starting a business in China

[mockingbird]

My partner is going to be completing her PhD in cross-cultural corporate communication, and I have completed a bachelor of social science majoring in communication and public relations and also a graduate diploma in education (yes, my partner is more educated than what i am >.< ), and were looking at prospective teaching/education opportunities in China, Japan and possibly even South Korea.

I am interested in knowing if China makes life difficult for foreigners who want to start a business in the country? And also about taxes. I've heard that the communist party taxes business owners pretty heavily in China which is somewhat of a deterrent to doing trade there, but obviously, the higher taxes is offset by the lower cost of living (rent, food etc), which i'd assume would be more expensive in Japan.

Any input would be appreciated!

[[欧阳江]]

As a foreigner, you can either open a WOFE (Wholly Owned Foreign Enterprise), JV (Joint Venture) or a RO (Representative Office) in China.

In order to open a WOFE and JV in China you would need to have a Required Registered Capital placed on a Chinese business bank account, you can later withdrawal it and reinvest it if you want. The required capital varies depending on your business scope and your business scope will be set by the government. The required capital may be as low as ¥30 000 but will most likely be five or ten times as much, adding to this is also the money you have to give your Chinese agent in order to go though the registration procedures.

As for a Joint Venture, you still have to go through the same procedures as open a WOFE but the required registered capital and risks will be divided by two. With a Representative Office you will be able to open an office in China but will not be able to conduct any "direct business activities". To open a school in China would be a direct business activity.

In short, China is not a good place for SME/MSE (Small and Medium sized Enterprises) but it's not impossible.

Anyway, if you haven't done it already you should first register a company in your own country. Why don't work with a good Chinese business partner (who are allowed to conduct business here) and invoice them from your foreign company?

[mockingbird]

hrmmmmm interesting.

Was that 30 000 RMB or Yen?

And do you know much about the taxes?

[liuzhou]

RMB is Yuan

Renminbi (RMB) is the name of the currency.

The yuan is the major monetary unit of RMB.

They are often used interchangeably in less formal situations.

[cdn_in_bj]

I believe he is referring to RMB (it's also the currency symbol for CNY/RMB).

The corporate income tax rate for both domestic and foreign corporations currently stands at 33%. For foreign corporations in special economic zones and economic and technological development zones the tax rate is less.

Come January 1, 2008 the unified corporate income tax rate for both domestic and foreign corporations will become 25%.

RO's are not subject to income tax, because they cannot earn income in China. Instead, they pay a 10% tax on their expenses.

[cdn_in_bj]

I'd also be interested in hearing from those who have started a WOFE or JV here.

Also, asides from the lower capital requirements, are there any other advantages of going with a JV vs. a WOFE? In the case of disputes in a JV, do the courts tend to favour the Chinese partner?

Thanks in advance. I realize that I have lot of reading/research to do...

[[欧阳江]]

Only this:

• VAT usually 17% (for businesses there is a "Business Tax" instead, at 3% – 20%)
  
• Income is taxed progressively at 5% – 45%
  
• Foreign companies are taxed at a combined rate of 33% (in reality much less)
  

[[欧阳江]]

Also, asides from the lower capital requirements, are there any other advantages of going with a JV vs. a WOFE?

Well, if you're aiming for the Chinese market, I guess a big advantage would be that you would have a partner who have already established itself here and (presumably) know the market much better. There are some JV success stories out there so obviously it works for some.

In the case of disputes in a JV, do the courts tend to favour the Chinese partner?

Although having improved a lot lately the court does not always judge by the law. From what I heard it's usually the part who pays the most who wins the case.

[cdn_in_bj]

Thanks for your reply.

I agree that local connections/knowledge is a definite advantage. But for a foreigner who has spent a good amount of time in China and has Chinese friends to help him out, would a JV bring about any other advantages? I think I read somewhere that a JV would be able to import products with less or no duties, but I have not found any sources to back this up.

