Doing Business In China 22609

The Largest Consumer Market in the World

Doing Business in China

Brought to You byWuyi University and the

Maricopa Community Colleges

Jiangmen City

Presentation

1. Governmental issues.

2. Minimum required registered capital.

3. The Chinese accounting system.

4. Guanxi.

5. Starting and running a business in China.

This presentation will discuss…

How to establish overseas investment enterprises in China

Step 1: Application (Letter of Intent)

Step 2: Feasibility Studies

Step 3: Develop Contract and Articles of Association

Step 4: Application for Approval Certificate

Step 5: Registration with governmental authorities

Minimum Registered Capital for Foreign-invested Enterprises

The minimum amount of required registered capital varies with the type of business.

$8 Rmb = $1 US

Production enterprises: Rmb500,000 ($62,500 US) Commodity/wholesale enterprises: Rmb500,000

($62,500 US) Commodity retailing enterprises: Rmb300,000 ($37,500

US) Technology development, consulting: Rmb100,000

($12,500 US) Legal entities other than an LLC: Rmb30,000 ($3,750 US)

Invoice Management

Invoice Management

All legal transactions are registered with an official Invoice.

Only “Running Ghosts”* do business without an Invoice. *Illegal merchants who take your money and run when police arrive.

Invoices provide an audit trail for taxation purposes.

Dealing “under-the-table” can create serious problems.

Major Taxes

Value-Added Tax: (No US Equivalent)

Consumption Tax: (US Sales tax)

Business Income Tax: (US Business tax)

Individual Income Tax: (US Income tax)

Financial Reporting and Tax Compliance

The Chinese accounting system is similar to that of the United States of America.

Financial accounting and reporting is directly linked to the tax return.

Business management has little freedom over choice of accounting system

like in the United States.

Guanxi is Important

Guanxi stands for any type of

relationship

Guanxi is also thenetwork of business

relationships thatsupports one

another

The Chinese are not for sale.

How Guanxi is Established

First: Guanxi is NOT based on money. Treating someone with decency while others treat him/her with disrespect will create good Guanxi.

Second: Always being trustworthy no matter what happens establishes good guanxi. Chinese are much more inclined to do business with people they trust.

How Guanxi is Established

Third: Frequent contact with each other fosters understanding and emotional bonds. The Chinese feel obligated to do business with their friends.

Gifts Reinforce Relationships

It is natural to give small gifts to people we like. Such gifts are not

bribes.

Building Guanxi

Honor and observe traditional Chinese Holidays.

Spring Festival: Only retail businesses and restaurants remain open.

The Spring Festival is the most important

festival for the Chinese people.

Family members get together, just like

Christmas in the West.

Honor your FriendsThe first five days after the

Spring Festival are a good time for relatives,

friends, and colleagues to exchange greetings, gifts

and chat leisurely.

This is not the time to talk business.

Mid-Autumn Festival

Chinese Thanksgiving.

It falls on the 15th day of the 8th lunar month,

usually in October.Contact your friends!

Don’t believe everything you hear

Construction cranes are known as the national bird.

Things are changing so rapidly stories more than a few years

old may not be relevant.

China is Huge

What works in

one province or city might

not work in another.

Things are changing

Young college educated

Chinese are much more aggressive than their elders.

Many Chinese now understand

international business.

Guanxi alone will not guarantee success.

Guanxi is based on mutual respect – not favors.

Guanxi is usually a personal relationship between

individuals.

Use in-house staff to develop Guanxi.

Consultants who promise Guanxi may be loyal to someone

else.

Language

Language alone is not enough. Many successful foreigners

speak Chinese, many do not.

China has many dialects. The Yuan alone lists Mongolian, Tibetan,

Uygar and Zhuang.

The closer an employee is to the customer the more important it

is to speak the customer’s dialect.

Consistency

Guanxi is personal. Frequent top

management changes destroy Guanxi and

wreak havoc.

Set and work towards reasonable goals.

Be sensitive. Causing loss of face may cost a customer, an employee

or a market.

Flexibility

Do not over standardize. Develop

products and services that meet local needs.

Chinese customers do not care about

powerful engines.

This Audi was designed for Chinese

customers.

Patience

Being a “Near-follower” may be

better than being a “first-mover.”

Have a sound business plan and detailed

understanding of the market.

Do “Due Market

Diligence.”

Think Win-Win

Develop Guanxi before negotiations begin.

