Starting a business in China / Visa considerations

[James3]

I'm an American, and have never been to China. I know of a couple of Americans who live in China and run a business where they purchase products from China and ship them back to the U.S. They warehouse some inventory there on the mainland, and they have several Chinese employees.

I'm unable to contact them myself (i.e., just heard them being interviewed by an entrepreneur) but I have several questions:

- I'm interested in moving to Harbin for a while and taking lessons as described at http://www.1to1mandarinworkshop.com (and as mentioned in another topic/thread on this forum)

- While there in Harbin, taking Mandarin lessons, I'd like to start an import business, where I scout out products in China to sell back in the U.S., and then move forward with the subsequent purchasing, shipping to the U.S., warehousing in the U.S., followed by final sales and delivery of the merchandise.

- On what sort of visa would I need to be in China?

- In the U.S. when you're going to start a business, you have to decide if it's going to be a sole proprietorship, or a partnership, or a corporation (be it an LLC, or a Subchapter S, or a C Corporation.)

When starting a business in China, how does this work? I mean, first of all, do you even have to tell anyone? If so, who do you tell? Or, is it more like asking for permission? Do you apply for permits or something?

For example, in the U.S., anyone can start doing business in their own name. If my name is John Smith, and I want to buy and sell merchandise, I can start a business called John Smith without much fuss or paperwork. If I want to call it John's Imports, however, now I have to file a DBA (Doing Business As) with the appropriate authorities (probably the Department of Revenue and maybe the Secretary of State.) Come tax time, both scenarios are pretty much treated the same (i.e., you don't need to file a separate return for the business.) If I want to form a partnership, or corporation, then more paperwork is needed, and it gets a little more complicated.

What are things like in China? Are there similar choices? And does one end up paying taxes in China on the revenues? Also, since no sales would be made in China, there technically wouldn't be any revenue generated in China. Does that matter?

- Do the answers to these questions depend on how much of the operation is housed in, or is located in, China? For example, maybe at first everything is located in Harbin, as I slowly start and ramp things up. Maybe there is no "U.S. based operation." Instead, maybe I warehouse a bit of inventory in Harbin, and ship everything to customers from there. Then maybe later, as my Mandarin improves, as does my business, and I've made the acquaintance of several suppliers, maybe I feel comfortable with relocating (for portions of the year?) back to the U.S.

- I've read several posts regarding visas, and having to get them renewed or extended. How does this play out when you own a business in China? Has any foreign business owner, who owned a business in China, needed to renew their visa but been denied?

[deremifri]

I am in no way an expert on this topic, and hopefully you will get more knowledgeable people to help you, but the quick run down is: 

 

Opening up a business in China is anything but easy, unless you are able to somehow magically produce a Chinese ID-card with your name on it. 

 

As far as I know, you usually have three choices: 

Opening up 1) a WFOE (wholly foreign owned enterprise),2) a Joint Venture with a Chinese company, 3) or a Representative Office. 

 

Option number one requires an investment capital of 100,000 American dollars. 

WIth option number two the requirements are not that clear, the amount of money you need to invest varies. 

Representative Office: No capital requirements, however a Representative Office can not issue any receipts, and therefore is not able to actually make money. 

 

As far as I know, getting a visa once you do have a business, is no problem. 

Here you can start researching: http://www.chinalawblog.com/2009/12/how_to_start_a_business_in_chi.html

[James3]

Thanks deremifri for the info. This is a lot more than I had. I wasn't even sure where to start. I clicked on that link and started reading, and this is definitely the kind of info I was looking for.

 

Another question I came up with in the last few minutes, though, is...at what point does one even need to make an official declaration that they're starting a business? I mean, for example...while I'm taking Mandarin lessons, and starting to make a few contacts with Chinese suppliers, I've not really done anything yet to even merit the trouble and expense of forming a business, right? I haven't bought any product, and I certanly haven't made any sales. I've just spoken to a few suppliers. So why would anyone go to the expense, yet, of forming a business?

