Doing Business in Mainland China

Doing Business in Mainland China



Forms of Business Entities

1. Joint Venture
Joint venture is allowed to carry out manufacturing and sales operation in China. It is permitted to sell products through its own sales network.

1.1 Equity Joint Venture
Company, with limited liability, set up by a Chinese company and a foreign participant is an equity joint venture. The parties share profits and losses in proportion to their respective contributions to joint venture's registered capital. Starting from 2001, equity joint venture are governed by the Law of the PRC on Joint Ventures Using Chinese and Foreign Investment.

1.2 Co-operative Joint Venture
The Law of the PRC on Chinese-Foreign Contractual Co-operative Enterprises govern co-operative joint ventures. A co-operative joint venture is similar to an equity joint venture in many respects, and many of the same regulations apply. However, principal features that distinguish a co-operative joint venture from an equity joint venture include the following:


A co-operative joint venture does not have to be a legal entity.
The concept of registered capital is less clear than in the case of an equity joint venture.
Participants of a co-operative joint venture are allowed to share profit on agreed basis, not necessarily in proportion to capital contribution.
During the term of the venture, the foreign participant in a cooperative joint venture may recover its investment, provided that the joint venture contract specifies that all fixed assets will become the property of the Chinese participant at the end of the joint venture.
2. Wholly Foreign-owned Enterprise
Under the 1986 Law of the PRC on Enterprises Operated Exclusively with Foreign Capital, foreign companies are allowed established wholly foreign-owned enterprises (WFOEs).

WFOE is treated as Chinese limited liability entity wholly owned by a foreign investor and is not a branch of a foreign company. However, in accordance with state policies and the Foreign Investment Catalogue, WFOEs are excluded in certain industries.

3. Representative Offices
Representative offices are normally set up to carry out liaison work of its parent office overseas. They are limited by regulations in establishing manufacturing operations or sales network in China. Special tax rules are applied to representative offices.

Registration Requirements
Foreign investors must obtain various government approvals to undertake investment projects in China. These include the approval of Ministry of Foreign Trade and Economic Cooperation (MOFTEC), and that of the ministry responsible for supervising the industry to which the project belongs.

1. Joint Ventures
The foreign investor and its Chinese partner must apply to MOFTEC, or one of its local branches (the "approval authorities"), for approval to set up a joint venture. The law requires MOFTEC to decide within three months whether to grant approval. If the joint venture is approved, it must be registered within one month with the State Administration for Industry and Commerce (SAIC) to obtain a licence to start business. An equity joint venture is regarded as having been officially established after this licence is issued.

2. Wholly Foreign-owned Enterprises
The approval and registration requirements to establish a wholly foreign-owned enterprise (WFOE) are similar as those for joint ventures, except that there is no joint venture contract.

3. Foreign Representative Offices
Representative offices are normally set up to carry out liaison work for the parent office overseas. The decision by MOFTEC should be issued within 30 days from the submission of the required documents. If the application is approved, the foreign company will obtain an approval certificate from MOFTEC.

Required National Participation
When China launched its economic reform programmes in 1978, foreign investors were required to form joint ventures with local Chinese enterprises. This requirement has been relaxed over the years; today, foreign companies are permitted to have a majority interest in joint ventures or to establish WFOEs in certain sectors.

Generally, no specific percentage of local participation in Sino-foreign joint ventures is required. Exceptions exist for certain industries in accordance with specific government policies.

Foreign Exchange Control
The renminbi is supervised by the People's Bank of China (PBOC). The exchange rate is based on the market demand and supply through the inter-bank foreign exchange market. The PBOC announces the exchange rate each day and may intervene in the market in order to stabilize the rate. The US dollar/reminbi exchange rate for the period 1994 to 2002 has been approximately 1:8.3.

At present, the renminbi is still not a freely convertible currency. However, China has made a significant move toward free convertibility by lifting controls over current account items. In December 2001, it committed not to place any restrictions on current account items unless the International Monetary Fund (IMF) is in agreement. China is the first country to include IMF regulations into the WTO Protocols.

Taxation
Tax treatment that applied to foreign enterprises are different from those to domestic enterprises. They are governed under the Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises.

Taxable income is computed at a gross income less deductible expenses and outgoings, including losses. Such a calculation is consistent with international tax practices. The standard national income tax rate for a foreign enterprise, which is engaged in business operations or production activities, is 30%. These enterprises also pay local income tax at 3%.

Intellectual Property Rights
To protect intellectual property rights, China has been working to develop a legal framework for the past two decades. In compliance with WTO requirements, China is expected to come up with a more comprehensive legal framework and an improved law enforcement system.

Trademark - trademark registration is subject to Trademark Law and the Implementing Regulations of the Trademark Law. Foreign-invested enterprises (FIEs) may apply for trademark registration in China either directly or through trademark agents.

Patent -patent registration is subject to both Patent Law and the Implementing Regulations of the Patent Law. The State Intellectual Property Office is responsible for patent work nationwide. FIEs applying for patents may either submit their applications directly or appoint designated patent agents.

