The Chinese economy is the world’s second-largest economy in terms of nominal GDP. China is the greatest foreign exchange reserve holder in the world, while doing business in China may be a fascinating idea, but the practicalities of accessing the Chinese market is quite challenging.
In China, a Communist party rule with little support for liberal reform and many state-owned companies ruling the financial sector all played their part for China to score a low ranking of 100 on the Index of Economic Freedom and 78 on the World Bank’s ease of doing business index. Corruption, non-tariff barriers, and the predominance of state-owned enterprises restrict foreign investment and all make starting a business in China more complex.
So, below are the 10 important things we narrow down which will help you in starting a business in China.
1. Know the scope of your business
The business rules in China are quite stricter when it appears to define the scope of business. The Chinese local governments possess the freedom to forbid or limit your business if the scope and description of your business do not follow China’s regulations and laws. It is important to note that they can allow and even help you to start your business in China if the scope and description have been set out thoroughly and carefully. In order to save time and to not let your struggles go to waste, make sure you fixed the scope of your business first, so you do not run into complexities with the rules of China when it comes to starting a business.
2. Pick up the right location
Since 2008, China has removed its special tax rates for outside companies. However, you should understand that there are still preferential taxes for foreign investors in terms of business type and geographic location. It is necessary to find the correct locations to put up your business to get away from additional costs that would be extra on you.
3. Beware of industrial dynamics
A probable case of losses in China is that foreign firms are so focused on market growth rates that they forget the basics of competitive analysis. For instance, in a beer company, more than 20 foreign brewers started in the mid-1990s, each of them thinking to achieve on average 15 percent of their market share. In a market requiring clear differentiation, they also saw themselves competing with around 600 local brewers, many of them supported by local governments. Some assumed these problems to go over time, but about twenty years later, the fundamental condition has changed little. Many industries in China follow the beer industry, with overcapacity, high levels of fragmentation, support local competition, and foreigners accept losses from their important investments.
4. Background check of your Chinese partners
We cannot doubt the reality that scammers exist anywhere in the world. China is not excused with this. It is very essential that you check your joint business partner’s reliability. Before you even think of signing a contract with them, you should do all means of inquiry to know well about your business partner. China is a foreign land and doing business with an offshore partner negligently is not a good idea and it can make you tolerate complex results to you and your business.
5. Build a simple and understandable employee management system
Doing business in China is hard. Hiring people to work for your business in China is even harder. Managing and keeping these employees’ content during the span of their work in your company is the most difficult part. If you are able to promote a really helpful employee management system, it will motivate your employees to work harder while still keeping a happy disposition while they are working in your company. A few points you can acknowledge including in your system are:
- Staff coaching
- Performance assessment
- Career management
- Communications policies
6. Know the basic requirements
This would necessarily be effective for those who are looking into having a Wholly Foreign-Owned Enterprise in China. You will require to submit the following:
- Articles of Incorporation or Organization for the investor entity
- Copies of applicable business licenses
- A certificate of good standing
- A description of the investor entity’s business activities, along with supporting documents
- A bank approval letter
Note here that you will also be required to give the above-mentioned requirements in Chinese. That means you will have to have them translated too.
7. Prepare important documents
Though the documents you will want to register for a WFOE will differ from place to place, you can find an extensive list of what you might require.
Always make for a wildcard, though. Dan Harris, a Seattle-based blogger and founding member of international business law firm Harris Bricken, says”We’ve had local authorities say they want to see exactly what it will be we’re manufacturing, so we bring it in.” “We just did one, and they required we write a legal opinion explaining how LLCs worked in the United States. We’d never had that before, but when it happens, don’t fight with them, because you’ll lose, and you’ll waste time.”
Application forms may also vary depending on who you are dealing with, so Harris says it’s usually great to get it straight from the local authority.
8. Secure and defend your company’s intellectual property
Since you’ve gone all the way to start a business in China, you do not want it to be a waste by losing the intellectual property to others. Be aware of Chinese intellectual property (IP) rights. The IP protection rights will give a business the security and registration of trademarks, copyrights, and patents. Also, be informed that disclosure and other matters might influence and restrict your application and will endanger your efforts in securing IP protection. If you are really serious about doing business in China, you should start the process of the IP protection rights of your business as soon as possible so as to avoid any disagreements and misunderstandings.
9. Build the relationship of trust
Common protection against opportunism is to develop relationships of trust with persons who value your business. Unlike in the West, the creation of personal friendship is a requirement of doing business. Building friendship takes time, which is another reason to avoid hurrying into things. Besides many invitations to fun and other events, one key factor in forming a trust is long dinners during which everything but business is focused. In these, alcohol plays an important role. Learn to drink sensibly. Experienced negotiators dispose of the alcohol into their water glasses or into the wet towels most good restaurants make available.
10. Know Chinese Culture
Understanding Chinese culture is unusually challenging as language can be a hindrance, unless you speak Mandarin Chinese, with a translator often being needed. Many Chinese business professionals do not like to say ‘no’ to offers, considering that to do so would cause humiliation. Thus, it pays to be careful of phrases such as ‘Yes but it might be difficult’ and ‘Yes, probably’ as they can often lead to misinterpretations.
Other factors of Chinese culture include the fact that it is considered rude to look directly into the eyes of people. Instead, Chinese professionals manage to look down, lowering their eyes as a sign of respect. When doing business in China it is beneficial to remember that honor plays a huge role in the hierarchical nature of Chinese business and society.
We hope these important things will encourage you while starting a business in China. If you have any questions feel free to write to us at [email protected]