 

But eventually, I will have spoken to numerous suppliers, and perhaps asked them to send samples of their product(s) to me there in Harbin. At this point, is there any need to "have an official business"? Or can I simply continue moving forward, with my business startup, as a tourist there in China (on a tourist visa, let's say) all the while taking some Mandarin lessons on the side?

 

Moving a little farther forward...assume by now I've collected a number of samples of products from various suppliers...and have found one I really like and think will sell. So I decide to order a small quantity. Maybe 100. Can I place an order with a Chinese supplier, and have 100 units of product shipped to me there in Harbin, without raising any eyebrows?  Am I still legit to be in China with a tourist visa, taking Mandarin lessons, and yet buying product on the side (and having it shipped to where I'm staying?)

 

I'm probably splitting hairs, but how does one find out where the line is?  At what point will it get a person into trouble, if continuing to move forward in the natural progression of a business startup?

 

The next step, naturally, would be to sell the first 100 units and ship them out. Depending on the product, and the customer(s), I would potentially be fulfilling the orders one at a time.  In the U.S. lots of cities have a local UPS, FEDEX, or DHL, where you can show up and ship something out. I imagine in Harbin they at least have a local DHL, where I could show up and send out a customer's order. If I showed up everyday to ship out one or more orders, is that going to raise any eyebrows?  Is anyone going to show up at my door, asking to see my visa, and give me a hard time when they see it's not a business visa, but a tourist visa?

[imron]

Option number one requires an investment capital of 100,000 American dollars.

Not sure where you got this figure, but the minimum capital requirement for a WFOE is 100,000 RMB, not USD.  Different locations may have extra capital requirements depending on the type of business you wish to start.  You will need to contact the local Administration of Industry and Commerce in the jurisdiction where you wish to incorporate the company in order to learn their specific requirements.

[James3]

imron thanks for the clarification, and also for the tip to contact the local folks.

 

And deremifri no problem, you were careful to state that you didn't consider yourself an authority. Hey, at this point...100,000 of any currency is out of my budget! lol

[carlo]

I guess rule no. 1 is to keep costs as low as humanly possible while of course not breaking any laws. Then you can scale up one step at a time. 

 

No one here can give you legal advice, but from a business perspective, you have to think long and hard about your business model. How are you going to get paid? What kind of value are you providing to whom? How many days a year do you need to be physically in China to carry out these activities? Are you going to need employees from day one? Could you team up with someone else who is already there? What relationship do you want to establish with your importers? Do you immediately need a warehouse? (unless you mean 100 tracked excavators, I guess probably not).

 

Opening and running your own WFOE is a major headache - can't remotely be compared with incorporating a business in the US. Generally speaking, China is not a very friendly place for small foreign-funded startups. Red tape, regulations, administrative costs, personal liability, financing costs, etc will bring you many sleepless nights. So you can find ways of testing the waters first without going all in, it's certainly wise to do so. 

 

(By the way, a fun read for all would-be entrepreneurs in China is The China Twist).

[daveonhols]

I don't know anything about starting a business in China, but when I was in Hangzhou, I knew someone (Chinese) who did this sort of stuff freelance as their job.  You can make decent money if you are successful, and the best part is that the business would appear to scale very well.  However I think it is very difficult.

 

Talking about scaling the business, imagine if you are exporting copper bolts from China to the US, if you know the supplier and know the buyer, all you are doing is acting as a middleman and taking some commission.  Selling ten bolts is the same as selling a thousand bolts is pretty much the same as selling a million.  So you can make money if you are successful.  But again, I've never done this, although it was my friend's job and we discussed it quite a lot.

 

The downside is, what value are you, as a middleman, adding?  From what I can see, the main competitive advantage you can have in this area is being bi-lingual.  Many / most factory owners do not speak English, and many / most buyers in the US don't speak Chinese.  So that is why people who are bi-lingual can make money in this.  My friend was an English major.

