Your Guide to Starting a Business in China

Starting a business in China comes with its own particular challenges, from company designations to management practices. This simple guide is intended as a brief primer on all the elements you’ll need to consider to get your dream business off the ground!

Pick your business type and understand its requirements

Below are the five primary types of foreign businesses that are eligible to operate in China. Each has its own special considerations and registration procedures. Understanding the advantages and disadvantages of each is an important step to ensure that you know both your rights and restrictions when registering.

• Wholly-owned Foreign Enterprise (WFOE): WFOEs are the most common type of business founded by foreign entrepreneurs in China. Its advantages include a large degree of autonomy, use of foreign currency, and a relatively easy remittance process. The major drawback is that WFOEs are the most complex business type to establish and the process requires extensive documentation and proof of minimum capital in China.
• Equity Joint Venture (EJV): In a joint venture, you must register your business with a Chinese citizen partner. This structure will allow you to use foreign currency while flexibly deciding on ownership and equity sharing. The major advantage of EJVs are the protections that operating with a Chinese partner provide against regulatory changes. Their notable disadvantage is the challenge of coordinating and aligning expectations and aspirations with a partner who has more connections and know-how in a Chinese business environment.
• Contractual or Cooperative Joint Venture (CJV): Similar to an equity joint venture, a cooperative joint venture allows for risk and profit sharing between two companies that are recognized as a single legal entity. The main advantage of a CJV over an EJV is that they allow for more flexible contributions from both parties. However, CJV may face more regulatory restrictions, increasing the difficulty of registration. For more information, please refer here.
• Representative Office (RO): As the name suggests, the primary objective of a representative office is to serve as an outpost of a foreign company in China. While they are easy to establish and low-cost, ROs are severely restricting in their operational capacity. They are not allowed to directly make a profit, meaning that they are not allowed to accept payments, invoice, or issue contracts.
• Foreign Invested Partnership Enterprise (FIPE): As a recent addition to eligible business types, FIPEs offer an easy setup process and no minimum capital requirements. While these benefits are appealing, FIPEs can leave high-risk businesses or partnerships vulnerable, as partners are liable for risks and losses. For a more detailed description, refer here.

Businesses are typically required to demonstrate that they possess a minimum level of registered capital, an amount proportional to the company's size and type. Although regulations vary based on location, registering in advance can save you the hassle once you become operational. For further information on calculating your minimum capital requirements for your WFOE, check here.

Vetting joint partners

While registering with a joint partner is an efficient way to tap into a local understanding of the regulatory environment, it also carries significant risk. Make sure to carefully vet your joint partner, both for their business acumen and to ensure that their vision is in line with yours. Spend time learning more about their business history, personal experiences, and personality. It is in your best interest to do this vital legwork; putting in the time up front will limit the risk of conflict, or the chances of you becoming just another foreign business partner left empty-handed, further down the road.

Building best practices for your business

Establishing appropriate processes to protect your company’s intellectual property is a vital step in ensuring your business’ long-term success. Familiarize yourself with relevant Chinese IP law to ensure the appropriate protections for trademarks, copyrights, and patents. Additional information can be found here, but here is your quick overview:

• Trademarks: In order to protect your trademark, file with the China Trademark Office. You should include the name of your business in English, Mandarin, and pinyin. Carefully review and choose the product categories and databases when filing to ensure that you are accurately characterizing your product and that there are no duplicate trademarks.
• Patents: The State Intellectual Property Office (SIPO) is responsible for administering and enforcing patents. There are two forms of patent protection in China: invention patents (effective for 20 years) and utility models (effective for 10 years, intended for more minor innovations). You apply simultaneously for both on a single product.
• Copyrights: Copyright registration is not required in China but filing with the National Copyright Administration of China (NCAC) will provide you with additional protections. Applying through the NCAC creates useful records that can be used in the event of a dispute.

Assuming you have all the appropriate structures in place to protect your IP, make sure to set up an appropriate management system to not only meet the needs of your staff but also the local compliance measures around tax obligations and social security requirements.

For managing your staff, carefully consider appropriate training, performance assessment, and communication policies. As with any new business, establishing best practices will create a productive and supportive company culture and benefit your bottom line. Assuming that your office employs Chinese and foreign staff, take time to understand how differences in business culture may shape the expectations and responses of your employees.

Another substantial component of your responsibilities as an employer involves managing logistics: payroll, benefits, and compliance requirements. Should you be interested in learning about recent changes to tax obligations, additional information can be found here in Chinese or in English. This myriad of requirements can be confusing and intimidating to understand, especially as requirements can change and are often not well publicized. To understand and manage quickly changing regulations, it is easiest to consult or hire a licensed service provider. Outsourcing your administrative tasks will limit the time and frustration you experience when trying to keep up with shifting regulatory burdens.

READ: What You Need to Know Before Signing Contracts in China

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