According to Reuters “China was the largest recipient of foreign direct investment in 2020”. China’s rapidly expanding consumer class is giving foreign entrepreneurs new reasons to expand their operations in China .
Starting a business in China differs from starting a business in other Western countries. Because of the differences in culture, language, and the complexities of local policies, laws, and business culture, it is important for foreign investors to understand and know the fundamentals of doing business in China in order to avoid risks.
For more details, see 8 Steps to Starting a Business in China, which will walk you through the lengthy procedures needed to start a company in China.
Step 1. Conduct China Market Research and Make Your Plan.
Step 2. Select a Location & City to Start Business.
Step 3. Test the China Market – Using a China PEO & Employment Agency.
Step 4. Choose a Company Structure/Type.
Step 5. Create Your Company/Legal Entity
Step 6. Opening Corporate Accounts.
Step 7. Protect Your Intellectual Property-Trademark.
Step 8. Start on Monthly and Yearly Administration Operations.
When foreign investors want to starting a business in China, conduct market research prier is very important to knowing the market. While researching and learning, you will determine what the best opportunities available are, where are your target clients, resources, opportunities, risks.
Furthermore, before starting a business in China, international investors must choose promising locations in China to launch their startups. Despite the fact that China is big and has over 600 cities, there is still a major difference between them. According to Chinadaily, “the first-tier cities in China are Beijing, Shanghai, Shenzhen and Guangzhou, generally have the best business environment.”
Shanghai is a popular destination for foreign investors when starting a business in China, and it is well-known as an international port with the highest GDP of all mainland Chinese cities. “Shanghai Tops Forbes China Ranking of Best Cities For Business”, according to a survey published in the latest issue of Forbes China. The city’s spirit, glamour, and transparency are attracting an increasing number of international investors.
China International Import Expo (CIIE) is the world’s first import-themed national-level expo, which began in Shanghai in 2018 and is expected to draw more foreign entrepreneurs looking to start businesses in China.
Shanghai Free Trade Zone (SFTZ) is launched in 2013 and hosts more than 50,000 foreign companies. The following are some of the advantages of doing business in the Shanghai Free Trade Zone:
As the capital city, Beijing has quickly become one of the world’s most modern hubs for doing business. Beijing is the political center of China as well as the country’s science, educational, and cultural hub.
Shenzhen has become one of the best places in China for setting up a new business when starting a business in China, especially in the technological industry. The city is considered to be one of the top countries to invest due to investment-friendly climate with a lot famous company like Tencent, DJI, Huawei, BYD.
Shenzhen Special Economic Zone (SEZ) were granted free-marketed oriented policies and flexible government measures to attract foreign investment, offer subsidies for the establishment of R&D center, startups, establishment of headquarters, financial enterprise headquarter, professional service company. corporate talents.
Establish a company in China is time consuming and costly, after the establishment, you also need to spend extra efforts and budget to maintain it. If your business is not good, it’s also great difficult to close a business in China. The smart way of starting a business in China is before you officially establish a long-term presence in China, we highly suggest foreign investors to test the China market in the initial stage by hiring employees in china.
You can hire employees working for you in China before you decided to set up a company. You can hire your China representatives, sales team, consultants to be your first team to test and experience the Chinese market. Such hiring and employment shall go through a China PEO & Employment Agency. The PEO & employment agency will sign a local compliance labor contract with the employees you selected, acting as the employer of record, and handle the employee on-boarding, monthly employee payroll, tax, social insurance to ensure the employment is compliance with local law.
JSC China PEO & employment solution enables foreign companies hire employee in China without a legal entity to test the China market in an easy and flexible way. If business is going well and foreign investors have high faith in the Chinese market, they can decide to officially set up a company after the test period. However, if the company is not performing well, foreign investors can easily exit the Chinese market by notifying the China PEO & employment agency to terminate all employee relationships.
In China, you have different options to choose if you would like to set up legal entity when starting a business in China. Choosing the right company structure for your company is a crucial move for any company looking to join the Chinese market. China WFOE, representative office, and joint venture are the most common entity forms among foreign companies.
