Expert Tips for Business Success in China

As most western countries remain mired in financial difficulties and, therefore, less attractive for businesses, China is emerging as the new go-to jurisdiction for success. Its fast-expanding middle class, solid economic expansion, and series of government reforms have made it a high-potential jurisdiction for success.

So, if you are thinking of taking your business to China, you are on the right track because other top giants, including Boeing, Volkswagen, and Starbucks, among others have already established business presence in China. But while it is true that the jurisdiction is a great one, challenges such as competition and cultural barriers still abound. To help you navigate through these challenges, here are some pro tips to guide you.

Target Specific Audiences with Your Products

When entering the Chinese market, whether through a wholly foreign-owned enterprise (WFOE) or joint venture (JT) among other types of business formation, many investors tend to think of it as a single market of 1.3 billion people. But this is not collect, because the market is segmented.

China lacks a single consumer profile, and businesses should look at it as a fragmented unit with customers having very diverse needs. Therefore, you need to be as innovative as possible to understand the targeted segment.

Have the Right People in Your Organization

While this might sound obvious when doing business anywhere, it is even more crucial when you are running a company in China. Notably, the Chinese are people who are strongly attached to their cultures, and you must rhyme your enterprise with them. The best way to do this is ensuring that you have the right staff. So, in addition to hiring the right people, it is also important to rope organizations such as promotion bodies and trade associations to understand the local dynamics.

Learn the Business Culture

To operate a business in a jurisdiction with a history dating thousands of years back requires you to have a clear grip of the local cultures and etiquette. In one of the leading books about China, China Uncovered: What You Need to Know to Do Business In China, the author correctly argues that you need to master the culture of operating in China. So, you and your staff better get acquainted with local customers, appreciating hierarchy, and always address people based on their designation, especially when dealing with government representatives.

But the good thing is that the Chinese are pragmatic and will want to work with you if you have something that they want. So, make sure to have a well-defined system for China market research and ensure to only take to the market what the people want.

Develop Partnerships

When taking your business to China, the truth is that building business networks can take time. Therefore, you should work towards forging partnerships with other businesses for success. For example, you should develop close relationships with operators that already have established supply chains. These networks will not just distribute and sell your products, but can also help to gather clients’ feedback for success.

If you are getting into the Chinese market, the first step is company incorporation. Then, you need to get as creative as possible to understand the targeted market, have the right staff in your company, and deliver what people want. Also, make sure to have dynamic strategies that allow your business to progressively respond to clients’ needs.

Chinese Accounting Standards: What You Need to Know When Opening a Business in China

Do you want to register a company in China? Over the last couple of decades, it has undergone a major transformation that has made it race past other jurisdictions to emerge the leading manufacturing and global investment hub. But when registering a company in China, it is important to appreciate that it uses a different form of accounting, the Chinese accounting standards (CAS).

Understanding CAS is important to ensure you do not get into conflict with the law. So, here is a deeper look at this method of accounting to help you understand the differences with the international financial reporting standards (IFRS) and how to get it right for your business.

The Main Difference between CAS and IFRS

Although China has done a lot of work to try and streamline its CAS system with IFRS, there are still remarkable differences that you need to get right after opening a company in China.

• The methods employed for fixed assets valuations are different.

If you have been using IFRS for accounting back at home, you might have noted that you are allowed to choose whether to employ the historical-cost valuation or re-evaluation method. It is up to you to decide. But with CAS, the only method allowed is the historical-cost valuation technique.

• Some rules in CAS are more detailed

When using CAS to handle books of accounts in China, some of the items that are deemed common in the People’s Republic of China are more detailed compared to IFRS. Here, we will demonstrate with an example. When two companies that are controlled by one entity are merging, you must restate the figures according to CAS. However, IFRS is silent on how to handle such items.

• Implementation of changes from IFRS is not guaranteed

When international accounting standards have new updates, they are updated immediately in IFRS. However, CAS which is controlled by the Ministry of Finance in China, does not immediately implement it. Instead, it evaluates whether they are in the best interest of the country before recommending implementation. But it can also reject them.

Using CAS in Your Business

For most managers and investors who are used to IFRS, is not uncommon to easily land into trouble. For example, consolidating books of accounts between the parent company and the Chinese subsidiary is likely to be a challenge. So, here is what you need to do when utilizing CAS.

• The first step is ensuring to understand CAS well and implementing it well to avoid getting into conflict with the law.
• To make it easy to consolidate the books of accounts for the Chinese subsidiary with those of the parent company, you need to translate them first.
• We must indicate that the Chinese administration takes matters of accounting and taxes very seriously. Therefore, you need to work closely with the Ministry of Finance when there is an issue so that it is resolved well and on time.

