10 things to know about starting a business in China

10 things to know about starting a business in China

Hao Liang and Cheah Sin Mei
Hao Liang and Cheah Sin Mei
Singapore Management University
July 21, 2020

China is the largest economy in Asia and a magnet for businesses that aspire to tap its vast and growing consumer market. This promising business landscape, coupled with the government's active efforts in attracting foreign investors, makes starting a business in China extremely enticing. 

So, how do you start a business in China? Here are 10 things that you need to know before plunging into China. 

#1 Know What Keeps China Going Strong

When starting a business in China, understanding how the country works is crucial for a good start. Having a knowledge of China’s traditions, culture and government policies will set you in the right direction for success and equip you with the right strategies to engage the authorities, business partners, suppliers, employees, clients and consumers in China effectively.   

#2 Know that China is Not a Homogeneous Market

Apart from understanding the country's customs, traditions and policies, knowing how the Chinese market works is the next important step. The China market is enormous in size, scale and diversity. It is made up of many submarkets with distinctive demographic, economic and cultural characteristics. 

#3 Know China’s City-Tier Classification 

China is made up of 613 officially recorded cities and has developed a classification system that ranks the cities by criteria such as city development, market trends, tax policies and incentives. Some organizations have developed their own classifications. The tiered system provides a reference point for businesses to assess which submarkets are the best fit.

#4 Know the Legal Structures for Business Registration

There are various legal structures for the registration of foreign businesses in China. Do your research to understand the pros and cons, and have your lawyer review the options to see which best suits your needs.  

  1. A Wholly-Foreign Owned Enterprise (WFOE)
  2. A Contractual or Cooperative Joint Venture (CJV)
  3. An Equity Joint Venture (EJV)
  4. A Representative Office (RO)
  5. A Foreign Invested Partnership Enterprise (FIPE)

#5 Know How WFOE Works 

The most popular legal structure for setting up foreign businesses is the Wholly Foreign-Owned Enterprise (WFOE), due to the flexibility it offers. 

WFOE is a business established by foreign parties without direct involvement from a Chinese investor. WFOEs are allowed to hire both local and foreign employees and can engage in business activities across China without the need for third-party operators such as distributors, importers and factories.

WFOEs must appoint a sponsor or an authorized company to handle the business registration and submission of the necessary paperwork to the Chinese government. 

#6 Know that You Have to Submit A Business Feasibility Plan 

To register a business, you must submit a business feasibility plan to the government for approval. This business plan must include details such as your proposed business location, scope, products, number of employees, budget and projected revenue. 

#7 Know the Minimum Registered Capital for Your Business to Operate in China

The registered capital refers to the total amount of capital that the company’s shareholders must contribute to a foreign-invested enterprise registered with the Chinese government. 

Typically, the government has a set minimum depending on the scope, nature and operation scale of your business.

#8 Know China’s Accounting & Tax System 

Once your registration to start business in China is approved, your company is required to comply with China’s accounting standards and procedures. Taxes will have to be reported on a monthly as well as quarterly basis. It is advisable to hire an accounting agency with the necessary expertise. 

#9 Know About Intellectual Property Rights in China 

Secure and protect your company’s brand identity and intellectual property by registering your trademarks, copyright and patents as soon as possible to avoid any conflicts and disputes. Whether it's a Chinese business or a foreign business in China, this policy will ensure that every business' property rights will be protected and recognized by the government.

China is a first-to-file country. This means that the first person to register and file the trademark gets it legally. Trademarks filed in other countries are not recognized in China.

Monitor trademark filings that are regularly published by China’s trademark office. The trademark applications are published for businesses to oppose if there are any infringements before they are approved by the authority. 

#10. Know How to Harness the Power of Digital Marketing 

Digital marketing is a must to reach China’s consumers. When studying how to do business in China, this marketing approach is surely among the top considerations that every business owner must follow. Here are some relevant facts and figures about digital marketing in China, according to MarketingtoChina.com:

  • China had more than 854 million Chinese internet users in 2019, 54 million more than the year before.
  • 99% of these 854 million are accessing the internet through their mobile devices, making China a “Mobile First Nation.”
  • The country has an internet user penetration rate of 61 percent. 
  • Chinese consumers installed an average of 56 mobile apps on to their smartphones, much higher than the global average of 30 apps.
  • In 2018, China’s online advertising reached 491.4 billion yuan and is expected to approach 800 billion yuan in 2020. More than 80% of China’s total online advertising market is for mobile phones. 
  • Chinese consumers love their short videos, with 820 million monthly active users of short video apps in 2019. 
  • It is estimated that 70 percent of Chinese born after the millennial generation will purchase products or services directly on social media, underscoring the importance of key opinion leader (KOL) marketing.
  • In 2020, it is expected that brands will increase their investment in KOLs; more than 60% of advertisers will invest in KOL marketing.
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