Staff Recruitment
Under the Labour Law, all enterprise must sign labour contracts with each individual labour. The contract forms the basis of labour relation between the enterprise and the employee. All mandatory terms and conditions to be included in a labour contract are stated in the Labour Law and other relevant regulations.

Source : Deloitte

The exchange rate now is USD1=RMB8.09~8.11, and for cash you exchange at USD1=8.02~8.03. But the RMB rate may fluctuate or, eventually, strengten compared to the USD.

Pat, I also thank you very much for all of the great information which you've posted. It's been very helpful. I've been thinking of what I can bring over there which I could sell and what liscenses I need.

@@ Pat-Togo.
I am glad that i got in to this section ,first of all, i have just gotten some of my questions answered.
I have got a little prob, though  ,lets say that i am more intrested,in the WFOE prospect.In this point  am Hoping to open my own stall lets say in Guangzhou.What is the legal entity required?Do  i need a certain VISA for me to open my own stall in this place.
What are the Government approvals that are needed/required to be undertaken in investing in my own business and not a partnership.
1.Do i need a Z-VISA.To get a legal cert in getting a stall,or in importing goods from my country for sale?
--I currently have an F-VISA that is valid for six months.2.Do i have to be hooked up with a chinese,as a partner so that i can get some legal documents?
Getting a stall is cheap.But i don't know the procedure.I need to know if it is possible for me as an individual to start my own stall selling my own goods ,in a legal documentation way in Guangzhou or wherever,without necessarily hooking up with a chinese as a partner.If in this will there is a way then what should i do?
Thanks ,cheers.

Actually you should see it the other way around. You don't need a Z visa to invest in China, in fact, investing will allow you to apply for a Z visa in the name of your entity. So you can start the registration procedures of your business under a F visa and when it's done apply for the Z visa. The other way to get a Z visa is to be working for a local or foreign invested company, and there is a whole procedure for the application (health certificate, application for the working permit etc.).

As for your questions, retail is legally not opened to foreigners yet in China (unless new regulations came out recently that I am not aware of). Therefore you cannot have legally under your name a stall and small shop the way Chinese can. That's why for retail businesses the only way for foreigners to do it is through a Chinese partner who will register it under his/her name, with all the risks of expropriations that goes along. For foreigners they can set up a business in China only through two ways: representative office of a foreign company (which is not allowed to provide services and products and cannot issue invoice), and WOFE/FIE which require a certain amount of registered capital (USD30,000 at least, but this may vary depending of the industry; I know of some people who registered their WOFE in Shanghai with a capital of just 10K RMB). But if you plan to invest more than 30,000USD for your shop then the WOFE is the way to go.
For bringing goods in China I don't know much about it but I guess for smaller quantities there should be no problem provided you pay for the taxes.

Thanks for the information and the advice.As for importing items from Africa to china,i know of a couple of companies that do this,The one that i like the most is near xuanxi building in Guangzhou it has branches in Hongkong and Shanghai.They load stuff per 45kgs its prity cheap.And ones transportation of items from China to Africa is optional,Air-Air/Sea-Air.The taxes dont call for much.One can either pay the full ammount from here to home.Or  Basicaly pay it from home.

Thanks to both of you, you're replies are very informative.

Hi pat,thnx for your useful information.
if u have a WFOE with a registered amount of say $10K,will the money be given back to you?.
Your reply is appreciated. Cheers!!

Collins

Hi pat,thnx for your useful information.
if u have a WFOE with a registered amount of say $10K,will the money be given back to you?.
Your reply is appreciated. Cheers!!

Collins

The registered amount is the actual amount you have invested in the business. It is what you will use to pay rent, purchase equipment, pay salaries etc until your business becomes profitable. You don't actually pay it to the government and it is not held by the bank either. But you have to prove that you have invested that much, sometimes not at once, you can do it several times by adding up smaller amounts.

But when you use an agency to register your business here the fees can be pretty high, the government fees themselves are acceptable.

Thanks a million guys that has been a real inspiration.Thanks alot.I think that it is always important to learn and understand the progress and process of doing things.Starting a retail shop has been a thing of question in my mind  >:(and due to all of you am sure that i have learned a beneficial .Thing or two.Cheers.

Thanks Pat

TO SALLY:

Back in 2004, Foreigners are allowed to enter retailing industry, according to Measures for the Administration on Foreign Investment in Commercial Fields, article 3. (http://www.fdi.gov.cn/pub/FDI_EN/Laws/law_en_info.jsp?docid=51248), the retailing, wholesaling and import and export are open to foreigners ever since.

aside from retailing, if you want to know what business are open to foreigner, what is permitted, what is limited, check the following law at  http://www.fdi.gov.cn/pub/FDI_EN/Laws/law_en_info.jsp?docid=51089.

if you have any other questions, please submit your question to  http://www.chinawhy.net/asksteven.asp

Dear Pat,

Glad to see you here. Pls let me know your contacts datial INFO. thanks!