A couple of decades ago, no foreigner would ever think of starting a business in China. Even if the desire was there, it would’ve been impossible with the communist government.
The authoritarianism of Chairman Mao placed the nation’s economy under a program of state control, crippling the massive agricultural force and rapidly growing factory industry.
Mao’s death in 1976 ushered in a new economic reform, the new government dismantled collective farming and again allowing private enterprise.
With China being the world’s most populous country, this economic shift has made it the world’s fastest growing economy. It’s certainly presenting itself as one of the most attractive places for foreign investors and entrepreneurs, the boom being described as a second industrial revolution.
Furthermore, the Chinese are eager to have foreign companies establish themselves on their home soil—they’re keen to learn from Western business strategies.
Before jumping into the practical steps of setting up a business, you’ll want to become familiar with some of the current shifts in Chinese economy. As of this year, China overtook France and Italy last year as the world’s largest consumer of red wine. Anything catering to the wine industry would be a profitable business to engage in.
China’s cotton textile industry is the largest in the world. It has always been an attractive base for fashion designers to manufacture their clothing. With labor prices remaining constant, this is an industry that will continue to yield good returns.
Computer software, cosmetics, and small household appliances are three other industries that have enjoyed great growth and foreign investment and still has space for business to develop.
With your business idea in mind, here are the 3 essential steps for launching a business in China:
1. Make a Contact
John Frisbie, president of the U.S.-China Business Council shares some wise words, “There’s no reason to be reinventing the wheel on things people have done before that could be avoided.” Connect with people who have been-there, done-that.
Here’s an extensive list of international companies established in China. A call to their head office in your location/country will allow you to connect with their management team in China.
Secondly, you’ll need to find a liaison—a representative to consult and guide you through the legalities. Regardless of how much research you put in, there are bound to be blind spots. Don’t take the risk, consult the U.S.-China Business Council, the Ministry of Commerce at the Chinese consulate, or the U.S. Commercial Service office to get connected with a trustworthy international corporate lawyer.
2. Ground Zero
Make a preliminary trip to China to explore the potential locations for your business. By this point, you should have a fairly clear idea of the nature of your business and all your logistical needs. Being on location will allow you to connect with appropriate government personal to determine any licenses you need and any restrictions you may face.
3. Determine Your Type of Business
Before registering with the government, you need to decide the type of business entity. The 3 most common for foreign businesses are: joint ventures, representative offices, and wholly foreign owned enterprises.
A joint venture requires a partnership between a foreign business owner and a Chinese citizen. Critics say they fail nine out of 10 times due to these relationships generally being first-time partnerships.
Representative offices are an easy and low-cost, but limited in terms of your business production and sales. Basically, it’s the ability to show your face and build your brand name.
The most common type of entity is a wholly foreign owned enterprise, known as a WFOE. 75% of American investment in China are 100 percent American-owned facilities, it gives business owners maximum quality control.
However, a WFOE is more complicated to set up. It requires a minimal capital investment placed in a Chinese bank and the amount can vary greatly depending on the nature of your business and where you’re setting it up. Here’s a link to everything you’ll need to get a WFOE set up.