doing business in china 22609
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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