[simonlaing]

Hey guys,

Also there are some businesses that have restricted ownership. (I was thinking of starting a school) the only way to be a WOFE is to only accept non chinese students (i.e. international schools)

Otherwise you have to be a joint venture for schools. Our initial deposit had to be at least 500,000 RMB of that we could take a loan of 300,000 against the deposit for other things. There were also regulations of professor credentials and the size of the school. Though these may have been Jiangsu regulations.

Another friend told me an Agency has very low requirements 10,000-30,000 RMB and an office, though your house can count as an office as well.

The government has a list of restricted industries and unrestricted industries. Each province also has certain regulations.

On going to court, if one partner has more relationship guanxi power that can influence the court. Recent years though Shanghai and Jiangsu have followed the law more closely. I am told Beijing and Shanghai the law law is decent too, though this is more rumor than actual stories I've heard.

Also if you want to take money out of CHina easily, it is best to have a Hong Kong account for changing money. Doing it in the Mainland was tricky before, now I am not sure if they have lossened the currency controls.

Good luck with the business tell us how it goes will you?

thanks,

have fun,

Simon:)

[mockingbird]

If the primary clients were to be corporate, but the services provided still of an 'educational' nature... do you think it'd strictly be classified as a 'school'?

[cdn_in_bj]

Thanks Simon. So there are rules on the types of businesses which can operate as a WOFE or a JV. That makes sense.

Having an account in HK is generally good for other reasons as well. How did you get the money to HK? You know there are limits to how much cash (especially RMB) you can physically take out of China. Or did you wire it over?

I don't really have a business in mind yet. I'm just trying to think of some investment options for my growing stash of RMB. Maybe the agency route (for what, I don't know) is a good way to start.

[simonlaing]

Hi CDN,

There are several Foreign started businesses (some registered in their wives names) that have done fairly well here in Nanjing.

There is a Skyways bakery that has been here for forever and expanded a few times.

They also own a luxury German style restaurant. A couple of people have done bars. But if you're aiming for Chinese clientele, being the boss often involves drinking. i.e. it is easy to become an alcoholic in this business.

My friend has started a dog/pet store/kennel. This is a competitive business, but people really love their dogs and pay up to 500 yuan a bag for some imported dog food.

I have heard of a couple for-profit english training centers being set up by westerners. It is competitive market so I am not sure how they are doing. (these are big investments and usually need several partners and their guanxi to succeed.) I

There are a couple of business consultant firms. They get around paying such a deposit by not having the word school or training in their official name even if a substantial amount of funds comes from there.

There are trading companies that are around to. On from spain importing electric bikes was pretty cool I thought. Also another selling supplements and powerbars to Gyms seemed to do really well as well. Most company are exporting ones though.

Before SARS I knew fairly successful guy who had a travel company in Shanghai. There is a market for non-traditional chinese traveling. They did things like Caving and actuallying hiking around beautiful places.

The discussion on home-stay placement companies could also have possibilities.

What kind of businesses were you thinking of setting up. If it will match teaching it would have to be in the luxury or entertainment market do you agree?

Have fun,

Simon:)

[cdn_in_bj]

Simon, thanks for sharing these good and interesting ideas.

Actually the homestay idea had crossed my mind, and yes that was from the recent discussions too.

I too agree that the English schooling is quite competitive already, but on the otherhand there is a huge market for it here. That said, I lack experience in this area and I'm also not sure I want to get into a situation where I'd be playing "hardball" with established/or local companies.

I am trying to think of something geared towards foreigners, or the importing of foreign products (but then I'd have to figure out how to deal with import duties/taxes).

I have thought about going the restaurant route as well, but I also lack experience in this area. I worry about the food supply chain and do not want to be responsible for people getting sick. I also do not want to be contributing to unhealthy eating habits. It's hard to think of something that would succeed given this criteria.

If it will match teaching it would have to be in the luxury or entertainment market do you agree?

