How to invest in China? If you are a foreign investor thinking about starting a business in China, here are 9 simple steps you can follow to ensure your business is ethical, legal, and will fun smoothly as you have envision.
1. Choose a Business Entity
Before business registration with the Chinese government, decide the type of business you want to incorporate.
There are 3 types of foreign business entities – joint ventures, representative offices, and wholly foreign enterprises. Of course, each has its own pros and cons too.
Joint Ventures (JVs) – is a partnership between a foreign entrepreneur and the local Chinese. The most common problem with JV is that you will end up losing your business with your Chinese partner as you cannot operate your business as you envision it.
Representative offices – Is a cost-effective and easy way to start a business in China. However, it limits your scope. A representative office can only represent your offshore company. It cannot deliver your products and services. That means you won’t be able to generate revenue.
Wholly foreign owned enterprise (WFOE) – is the most common type of business venture in China. Almost 75% of American investment in China is 100% American-owned as it gives them maximum quality control. However, the set up is much more complicated and it takes more time to get government approval. Plus, you require putting a minimal capital investment in a Chinese bank. The amount varies depending upon the nature of your business and where you intend to set it up.
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2. Write down and develop your business plan
Ideally speaking, you require a detailed 5 years business plan because once the Chinese government approves it, you will only be able to operate within its guidelines. So if you offer product or services that are not mentioned in the business plan, the Chinese government will shut your business down.
That’s why, we highly recommend that your business plan is as broad as possible to allow you to operate freely, but also make it specific too.
For example, if you want to manufacture a high-tech pool pump, and apply by saying, “I will manufacture a swimming pool pump,” they’re not going to look at your business proposal very favorably.
But if you say, “I have a software-driven, high-end piece of swimming pool equipment that will put at least 20 software engineers in China to start work right away,” then they will look at your business proposal as a different project.
3. Get your Documents Organized
When it comes time to register a business in China, you need to be prepared as to what documents you will need.
Local authorities may want to see exactly what you will be manufacturing in China. They may also require you to write a legal opinion as to how LLCs operate in your home country.
It may never happen to you, nonetheless, if it ever happens, you need to be prepared. Bring all your documents. Don’t fight with them as you’ll only lose and waste your invaluable time.
4. Find a liaison officer(s)
In order to register your business, you require a qualified liaison officer who can tell you where you need to register it – whether it’s in the local, provincial, or the national government.
Once you get there, he/she should do the talking.
Ideally, you want someone who has negotiated a number of times with that territory in the past. You require hiring people who can speak Chinese when they meet with the local officials.
5. Find a Bank
This step must be quick and easy as there are many banks operating in China that has some type of relationship with banks in the US. Try using banking services of Bank of America, or HSBC (Hong Kong based bank) for example.
When you deal with a bank that has relationship with banks in US, it becomes easier for you to keep track of your money. Plus, if there is some sort of corresponding relationship, your banking becomes MORE transparent too.
6. Hire a staff
When it comes to hiring managers in China, it could be a delicate process. If you find someone with impeccable English, don’t assume they’ll run your business properly.
If everything is equal, of course, the language skills can be invaluable, however, it’s far better to have a “smart” business savvy person looking after your company the way you want it.
Once a “trusted” manager is in place, they will help you hire the rest of the staff.
Keep in mind that you need to have a contract for every employee you will hire as well as an “employee manual.” Without either, you won’t be able to fire anyone too.
In China, you will require a reason to hire someone. You insert your reasons in your employee manual. If you don’t have one, employees can sue you up for LOT of wages.
7. Take it Slow
Don’t simply plunge into business deals that seem profitable. Building relationship takes time. The key for your success in the Chinese market is “patience.”
Chinese have been conducting business in their typical style for ages. Don’t think you will change them for even a millisecond.
8. Trademark your Intellectual Property
Foreign investors in China often find themselves into intellectual property violation issue. Many foreign manufactures think that since they have a trademark at home, it will also work in China. That’s not the case in China.
In China, the first person who will register a trademark will own the right to it, whether or not that person will actually use the trademark.
Someone may go and register a trademark you thought was yours. So, when you’re about to ship a $5 million worth of goods, and it is held up at the port, you get a call from someone saying, “Hey, you are using my trademark. Guess what? I want to sell it to you for $500,000 a year.’
If you say you won’t pay them, your products will NEVER ever leave China.
9. Find a Location
Choosing a proper location of your business can either make or break your business, unless you want to conduct an online business. It’s very crucial to be thoughtful during the process of determining your business location.
Your business location depends upon the type of business and the ideal customers you are targeting for.
For example, if you’re planning to open a religious store but there is plenty of bars around, it may not be an ideal location. Think carefully the type of customers whose attention you are trying to catch.
In addition, find about the zoning laws for the location that you want to set up your business at.
Specific requirements are required for certain businesses in order to exist. For example, municipalities will not allow certain type of business to locate anywhere near a hospital, school for example.