Although the Chinese accounting standards closely resemble IFRS in so many ways, it is important to understand them well to avoid getting into conflict with the law. More importantly, make sure to closely work with accountants in the ministry of finance to resolve any issue that might arise when implementing them.

Special Benefits of Taking Your Business to China

Today, China stands out as the leading global manufacturing hub specializing in almost all types of consumer and industrial products. The jurisdiction has also become a high-potential economic hub that entrepreneurs can look to for success. So, if you are thinking of taking your business offshore, China should be on top of your list. Here are the main benefits that you will get by registering a company in China.

Supportive Government Policies

Over the last few decades, the Chinese administration has been very proactive in crafting and integrating business-oriented policies for both foreign and local enterprises. The most notable is the support for creativity and innovation for entrepreneurs that have a high-potential plan. The impact can be seen in the thriving manufacturing and transportation industries.

To encourage multinationals to enter and do business inland, companies are charged lower tax rates compared to those along the coast. Indeed, the tax policies in China for companies, including wholly foreign-owned enterprises (WFOE) are getting better year after year.

A Thriving Entrepreneurial Environment

The favorable business policies in China have also led to a boom if new entrepreneurs. This is why it is very simple to find local investors and partners in China. The business ecosystem is very facilitative, and the resources are abundant, irrespective of whether you target rural or urban areas.

At this point, it is also important to note that the Chinese infrastructure is highly developed. In cities such as Shanghai and Beijing, the tech infrastructure is one of the best in the world. Therefore, incorporating a company in china is like firing it to success.

Many Growth Opportunities

Unlike many economies, China has many opportunities for business for growth and success. Whether you are in the manufacturing, agriculture or telecoms, among others, the government is always looking for better strategies to open new opportunities for growth. For example, the country has entered into many bilateral trade agreements that allow companies to sell both locally and globally too. So if you are keen, the opportunities for growth will always be there for you.

Stability

Another advantage of setting a company in China is economic, political, and economic stability that has been outstanding for about 30 years. These three are considered the best pillars for supporting business growth. They make the business environment easy to predict so that investors can lay out strategies for growth and success. With these pillars, business crippling occurrences such as hyperinflation have not been heard in the country for a long period.

Availability of Highly Skilled Workforce

When the Chinese administration adopted a pro-business approach, it understood that there would be a high demand for talented workers. This is why it supported local universities that produce thousands of skilled workforce every year. Besides, the country also encourages its citizens studying abroad to come back and help their country. So, no matter whether you are a tech niche or service-based industry, rest assured of getting the right talent in the country.

When you take your business to China, every system is tuned to help you succeed. So, you only need to ensure that the enterprise is properly incorporated, develop the right products, and market them well for success.

What are the Main Types of Company Formations in China

For about three decades, China has stood out as one of the most stable jurisdictions in the globe. This, coupled with the government’s pro-business approach, has made the country a high-potential jurisdiction for foreign investment. This is why it has become the leading manufacturing hub in the globe. Furthermore, investors in China can easily export and import to different countries because of many bilateral trade agreements with different countries.

To take advantage of the supportive business environment, you need to take the first step: selecting the right business format. In this post, we will tell you about the three main types of businesses that you can incorporate in the People Republic of China.

Wholly Foreign-Owned Enterprise (WFOE)

WFOE is a type of company structure where the ownership is 100% by a foreigner. This means that you have total control on the business decisions, from who to hire to the expansion policies. Because most WFOE companies take the form of limited liability companies, it implies in the event of a problem such as loss or bankruptcy; your liability is only limited to the shares you have in the company. Therefore, no one will come for the money in your personal account or other assets. WFOE is the most preferred form of business organization by foreigners.

Joint Venture

A joint venture is the opposite of the wholly foreign-owned enterprise (WFOE) in China. While you are allowed to have 100% shareholding in a WFOE, a joint venture requires you to enter into a partnership with local residents and register a limited liability company. Further, you are only allowed to hold no more than 49% of the company shares, while the Chinese partner takes 50+%.

When you go for a joint venture, it means that you cede control of the company to your Chinese partner. Well, this is indeed very risky because you do not have control over the company even in the event of poor management. But there is also a bright side.

Since you are partnering with a local partner, it is an opportunity to penetrate the Chinese market faster by using his networks. Therefore, you are sure of faster growth and success.

Representative Office

A representative office is another common type of business formation in China. But a representative office is completely different from a joint venture or wholly foreign-owned enterprise because it does not allow you to carry any business activity. This is why most companies that open representative offices in China are mainly interested in offering support or carrying market research.

Notably, the representative office is considered fully housed under the parent company back at home. Therefore, the foreign company is fully responsible for office operations and employment liabilities.

