Marketing in China 101: Registering a Business in China
If you’re getting serious about entering the Chinese market, one of the things you might be considering is whether you need to register a business in China. In this article, we guide you through how to register a business in China, what’s required in each different type of registration, and whether or not you need to register a business in order to trade in China.
Types of registered business in China
There are multiple types of business registration options for International businesses, each with their own pros and cons. Choosing which is right for you will depend on you budget, and how you want to operate on the ground in China.
Wholly owned foreign enterprise
This is the registration type required if you are going to enter the market without partnering with any other company. This is the most common type of registration for a foreign business as it gives the business the most freedom in the Chinese market. A Wholly Owned Foreign Enterprise (WOFE) is a limited liability company, but a significant investment is required as part of the application. The process to register a WOFE takes between three and four months at a minimum. A WOFE must have a physical presence in China – leasing an office space or launching retail stores and must hire staff. Depending on how many investors a company has, a minimum of RMB30,000 to RMB100,000 must be invested in China within 3 months of the application being approved. However, the figure required in your application will ultimately be determined by the type of business you wish to run and how. A specific determination will be made during the application process, based on how much is required to get your business off the ground. A lot of steps will be required to complete the application, including leasing your premises, tax applications, bank accounts and registering with various Government departments including the Statistics Bureau.
Another option, if the above costs are too high or the process is too cumbersome, is to register a Representative Office. This is the easiest process and simplest structure. There are no capital or on the ground staff requirements, but the business will have a very limited scope. This type of structure is recommended for businesses looking to research the market, begin to launch a brand and make business connections, before fully launching as a WOFE. A Representative Office is not allowed to actually make money in China, or hire employees. However, you can begin marketing activities to start building your brand, as you’ll be allowed to get an ICP licence, which is required to host a website in China.
For businesses that need to trade more, but aren’t quite ready to launch a full scale office and team on their own in China, registering as a Joint Venture partner with a Chinese company is very common. By partnering with a Chinese company, not only do you have a less costly pathway to doing business in China, but you have a partner who can help you get set up. This is incredibly helpful given that doing business in China is so dependent on building relationships, and being referred by a trusted partner in the first place. Like any partnership, however, you’ll need to carefully vet who you work with, and issues can arise when the benefits of the relationship aren’t totally mutual, or if you have differing values or agendas.
There are two types of joint ventures in China – equity joint ventures and cooperative or contractual joint ventures. The difference between the two is in how profits and losses are distributed. In an equity joint venture, this is determined by the amount invested by each party. In a cooperative or contractual joint venture, the partnership isn’t based on investment – one of the parties may contribute ‘in kind’ e.g with labour or other resources than simply investing. The distribution of profits and losses will be determined via a specific agreement of the parties.
How to register a business in China
The process of registering a business is really lengthy, and usually takes between three and six months as your application will go through many different Government authorities:
- Ministry of Commerce
- State Administration of Industry and Commerce (SAIC)
- State Administration of Foreign Exchange (SAFE)
- State Administration of Taxation
- General Administration of Customs
- State Bureau of Quality and Technical Supervision
- National Bureau of Statistics
You’ll need to carefully define the scope of your business, and generally won’t be licensed to operate outside of it. As it’s such a complicated process, you will absolutely need an experienced consultant or lawyer to help manage it. We recommend Think Global Consulting, working with China expert David Thomas to guide you through the process (including introducing you to potential JV partners). A lot of documentation is required to complete the application. It’s not just the usual incorporation documents and information on your shareholders, you’ll also need to document your managerial structure, how much you pay your employees and submit a feasibility study outlining your business plan and how much you will invest in China. After your application is reviewed, all kinds of supplementary documentation may be requested – it will be a unique process for every different business.
After you get your initial business certificate, there will be a number of further steps to begin trading, including registering with the Tax office, registering your business licence, getting a bank account, depositing the minimum investment amount in your account, getting an official company stamp, registering with the customs office… the list goes on! And it also illustrates why having an experienced consultant to help you is absolutely essential.
Do you need to register your business in China?
Having reviewed what’s required, it’s natural to wonder if you really need to register a business in order to trade in China. You will definitely need to if you want to:
- Hire staff
- Open an office
- Have a Chinese bank account
- Have a bricks-and-mortar retail presence
- Having a Chinese hosted website
However, if you’re simply looking to promote a western brand and you can deal with customers online, you may not actually need to register a business in China. Over the last decade, cross-border payments and commerce have developed rapidly, meaning it’s easier than ever to trade with Chinese consumers, without needing to set up a whole business. There are a myriad of digital payment processors that allow you to collect payments from Chinese customers without having to have a bank account in China. Just like Paypal makes it easier to set up a global online store and take credit card payments, there are all kinds of options like UnionPay, WesternPay or Alipay that make it easy for an overseas business to trade in China.
How to trade in China without a business registration
If you’re an e-commerce provider and transact primarily online, you don’t need to register a business in China. In fact, many Chinese business don’t have websites, instead relying on social media platforms like WeChat, and ecommerce platforms like Taobao or Alibaba to set up instant ecommerce stores that can connect to cross-border payment services. If you want to build your brand and grow your audience in China, we recommend starting with WeChat. Through WeChat you can launch your brand by getting an Official Account. As you publish content and build your followers, you can easily launch a WeChat mini program that gives you a ready-made e-commerce store, connect it to a payment processing service, and Voila! You’re ready to sell and trade in China, bypassing the need to go through the lengthy and tiresome business registration process.
If you’re interested in setting up an ecommerce platform to trade in China, our team of strategists can help you out by registering a WeChat account and launching our ready made WeChat ecommerce platform. Get in touch with us to find out more.