Facts to be known before establishing a business setup in china

Here are some facts which must be known before establishing a business set up in China:

  • In China, the family name precedes the given name, which is occasionally followed by the second name or the western equivalent of a first name. Some Chinese will switch the order of their names when they are dealing with foreigners. In addition, married women rarely take their husband’s family name.
  • Chinese usually conduct business over lunch and dinner, and deals are often concluded over a meal. Entertaining is a critical part of Chinese business culture.
  • You have more than one option for a local presence – WOFE, Contractual Joint Venture, Equity Joint Venture, Representative Office, or a local representation by a third party.
  • Carefully define your business scope – Scope must be defined so as to be permitted and encouraged by China National Development and Reform Commission.
  • Select the right location for operations.
  • Confirm the minimum registered Capital – based on the judgement of your business scope and operation scale.
  • Integrate commercial clauses in the Articles of Association to maximize profit repatriation – The AOA is to be submitted to local government agencies for approval and filling during business license registration.
  • Fully understand employer’s responsibilities and liabilities – China issued the new Law of Labour in 2007 which specifies issues on employment contract, redundancy, etc. You also need to be aware of the mandatory employee welfare and benefits so as to include such costs in the budget.
  • Conduct thorough due diligence and credit check on your joint venture partners – Your partners may not be what they claim to be. Chinese have a business culture to show their wealth and status and look financially viable but live on bank loans and personal debts.
  • Develop a comprehensive local employee management system – A sound and robust employee management system will encourage the engagement and commitment of local staff and avoid potential risks.
  • Never give a Chinese person a clock as a gift. It denotes to attend someone’s funeral.
  • Business cards printed in both Chinese and English should be presented and received with respect in accordance with Chinese custom at all business occasions.
  • Courtesy and good manners are appreciated by the Chinese and are fundamental in any business discussions and negotiations. Patience is great asset in dealing with these people.
  • Make friends first, do business later – You may have to take several trips before getting the contracts signed.
  • Don’t take their saying “YES” literally to mean affirmative – They have a habit to say yes to show that they are paying attention to you. In such a context, the word “yes” does not mean that they agree with what you say or that they agree with your terms.
  • Superstitions and Numbers: The number 4 rhymes with ‘death’ or ‘failure,’ number 14 rhymes with ‘sure to fail’, ‘sure to die’, so avoid these numbers. The number 3 rhymes with ‘growth’ and welcomed to business people, and number 8 rhymes with ‘prosperity.’ Number 168 reads in Chinese to sound like ‘forever prosperous’ a definite crowd pleaser.
  • Food and beverages, Travel and transport, IT and telecommunications, Minerals and energy, Environmental protection, Building construction products and services are few of the major industry sector currently experiencing rapid growth.
  • According to the Chinese Company Law, every business entity must deposit a certain amount of money equivalent to its registered capital reported to the registration authority into a specified bank account. This capital injection has to be audited by a certified public accountant and the money in this account can only be used for the company’s business activities.
  • The minimum amount of registered capital required for a JV or a WFOE starts from USD100,000 while for companies in some specific industries, this minimum registered capital requirement can be much higher.
  • Do your “due diligence,” well.
  • Check the reliability of the data on your partner or customer from independent sources.
  • Be careful, you can lose a lot of money if you make a great deal with the wrong partner.
  • In addition to creating proforma balance sheets, spend some time at the beginning of a project to create scenarios of what you will do if things go wrong. Try to anticipate possible problem areas. If you can’t find any, hire somebody who knows well about the potential problems to help you.
  • Create a strategy to deal with potential problems. Have an escape strategy for each stage of your project, even though you do not plan to use it.
  • Chinese have a high regard for rank and seniority. The Chinese will be impressed by and are usually more attentive to senior representatives of foreign firms. Ranking your company can help to impress the Chinese, especially if you are the biggest or the oldest.
  • If you are dealing directly with a customer in China, make sure you receive cash for full payment first or use a letter of credit (L/C) to receive payment.
  • Be careful – as Chinese insist that your senior executive travel to China immediately to sign the contract with them in person and request money prior to the trip to pay for a reception in your honour, and/or, once in China, they request money or goods to “grease the wheels” with local officials.

– They insist to pay you later

– Their telephone numbers are always busy or never answered during business hours.

– They have no English speaking staff although they claim they have been in the import/export business for years.

In today’s connected world, where customers research purchases online and seek recommendations from friends and family, it is in the best interest of most small businesses to have a vibrant and interactive social media presence.

What other points do you have to add to the list? Please leave your viewpoints in the comments.

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