Wholly Foreign Owned Enterprise (WFOE or WOFE) is a limited liability company wholly owned by the foreign investors. It is the most welcomed entity type when starting a business in China as it gives full autonomy and control to the foreign parent company. Three types of WFOE are most common in China which is consulting WFOE, trading WFOE, Manufacturing WFOE. It is very important to know that different business scope require different pre-license or post-License application. Only when the company obtained such license, the business is officially allowed to operate in China.
Representative office is also known as rep office, ro. A rep office is a local Chinese arm of a foreign company. It allows a foreign company to have a physical presence anywhere in Mainland China to do market research, networking activities, and also allows them to send foreign staff here to undertake business activities as the representatives.
However, Representative office is not a registered company in China, so Ro office in China is not allowed to engage any profit seeking activities. Ro is also not allowed to hire employee directly and sign labor contract, the only feasible option is hiring through the PEO & Employment agency. WFOE is able to hiring employees in china directly.
Joint venture is also named as JV, it is a limited liability company that is formed through a partnership between a foreign-invested enterprise (FIE) and Chinese investors, who share the costs, shares, liabilities and the management of the joint venture. In China, a lot of business are not allowed for WFOE to operate, so many of the foreign investors choose to form a JV with their Chinese partners to legally operate the busines. Establishing a JV in China is complex, time consuming, cost is also very high, usually a law firm shall be involved.
Once you selected your company type, you can start to prepare the required documents to form the entity. It’s better for you to engage a experienced company formation vendor in China to complete all the process which is more fast and convenient for foreign investors.
| Steps | Government Processing Time | |
| 1 | Rent office space | Depends on Client |
| 2 | Apply for name approval and registration | 1 working day |
| 3 | Apply for a “5-in-1” business license from AIC | 7 working days |
| 4 | Carving chops for the new company | 1 working day |
| 5 | Customs and import-exit registration – Only trading WFOE | 10 working days |
The actual registration process and required documents are differ from city to city, and may update by the local government when starting a business in China. For more details about regulations for starting a business in china, the Chinese government has set up an excellent English-language resource at their Ministry of Commerce website.
After you have completed your company registration and obtained your business license, you must open your mandatory corporate accounts before you can officially begin doing business in China.
There are two kinds of banks foreign investors can choose. Local banks including but not limited to China Merchants bank, Bank of Communications, Agricultural Bank of China, Bank of China, Industrial and Commercial Bank of China, China Construction Bank. Setting up a local bank required the chief representative to be onsite to open it. A local bank can easily connect to the government tax and benefits account which allow auto deduction. Popular foreign banks in China like HSBC, CITI may not require the chief representative to be onsite, however, the bank fees are more expensive and might required more documents, most importantly, most of the foreign banks are not allowed auto payment by the tax and social benefits bureau.
Before you started hiring a Chinese employee in China, you shall open your company social insurance and housing fund account after your obtained business license and complete your bank account registration. These two accounts are used to complete the on-boarding and off-boarding process required by the local social security bureau and contribute the mandatory monthly social insurance and housing fund through the account.
After company registration complete, each company’s finance supervisor is required to go to the local tax bureau in person to complete the company tax account and corporate tax rate confirmation.
Intellectual property (IP) is a longstanding, critical concern for companies doing business in China. There is no formal protection for your intellectual property in China if you hasn’t register your corporate patents, copyrights and trademarks yet. Thus, it is very important for foreign companies to register your IP as early as possible after you start doing business in China.
Doing business in China required WFOE to complete mandatory operations based on local policies, which primarily covered the sectors of human resources and employment, as well as tax and accounting. You can complete the below tasks in-house or outsource them to a payroll and employment agency once you found the candidates.
To conclude, starting a business in China can be a complex process, doing comprehensive research and engaging experienced service provider is critical to ensure the China market entry is smooth and compliance.
JSC is a professional service company that assists foreign-invested companies in doing businesses in China.
Our core services China PEO and employment solution enables foreign investors to hire employees in China without setting up any company which allow them to expand into China market in days, not months. Our in-country local experts are also experienced in assisting businesses to compliantly establish their own legal entity in China.
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