure that the business entity they choose will be in accordance with the China investment regulations and World Trade Organization market access regulations. This can be achieved with the assistance of Chinese consultancy firms who are familiar with the local market. These firms will break the language barrier and help you understand the business culture, government controls, and how to maintain a good relationship with the government.
Cons of starting a business in China
Chinese often find English difficult so communication can be challenging. Mandarin is difficult for foreigners to learn so the combination of the two can make communication challenging. In some Chinese are very good at writing and reading but their listening will be quite poor.
Note that there are many and each day more and more exceptions to the above, especially with the enormous amounts of Chinese students who study abroad and then come back to their country to do business.
Try to speak slowly and in simple English to avoid many of the disadvantages of doing business in China, which mostly arise due to communication issues.
To successfully set up a company in China it is necessary to know the requirements for the different cities in China. This information ranges from taxation, investment policies, types of business entities allowed, company laws, and requirements for setting up representative offices.
Most foreign companies will find translation services valuable as they seek access to contract legal agreements and during business trips to China to find local potential business partners. After having set up a company in China, hiring competent local accountants, lawyers and other professional human resources will be a great step towards achieving your business objectives since they will provide important local knowledge