China Corporate Formation Services
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10 Steps to Starting a Business in China
1. Do your homework.
Lucky you. You're not the first United States citizen to break into the Chinese market, so you don't have to learn the tough lessons the hard way (well, not all of them at least).
"There's no reason to be reinventing the wheel on things people have done before that could be avoided," says John Frisbie, president of the U.S.-China Business Council, based in Washington, D.C.
Talk to people who have opened offices in China. Ask them how they succeeded and especially how they failed. It's not just the Americans you need to talk to, either. Frisbie says you should travel to China and start networking at local trade shows, as relationships are crucial to doing business in the country. A calendar of trade shows is available here.
Make sure you're informed about the state of the industry you're in. A lot of this research can take place from your own home. Check out the five-year plan that the Chinese government publishes, which details what types of businesses they're looking for.
2. Pick a location.
At this point, you have an entire country at your disposal, but you can't set your business down just anywhere and expect to be a success.
First, get to know the big cities. Shanghai, Beijing and Guangzhou are the major business, government, and industrial centers. The very nature of your business may require you set down in one of the big cities. If you're a tech company, for instance, Beijing may be the place for you. Find out where the action is happening in your industry.
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3. Choose an entity status
Before you register with the government, you need to decide what type of business entity to register. The most common for foreign businesses are joint ventures, representative offices, and wholly foreign owned enterprises. Each, of course, has its pros and cons.
A joint venture requires a partnership between a foreign business owner and a Chinese citizen. Though joint ventures may sound like the safest route, experts warn against them. Critics say the most common problem with joint ventures is no more than a classic case of "same bed, different dreams" syndrome.
4. Develop a business plan.
A detailed five-year business plan is crucial, because once the government approves it, you will be able to operate only within its guidelines. If you start offering a product or service that is not in your business plan, the Chinese government can shut your business down. The same goes for where and how you operate.
"Make sure your business plan is as broad as possible to allow the company to operate freely," says Collins. "U.S. companies expect to operate in a certain way here and they realize their business license may not allow them to do that."
While it needs to be broad, it should also be specific. Make sure you include your location, projected revenues, product or service description, expected number of employees and budget requirements in the plan.
5. Find a liaison … or several.
No matter how informed you are, you won't get very far without consulting a representative to register your business. According to Collins, there are tons of organizations in the United States that can help you navigate the complicated application process. Consult the U.S.-China Business Council or the Ministry of Commerce at the Chinese consulate.
Wong also suggests getting in touch with the U.S. Commercial Service office, which can direct you to local desks throughout China. All of these resources should be able to recommend a trustworthy international corporate lawyer for you.
6. Organize the necessary documents.
"There's the written laws in China and then there's the reality on the ground," says Harris. Nowhere does this theory apply more than when it comes to what documents you'll need to register.
Though the documents you'll need to register for a WFOE will vary from place to place, you can find an extensive list of what you might need,
7. Trademark your intellectual property.
Intellectual property violations are a big issue for foreign investors in China. Many U.S. manufacturers believe that because they have a trademark at home, it will hold up in China, but that's not the case. In China, the first person to register a trademark owns the rights to it, regardless of whether or not that person is the first person to use the trademark.
8. Find a bank.
This part should be quick and easy, since there are plenty of banks with a huge presence in China. Try HSBC, which is based in Hong Kong, or Bank of America, which you can find all over the country.
"If you're dealing with a bank that doesn't have any relationship with banks in the United States, it makes it tough to keep track of your money," says Wong. "You want to make sure you have a bank in the United States and a bank in China that has some sort of corresponding relationship, so your banking is more transparent."
9. Hire a staff.
Hiring in China is a delicate process, especially when it comes to hiring managers. Don't assume that just because a person's English is impeccable they'll be able to run the business properly.
"If all things are equal," Frisbie says, "the language skills can be greatly beneficial, but it's far more important to have a smart business person in that role who's going to run the company the way you want it run."
In Hoffman's case, he tracked down a Chinese public relations professional and asked that she come out to the company's headquarters in Silicon Valley to learn the ropes for several months. She then returned to China with all the company's values and practices in mind and started the business.
10. Take it slow.
Now that you're all set up, you have to manage expectations. If Hoffman's story about the recruiting ad proves anything, it's that things can move slowly in this fast-growing country.
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