When you decide to incorporate your business in China, picking the right formation determines the extent of control that you will have when the operations start. Therefore, it is important to compare and contrast the different formations and select the ideal option. Further, you should consider working with professionals who have ample experience working in China to help you with business incorporation and early establishment.

A Deeper Look at Representative Office Formation in China

The Chinese administration has demonstrated that it willing to go to any length to grow its business-based economy. Whether you target opening a business in manufacturing or hospitality, China will no doubt have a spot for you to grow. But if you are not yet decided to incorporate a business in China, you should consider opening a branch office.  In this post, we will take a closer look at the branch office to determine what it is and associated benefits.

What is a Representative Office?

A representative office in China is a local branch of a patent company that is registered elsewhere in the globe. According to Chinese laws, a representative office is seen as an extension of the parent company, which remains fully responsible for its liabilities.

Although a representative office is limited to non-profit based deals, it is easy to set up and give a business faster entry and presence in China.

Special Benefits of Running a Representative Office in China

• You can Setup a Representative Office without any Share Capital

Unlike other companies such as joint venture and wholly foreign-owned enterprises, opening a representative office does not require you to raise share capital. This means it is a cheap, fast and reliable way of getting into the Chinese market.

• The Perfect Opportunity to Study the Market before Making the

When venturing into the international market, it is prudent to ensure you understand it well. By opening a representative office, you are able to take a closer look at the market, understand its dynamics, and make the best decision about joining it.

For most investors, representative offices are also used to identify potential local investors to partner with. Though the office, you can easily check the performance of the local companies and establish the most potential ones for the formation of a joint venture.

• Administrative and Auditing are Pretty Simple

When you decide to set up a representative office, the process is pretty simple. Within a couple of weeks, the office can be up and running. The number of staff required to run the office and associated costs are also low compared to running a wholly foreign-owned company. Besides, the auditing system for representative offices is also pretty easy because it involves only tracking the money from the parent company and where it is going.

• You Maintain 100% Ownership of the Representative Office

Because the representative office is considered a branch of the parent company, you have the opportunity to control it 100%. This means that you have total control on all the operations including, the hiring of staff and its operations.

A representative office is a powerful company formation that allows you to easily venture into the Chinese market and assess it before making the final decision. Because it is considered part of the parent company, it implies that you can easily form it and start operations within a short time. Therefore, do not just venture into the Chinese market without clearly understanding its dynamics. Instead, open a representative office to learn and get prepared for entry and rapid growth.

Answers to the Common Questions on Doing Business in China

Opening company in China is a dream come true for many entrepreneurs. But with a lot of information and misinformation today, many people opt to hold back as they seek answers to different questions running through their minds. So, here are the answers to the common questions that might have so that you can make the big decision to take your business there.

What are the Main Types of Company Formations in China?

When you decide to take your business to China, there are three main types of businesses that you can us. You can opt for the wholly foreign-owned enterprise (WFOE), joint venture, or representative office:

• A WFOE is a type of business formation that allows you to own 100% of the shares. This means that you have total control over the operations of the business.
• If you go for a joint venture, you have to enter into partnership with local people who must also own controlling shares or 50+% shareholding.
• Representative office. A representative office is a business formation which is considered fully under the parent the company back at home. Notably, the representative office comes with many limitations in that it is not allowed to do profit-based activities. Therefore, you can only do activities such as market study and offering support to staff.

What Special Benefits Do Investors Get By Incorporating their Companies in China?

China has gone out of the way to ensure that it builds and supports a thriving business-based economy. So if you are planning to incorporate a company in China, here are some special benefits that can help your enterprise to grow rapidly:

• The country has a highly developed infrastructure which can help your enterprise conveniently more raw materials and finished products to the target market.
• The Chinese administration has many supportive policies and systems such as its straightforward tax regime that allows businesses to grow and succeed.
• The large population in China provides a ready market for different products and services. Furthermore, you will be able to take advantage of the trade agreements that China has entered with different countries across the globe.

Can I Own a Company 100% in China?

Yes, you can.  You only need to open a wholly foreign-owned enterprise. Here, you have full control and can do business just like other companies opened and opened operated by the local residents.

What are the Best Areas for Investment in China?

In China, the areas for investment are diverse because of the large population, which is highly diversified. However, the government encourages investors who are in the tech and manufacturing to help drive the economy. This is why the tech sector and manufacturing industries have been thriving so much in the country. Other top areas for investment include:

• Building and construction.

How do I Enjoy Lower Tax Rates for My Manufacturing Company in China?

Many investors have been wondering about one thing: why is China attracting more investors, especially in manufacturing than its neighbors. China encourages more manufacturers to set their companies in the inland in order to spur equal growth in the country. Therefore, if you want to set up a manufacturing company, consider setting it up in the inland province to enjoy lower tax rates.