5 things to consider when setting up a business in China

Author: Dewet Boshoff

Setting up a business in China

Setting up, starting and successfully running a business in China is a rewarding experience that many foreigners from all over the world come here to try their hand at.

Getting startedon this side involves planning and deciding on most of the things a normal business in the West would need to such as:

  • Type of China company
  • Location factors
  • Taxes
  • Corporate banking
  • Compliance with the law
In this blog I intend to run entrepreneurs through 5 things to consider when setting up a business in China. Let's jump right in!

1. Type of China company

Foreigners looking to set up shop on the Mainland (and Hong Kong) have a healthy amount of business vehicles to choose from such as a:

  • WFOE
  • Hong Kong Company
  • Representative Office
  • Joint Venture
  • QianHai Company

All of the different business vehicles mentioned above have their own unique set of advantages and disadvantages, different legal liability, maintenance costs, registered capital requirements, compliance requirements etc. so it is imperative that prospective business owners carefully weigh out their options when setting up this side. This will ensure that the type of company chosen will provide one with the most suitable platform to achieve their business goals in China.

2. Location

China is a massive country with a few prominent place for doing business the likes of Beijing, Shanghai, Guangzhou and Shenzhen. Much like the different types of companies, each of these cities come with their own pros and cons. Things such as the cost of labour, running costs of the business, proximity to container ports or a FTZ (free trade zone) and even the weather will influence one's decision on where to set up. It is necessary to do your homework regarding these various location factors and what kind of preferential treatment foreign companies can expect from the local government.

Alternatively, business owners can look at setting up a business offshore such as in Hong Kong to use it as a stepping stone for doing business on the Mainland. Registering a business here is less complex than doing so within the Mainland, and HK enjoys comparatively low tax rates.

Click here for more on the costs behind setting up a Hong Kong company!

3. Taxes

This is another one of those things that is intimately connected with the type of company that one chooses to register, as each business vehicle varies from the next. It is important to consider the tax rate as each cities or area differs. China has a plethora of cities or areas to choose from that enjoy both low individual tax and corporate tax rates. Some of these areas include:

  • QianHai - Shenzhen
  • Hong Kong
  • Hengqin - Zhuhai
  • Torch zone - Zhongshan
  • Free Trade Zone - Shanghai
4. Banking

Setting up a business in China requires one to set up a corporate bank account. This will involve deciding whether or not to set up an account in a local bank or an international bank. 4 of the 5 biggest banks in the world are Chinese. Some of the local banks in China include:

  1. China Merchants Bank????
  2. ICBC??????
  3. HSBC (Hong Kong and Shanghai Banking Corporation)
  4. Agricultural Bank of China??????
  5. China Construction Bank??????

5. Compliance with the law

As with any other place on Earth, ensuring that one's business is compliant with the law should be at the top of the list when doing business in China. It is a country that at times is infamous for its unclear corporate legal laws and their changes, most of which are first published in Chinese.

Foreigners would benefit greatly from enlisting the help of local experts/lawyers when it comes to company registration, tax and accounting audits, employing local employees etc. to ensure they stay up-to-date with any significant changes, and above all else, that their enterprise is compliant with the law.