 

From what I can guess, you don't actually need to be a business to buy things in China and export them to the US.  So much stuff is bought from China and shipped to the US every day, I can't imagine everyone importing like that also has a company in China, but obviously I don't know.  Pretty sure my friend was taking payment through a company registered in HK for what it is worth.

 

The downside to this business plan is that it is very competitive and hard.  How do you do quality control on the goods manufactured in China?  Do they meet whatever rules and regulations are required for importing into the US or wherever?  Can you prove that, with a certificate that is not faked?  What will you do when the factory in China does a runner with your money and does not deliver?  That *will* happen.

 

The business you are getting into is called "waimao" or 外贸，if I am not mistaken.  You can buy books easily in China which will tell you the ins and outs of this.  There is (or was) an interesting (and eye-opening) bbs on the topic, I think if you search for FOB shanghai you will find it.

 

Good luck!

[Silent]

 

I'm probably splitting hairs, but how does one find out where the line is?  At what point will it get a person into trouble, if continuing to move forward in the natural progression of a business startup?

I don't think there is a correct answer to this. Sometimes people act way outside of the rules and no-one cares. Sometimes people act well within the rules and still get hassled by the authorities. If you want a good indication of the rules you best consult a lawyer. In reality it may very well depend on what you're trading. If you trade cheap common consumer goods you probably can get away with a lot. I don't think anyone cares a bit if you buy 100 pairs of jeans or 100 e-readers. However if you're going to trade high tech stuff with some military edge you may very well run into trouble for just asking about them. You should also consider the consequences of running into trouble. With jeans or e-readers you can play the ignorance card and the consequences are unlikely to be severe. On the extreme end of the spectrum, with highly sensitive technology, long jail sentences are likely if you don't stick to the rules.

 

I think that using common sense goes a long way and when in doubt consult a lawyer.

[James3]

Carlo, thanks. I like your rule number 1. Also, good questions, suggestions, and comments. Yeah, I think it would behoove me to get some legal advice from a Chinese attorney. I pulled up that book, and it sounds pretty relevant.

 

Daveonhols, interesting story about your Chinese friend who did this for a living. And thank you too for some good questions to consider. All the more info the better, and this continues to round out my picture of the landscape.

 

Silent, isn't that the truth...that there doesn't seem to be a hard and fast rule, or correct answer.  Your suggestion of consulting a lawyer is sounding more like what my next step should be.

 

Thanks for taking the time to read my post and offer your comments and suggestions.

[Mindmaxd]

Hi james I work in an Import&Export  company,IMO you can start from middleman like daveonhols said,it is easy for you to start and learning experience.There are many foreigners do this job in guangzhou,What they need to do is help their countries' businessmen find suppliers.check factories and sent samples,if the order done they got their 佣金 commission.I know some guys do this kind of job.

 

I think at first you don't need housewares,cause you don't have that many goods to store and it also cost lots of money,the key of international business is you have clients,if you have clients and all other things are not a problem,so first you need find client and then they will ask you to find some goods they want,and you help them find suppliers and check the goods quality.Most cities here have DHL and you can use them to sent samples or you can use SF it is a chinese local express,it will be cheaper.

 

Well fix some goods at first and then find clients in your country and then ask do they need import goods from China,and then find  several suppliers to sent samples choose the best one,of course you need compare the price,and then sent samples to your clients let them confirm the quality,if they confirm you can go on the order,talk about the price and quantity with the final supplier.

 

Something like this,hope it will help you.

[James3]

Mindmaxd, thanks for taking the time to read this thread and respond. Cool, so you work in an Import&Export company. Awesome. You know, the more feedback I get, the more comfortable I am becoming with doing this. And you're right about finding clients or customers. Without them, I absolutely won't get anywhere. 