Chinese negotiators may make unreasonable first

demands to find out what is reasonable. Walk away!

Chinese courts may not enforce unfair contracts.

Contract Development

Jargon and slang will be misunderstood.

Take detailed notes to record what was decided.

Anything that will affect the bottom line must be clearly

detailed in the contract.

Protect patents: In China a patent belongs to

the first person to file in China – not the inventor.

Attitude

“Many Chinese will never admit they are

wrong. This rarely fazes a person who wants to

succeed in China.”

Make sure the entire family is well situated

and engaged.

Government Relations

Know government policies and procedures.

Develop relationships with key officials. A good

reputation is at least as important as having good

written documentation.

Do not assume bribes are needed to make things

happen.

Graft

The Chinese culture is not corrupt. The Lt

Governor of a nearby Province was recently

executed for corruption.

Have more than one person involved in all

major transactions.

Property

There may be significant economic advantages to locating in an Economic Technical Development Zone (ETDZ).

Make sure the zone is officially recognized by the central government. Local tax concessions may be illegal.

Staffing

Make sure there are accurate and detailed job

descriptions and selection criteria before advertising

for help.

Guanxi is personal and takes time to develop.

Put the right team in place and make it attractive for

them to stay.

Staffing

Choosing language skills over job skills may be a

crucial mistake.

There are many University educated

Chinese who have language skills, job skills and relevant

business education and experience.

Staffing

Using an employment agency may be helpful given

the need to comply with Chinese law.

Everyone is issued a hukou that allows them to receive

benefits in a specific location and a dang’an that enables them to work for a

specific company.

Salary Ranges

Salaries for white-collar workers in Beijing, Guangzhou, Shanghai and Shenzhen shows a remarkable range.

Foreign invested firms average 58,539 Yuan

($7,079 US) MBAs average 70,654 Yuan

($8,543 US) Computer-related industries average

44,102 Yuan ($5,333 US) _______

www.china.org.cn/ english/2001/Jul/15731.htm

Salary Ranges

Registered lawyers, accountants and medical doctors averaged

42,995 Yuan ($5,199 US)

Secretaries and administrative assistants, translators and office managers average 26,017 Yuan

($3,146 US)

Men earn 1.2 times more than women

A nice home costs about 160,000 Yuan ($20,000 US)

_______ www.china.org.cn/ english/2001/Jul/15731.htm

Localization

Local control is a major goal of most multi-

national firms.

Promoting someone from within before they are

ready disrupts progress.

Mentoring is the key to successful localization.

Perspective

America, China and Europe are about the same in size and

market potential.

America and China are alike in terms of national identity.

Both use betterment of their citizens as proof they have the

best political system.

China is more like Europe than America in cultural and

language complexity.

Macro Issues

WTO implementation and compliance are increasing

Chinese economic opportunities.

Reform of State Owned Enterprises is increasing

productivity..

Macro Problems

Counterfeiting and Intellectual Property compliance are

recognized as problems and the government is trying to

enforce these laws.

Controlling pollution vs. economic development. Citizens are starting to

demand a safe and clean environment.

Macro Problems

The one-child policy will make it difficult to support an aging

population.

Privatization of the healthcare system has

made it difficult for some persons to obtain good

healthcare.

Government

Stability is the central theme of all central

government policies.

All major decisions are hotly debated.

The military is under firm control of the civilian

government.

Risks

Growing unemployment as State Owned Enterprises

are privatized.

Rising crime rates as disenfranchised people try

to survive.

Growing urbanization and the growing rural-urban

income gap.

Risks

Pension reform may “break the bank” as the population

ages.

Lackluster public consumption limits economic growth.

Lessened government spending might limit

economic growth. Some of the biggest projects are done.

Opportunities

China has an 80% rate of literacy. Citizens are

employable.

Development of Western China will create new

economic opportunities.

Chinese people save a large percentage of their money and will spend it once they

believe prosperity will continue.

Summary

It takes five steps to establish a foreign-invested enterprise.

Minimal registered capital is required.

Invoices are important and corruption is punished.

Chinese accounting standards are very similar to those in the United States of America.

Guanxi is an important part of doing business in China.

Enterprises that succeed have done “due market diligence” and have followed a sound business plan.

Most of All

Most foreign invested

enterprises make money in

China.

Thank you very much.This presentation was developed by Tang Tang of Wuyi

University in Jingamen City, China and John Bradley of Estrella Mountain Community College in Phoenix, United

States of America