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How to Get Your Money Into China 1/3/2011

So you have decided you want to invest in China and play your hand in one of the biggest economies in the world. What next? Setting up a business in China is a long process that requires meticulous record keeping, persistence and ingenuity. But don’t worry; it is possible! And if you are in the right spot at the right time, very profitable.

China’s protective nature of the RMB makes getting money in and out of the country somewhat of an art. But if you have the right plan of attack in place, you will not be baffled.

Once you know what location is right for you, based on your customer and/or your supplier base, you have to conquer the task of getting your money into the country to start up the business. After all it takes money to make money right?

First, make sure you know what type of business you will need to set up: a WFOE, Rep Office, Joint Venture or Partnership Enterprise. Our firm decided on a WFOE because of the flexibility, the ability to conduct profit-making activity and the protection granted by the government (equal to that of Chinese businesses). Each business is different however, and a rep office might be the right place to start for your company. Check out our partner company’s resource on Incorporating a Business in China for a nice start.

You need to know that there are limits on the amount of capital each business can invest in the country. The amount you plan to invest and the industry that you play in determines what regulatory agency must approve your investment and for how much. Once your investment gets approved then you will be issued a business license. Then you must gain approval to convert your investment into RMB by China’s State Administration of Foreign Exchange. This however can throw a stick in your spoke if you are not prepared.

Here is the catch: you can only get approved to convert your investment after you open a local bank account. But you can’t get a local bank account until you have approval to invest. The good news? There are multiple ways to get around this.

If you have someone that you trust in China, it may be a good idea to leverage their connections (and bank account) to get started. Or, you can also open what is called a pre-investment bank account, where companies are allowed to spend up to $100,000 to set up their business and gain investment approval. This money can also be applied toward your approved investment capital needed to open the doors. Whatever your decision, make sure your money is safe and if you have any doubts, there are professionals that can help you through every step of the process.

Resources:
Great New York Times Article

RMB Currency Converter

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Representative Office or WFOE in China? 11/8/2010

Most of the links below are to the various resources available from Understand-China.com.

Setting up a Representative Office always sounds like the easiest way to establish a business in China.  Years ago it may very well have been, but these days, largely due to Chinese government crackdown, it may make more sense to set up a WFOE or Wholly Foreign Owned Enterprise – especially if China is part of your company’s long term strategy.  Let me tell you why….

Rep Office Restrictions

Rep Offices in China are intended for the sole purpose of promoting a business in China.  Thats it.  And while the initial investment may be more attractive compared to the registered capital requirements involved with setting up a WFOE, there are still a number of other costs and limitations to consider.

  • You cannot conduct any kind of profit generating activity of any kind.
  • You are not allowed to hire employees directly – the Chinese Government forces you to use approved HR firms.
  • You are required to have a Chief Representative that is responsible for managing the day-to-day operation.
  • An Office is REQUIRED.  (usually you will need to sign a 12 month lease in a Chinese government approved building)
  • You will be subjected to annual audits, which means you will either a) need a bookkeeper, or b) need to hire an accounting firm to reconcile your books.
  • Last but not least – You are required to pay taxes……10% on all expenses.  If your annual operating budget is $200,000 your annual tax bill will be $20,000.

Wholly Foreign Owned Enterprises (WFOE) a.k.a. Foreign Invested Commercial Enterprises (FICE)

WFOE’s allow for maximum flexibility.  When you set up a WFOE in China, you essentially have the same incorporation status as any Chinese domestically owned company.  In addition, as a legal entity, you are permitted to conduct business transactions (as long as it is within the scope of your business license of course), hire employees, etc.  You also have the flexibility to setup your office in the building of your choosing.

See also:  Incorporating a Business in China

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Where should you set up a factory in China? 9/30/2010

Good Question.  That’s something that most companies struggle with at first, and something many companies struggle with after they set up a factory.  I recommend avoiding the latter by doing your research.  China is slightly larger than the United States in total land area and has cities (some more desirable than others) scattered throughout the country.  I often use this example to help people begin this conversation:  If you were an automotive manufacturer, would you be better off setting up your factory in Detroit or South Beach?  Obviously in Detroit.  Detroit would provide a skilled labor force, companies in similar industries, a pro-manufacturing regulatory environment, local supply chains, etc.  As such, I recommend thinking about the location of your existing facilities first.  What works?  What hurts?  Then you can begin to look for similarities in China and begin to narrow down investment locations.

Most foreign companies end up in the greater Shanghai area or in the greater Guangzhou area.  This is largely because these are the major manufacturing regions that have invested heavily in infrastructure.  These regions may both be places you want to consider, but I recommend doing additional research as you may find that another region will be far more suited to your industry and may offer more attractive investment incentives as a result.

Start with your customers.

Locating a facility down the street from your customers is always a good idea.  I recommend using Google Maps or Google Earth to map out all of your customers on a map of China.  This will help you to identify regional groupings that exist.

Focus on your competition.

After you know where your customers are, take a look at your competitors.  If you find that your competitors are all located near your customers, there might be a reason for this…

What about your supply chain?

This may be one of the most critical factors to take into consideration as you evaluate different regions and go through your site selection process.  It is extremely important to make sure that your supply chain can support a facility in a certain geography.

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