Shenzhen is the best choice for doing business in China. Situated in the Pearl River Delta, Shenzhen is the first Special Economic Zone since China carried out reform and open-door policy 30 years ago. Shenzhen has an area of 1953 square km’s and a population of more than 10 million. Shenzhen is the best city both for living and working in China as well as the fastest growing city in the world. In Shenzhen you can enjoy the sound infrastructure and the intensive industrial chain for trading, manufacturing and value investment. Since Shenzhen is bordering Hong Kong, you can also take great advantage and opportunity from the “one country, two systems” policy.

 

Foreigner or Foreign company can set up a Shenzhen company as china market entry strategy

  

Types of business presence in China: 

 

Before starting up a business in China, you have to know what are the options. Foreign Investors generally establish a business presence in China in one of four modes: Wholly Foreign Owned Enterprise (WFOE); Representative Office; Joint Venture and Hong Kong company

 

 

Wholly Foreign Owned Enterprise (WFOE) is a Limited liability company wholly owned by the foreign investor. WFOE requires registered capital and it’s liability of equity , can generate income, pay tax in China and it’s profit could be repatriate back to investor’s home country. Any enterprise in China which is 100% owned by a foreign company or companies can be called as WFOE.

 

 

Representative Office (RO) is a Liaison Office of it’s parent company. It requires no registered capital. It’s activities would be: product or service promotion, market research of it’s parent company’s business, Quality Control liaison office etc in China. RO generally is prohibited to generate any revenue nor generating contracts with local businesses in China.

 

 

 

Joint Venture (JV) is a Limited liability company formed between Chinese investor and Foreign investor. The parties agree to create a entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. JV usually been used by foreign investor to engage the so called restricted in areas such like: Education, Mining, Hospital etc.

 

 

Hong Kong Company will be used mostly special purpose vehicle (SPV) to invest in mainland China. Hong Kong is one of the fastest sites to embed the company. Although the HK company is not a legal person in mainland China (Main land China and Hong Kong, see the $ country, two systems), to foreign investors, especially investors in Europe and North America, the company decided to invest in Hong Kong or the creation of the SPV in China.

 

 

After China joined the WTO, which allows foreign investment in most industries in China’s establishment of WFOE in China is the first version of a foreign investment corporate structures in place in China Rep Office facility in the Middle tax time, an effective licensing system, so more and more investors use to invest in Hong Kong holding company mainland China, this offshore company carries on business in China.

 

 

 

A growing number of SMEs have established an international presence in China to source products / services directly to China or to enter the Chinese market. However, given the peculiar nature of local regulations and business environment in China, it is important to be proactive and fully prepared before the existence of a strategic move in China on your own instead.

 

Here are some “must-knows” before you set up the business in China:

1. You have more than one option for a local presence in China. Your China presence may be in the form of a wholly owned foreign enterprise, a contractual joint venture, an equity joint venture, a representative office or a local representation by a third party (local secretary/representation service companies).

 

2. Carefully define your business scope for the China presence. China National Development and Reform Commission may prohibit, restrict, permit or encourage your business set-up based on your business categorization and scope. Hence it is critical to carefully define your business scope so as to be permitted or encouraged to set up the presence.

 

3. Select the right location for your China operation. China abandoned its preferential tax rate for investments of foreign companies from January 1st 2008. However, some areas still offer local preferential policies for foreign investors in terms of land leasing/procurement, staff recruitment and management, local tax etc.

 

4. Confirm the minimum registered capital for your China operation. The Chinese government requires certain minimum registered capital for various types of businesses. However, local Industry and Commerce Administrations may decide on your minimum registered capital based on their judgement of your business scope and operation scale. You need to confirm with local government agencies the minimum registered capital through local contacts before taking any other actions in case they require an amount far above your financial resources available for the China operation.

 

5. Integrate commercial clauses in the Articles of Association to maximise profit repatriation into Australia. You may have commercial arrangements between your Head Office in Australia and the subsidiary in China in order to guarantee maximum profit repatriation. However, some arrangements must be included as part of the Articles of Association to be valid. The Articles of Association is to be submitted to local government agencies for approval and filing during business license registration. Hence, you must incorporate necessary clauses in the Articles of Association in the first instance.

 

6th To understand the responsibilities and obligations of the employer in China. China has issued a new 2007 labor law, which subjects the employment, redundancy, etc., without prior knowledge, set this Act, you may end up spending a lot of time and money on expiry of the contract in accordance with the performance of employees, such as the structure of the contract wrong. They must also be aware of a mandatory employee welfare and benefits, so they include the cost budget.

 

7. Conduct thorough due diligence and credit check on your joint venture partners. Your partners may not be what they claim to be. China has the business culture to show their wealth and status by driving luxurious cars, wearing  prestigious watches and owning an impressive factory. Hence your Chinese business partners may look financially viable and well connected but, as a matter of fact, live on bank loans and personal debts.

 

8. Develop a comprehensive local employee management system. It is a hard job to recruit the right staff in a foreign country. It is even harder to effectively manage the local staff in a foreign country. A sound and robust employee management system will encourage the engagement and commitment of local staff and avoid potential risks. You may include reporting and communication policies, staff training, performance assessment, remuneration, career management and employee management manual in the system.

 

Business set-up in China is a big project by itself, which requires financial and time commitments, business management knowledge and China expertise. Identifying a competent agent to manage the complex process will be a cost and time effective way to avoid potential pitfalls.

 


Article Source:China Sourcing Blog

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