 

But this points out an opportunity I maybe had not considered. I was thinking strictly of the scenario where I would purchase the products myself, maintain some sort of inventory (whether in China or in the U.S.), incur whatever costs were needed for sales and marketing, and basically be in charge of the entire purchasing, and sales and distribution cycle. For example, if I asked a manufacturer to create a new product for me, which based on my research, I felt would sell, then I created a marketing campaign (online or otherwise) to sell it, and then saw to the delivery myself.

 

But as I read replies like yours, if I understand you right, it sounds like there's plenty of people who are already doing this exact same thing (which totally stands to reason.) Now I understand there's a need for someone who can first find clients or buyers, and do all the legwork of checking out factories/suppilers, doing some quality control on the products, requesting samples and choosing the best one, then sending the final sample to a client who confirms it's what they had in mind, then work out the quantity and price and negotiate with the chosen supplier, and eventually collect a commission. 

 

This sounds like it would be a great way to start out, and get a feel for the whole process. And then maybe, on down the road, after I acquired some experience doing this, I could branch out on my own.

 

I've got a language exchange partner from Harbin who's going to put me in contact with a local attorney, where I can get some very specific questions answered, but this is great for brainstorming. This give me more to think about. Thanks again!

[deremifri]

Hey James, great to see that you eventually got some actually helpful repies.

 

Concerning your visa question:

 

I have found this site (an agency dealing with company registrations in China), which lists the several business structures 

http://www.pathtochina.com/types_of_business_china.html

somewhere at the bottom there is a chart which points out the visa you can possible get.

 

This site also talks about an option called Partnership Enterprise, whose advantages is supposed to be the following:

"

1. No requirements on minium registered capital; "

http://www.pathtochina.com/reg_pe.htm

 

However, I was not able to find much information on that business form, since it seems to be rather new.

 

Maybe you can ask the lawyer a few questions about these things too, and report back here. Would also be of interest to many of us ;)

[Mindmaxd]

About where you could purchase the products yourself,I think at first you can use 阿里巴巴   http://www.alibaba.com/   (this is the english version,we mainly use the chinese one: http://www.1688.com/)，It is very convenience to search your target products.well don't forget to choose supplers when you search,cause there are many I/E companies.

 

You understood right,there already have many chinese and foreigners do this kind of thing,most at south part of China,like 义乌and广州，cause there are many factories,The more good suppliers they get,the easier their work becomes.

 

You can ask a manufacturer to create new product for you,but most time it need you to pay for the initial production cost like the mould cost.or each side pay for half.If you want to make long term cooperation with that supplier you can consider this.(If you pay all the cost don't forget make a contract to indicate when the cooperation over the mould give back to you.)

[zhouhaochen]

If you have a legaly registered company in China with at least 100,000 CNY registered capital, getting a visa for yourself is not a big issue, at least in Beijing.

The problem is getting that company registered and make it profitable is a different question, but once you have the company, you can get yourself a visa.

[James3]

deremifri, hey...thanks for starting the replies off!  And yeah, I'm getting lots of good suggestions, and things to think about.  I'm very appreciative for all the helpful info I'm getting.

 

Cool, that's a nice list of business structures. I'm definitely going to have to include this list in the topics I discuss with an attorney, as well as the visas available. Thanks again for your time, and help.

 

The Partnership Enterprise option sounds interesting. I especially like the low capital requirements. Hope this lawyer can help offer some insight. And yeah, you can be sure I'll report back here. Enough people have offered their perspective, advice and help, that would be the least I could do.

 

 

Mindmaxd, this alibaba site looks very much like what I was hoping to find. Thanks!  And the Chinese one, well, I bet I'll be able to read that after some serious lessons in Harbin. :-)

 

 

You understood right, there already have many chinese and foreigners do this kind of thing, most at south part of China, like 义乌and广州，cause there are many factories,The more good suppliers they get, the easier their work becomes.

 

Hmm...I'll be taking lessons up in Harbin. I wonder if, at some point, it would make sense to relocate down south, to be closer to these factories, to facilitate communication.