I'm not sure what you mean by this? "match teaching" in what way? Are you implying that the teaching market is still very lucrative? If so, maybe I should reconsider.

[simonlaing]

Hi CBN,

What I mean is the private teaching company pays 8,000-12,000 a month. Outside of Shanghai, it is hard as a westerner to match that salary in the entry level unless you have a very useful skill like engineering. or pro-basketball skills.

My other friends at siemens, motorola and others even with decent degrees make only 5,000-7000 RMB a month.

(Oh where have all the expat job gone....) Stupid localisation.

There are some companies that have expat jobs, but they have usually worked in the US or Europe for 3-4 years before they have come over. (Usually these people never learn chinese to a high degree because their job is busy and usually stressful)

The good thing about western companies is that after 3 years and you get promoted your salary jumps, the bad thing is there is high turnover due to crappy bosses and over work.

One of the bar friends said that drinking till puking 3 nights a week he still only earned about 3,000 yuan net profit a month. Him and his fiancee together. (The capital start up was low, 15,000-20,000 yuan) but still a lot of work for not much compared to teaching.

I was thinking of a student house rental agency, though that would be dependent on certain periods of the year.

have fun,

SImon:)

[cdn_in_bj]

Hi Simon,

I see what you mean although I don't intend this to be my primary source of income, at least not to start. I basically am looking to do something interesting on the side, with help from local hires or friends if needed, and of course also with the goal of making it successful.

Regarding your comment about entry-level salaries for westerners, I feel that if someone fresh out of college came here with plans to make lots of money off the bat, then they came to the wrong place. If instead they want to learn about the language and culture, then obviously this is the right place to be. This knowledge could prove to be very valuable in their career planning. But I think it is better they get a few years of working experience overseas first before coming back to find that dream job in China.

My other friends at siemens, motorola and others even with decent degrees make only 5,000-7000 RMB a month.

I find this surprisingly low, especially for Shanghai (if that is the case). Are these hardware/EE type positions?

Even a receptionist/admin at a multinational here can make 3000-4000 after only a few years.

One of the bar friends said that drinking till puking 3 nights a week he still only earned about 3,000 yuan net profit a month. Him and his fiancee together. (The capital start up was low, 15,000-20,000 yuan) but still a lot of work for not much compared to teaching.

Definitely the type of business and the clients that are being targeted will play a role in this. I do like to drink but not that much... I have heard too many stories about the early generation of salesman working for big multinationals in the 90's, making money like it grew on trees but many of them are suffering from serious health problems now.

I was thinking of a student house rental agency, though that would be dependent on certain periods of the year.

That sounds like a good idea, I haven't heard of any other rental agencies specializing in the student housing market.

[shanghaikai]

cdn:

Send me a PM. I'd like to discuss your business aspirations further to see if there's an opportunity for us to work together. While what you've said here on this thread isn't much, I suspect we may have similar interests with regards to what fields we could potentially explore.

Cheers.

[gamequeen]

you guys i think is really the professional answer... ...

god..

good comment i think

[philipmarco]

I am in the education business and it has taken 2 years to set up and get the right licences and approval. It has been a nightmare. In the end I needed a Chinese partner who was able to use his guanxi.....without it dont even think of setting up here!

[shanghaikai]

I've been in contact with several people on this forum regarding a business several partners and myself have been setting up and are starting to launch. You'll note the link to our current website in my signature (if you have signatures enabled).

As per forum rules, I'm making this post as something of an announcement that I'll be pimping the link in my signature from now on AND also because I'd like to encourage anyone interested in possibly helping us out to please contact me. We have a lot of plans and require a lot of talent to execute so we're definitely looking for people to join us and help us succeed in our business ventures.

Feel free to e-mail me or PM me with your thoughts and ideas. I don't think I'm violating any rules with this post but if there are any objections from the admins/mods, please let me know. Cheers.