 

And after reading all this so far, I'm thinking I would be prudent to wait on asking a manufacturer to create a custom product for me. At least, until I get some experience under my belt. It would be less of a stretch to start out as a middleman, and grow to the point where I'm comfortable creating a new product...than to start there.  And that's a nice heads up on being sure to spell everything out in the contract. Thanks again for the helpful info Mindmaxd. I appreciate it!

 

zhouhaochen, thanks, this gives me something to shoot for. Initially I'm just not going to have that much capital to invest. But on down the road, maybe so. In the U.S., some people still feel like the "C Corp" is the gold standard...as opposed to the Limited Liability Corporation (LLC), or partnership, or a Subchapter S Corporaton. That may be because of some privileges this form of organization or legal entity offers. I'm starting to wonder the same thing about the version or option of business structure in China which requires a minimum of 100,000 CNY registered capital.

[Mindmaxd]

I am so glad I can help you. .

 

There is another business also you can do,compare with import goods from China it will be easier for you I think,that is export american goods to China, I/E international business is two sides business so you can do them at the same time.What you need to do is go some american's good supplier,when you find chinese  suppliers maybe you will find some of them need import things for you country,if you have their goods' information that will take you some orders.

[James3]

Mindmaxd, nice to hear from you again. You know, funny you should mention that, because one of my language exchange partners who lives in Beijing just recently was telling me that many parents in China buy imported baby formula (i.e., the powdered kind) because they might not trust local products. She also was encouraging me to consider what products might be exported from the U.S. to China. I'm hoping that, as I begin studying Chinese more intensely, in China, that I'll become aware of more opportunities like this. Thanks for confirming what my Beijing friend was trying to tell me!

[Matty]

The Partnership Enterprise doesn't have a minimum capital limit any more, however you still need to prove you have enough money to run the business successfully. You also really need to be very careful about who you choose to be your business partner.

 

I'm unsure about importing/exporting, however some industries require you to apply for certain certificates which may require a higher minimum capital than opening the business itself. I've found 1,000,000 RMB to be a common and disturbing number.

 

You'll definitely want to relocate to the south when you do this. Be aware that you will want to open your business in the city where you're actually operating.

 

You will need something like a copy of your passport notorised in your own country and than have that copy notorised again by the Chinese embassy in your own country. (There is theory are way around this, but if you can get that before you go it would be helpful).

 

You'll need a Bank Reference Letter from a bank outside China showing that you have (a) enough money (b) a good banking history.

 

All non-Chinese documents will need to be translated to Chinese.

 

Be aware that my wording is probably not 100% accurate, but that's a few of the complications I've come across.

 

You also should consider your visa, if it expires while before you're all set up, it could become troublesome.

[James3]

Matty, thanks for the info. I think for now, the Partnership Enterprise is out for me.  But this may come in handy in the future. And yeah, I guess the same caution I've heard many times in the U.S. regarding going into business with a partner applies in China as well - be really careful who you choose as your partner.

 

Oh, so there might be some industry specific certificates. Interesting. I'll be sure to check into that when the time comes.

 

I know it's hard to think of everything ahead of time, but I'm trying nonetheless, lol.  Relocating to the south is seeming more important than I originally thought.  And it makes sense, now that you mention it, to not try to officially start a business in Harbin since I plan to relocate later. Instead, just wait until I'm settled in the south.

 

Interesting comment about having a copy of my passport notarized. I'll check into that before I go.

 

Thanks as well for mentioning the Bank Reference Letter, and the need for all documents to be translated into Chinese.

 

A lot of details to consider, but all this is helping ensure I'm aware of as many requirements as possible. And yeah, that would suck if one were to let their visa expire right in the middle of all this. A word to the wise.

[deremifri]

@James

 

Why is the Partnership Option out for you? Is the reason your aforementioned risk when partnering up with a Chinese?