Many entrepreneurs wish to enter this market of one billion three hundred thousand inhabitants. Before you take action, you have to be able to answer some key questions. Some of these questions with their answers are listed below.
Is my business sector open to foreign investment?
Many key sectors welcome foreign investors in China. Here is a list of growing industries in 2014: Aerospace, Nuclear and Energy, Financial Services, Cosmetics, Fashion Accessories, Food, medical devices, Telecommunications and Internet, Architecture, Automotive and Environment and urban transportation.
It is therefore essential at first to learn about the evolution of your industry in the Chinese market. If it is not thriving, two solutions exist, or the existing products/services are not suitable for Chinese consumers, or it will develop in the future and you could be the first on the market.
What structure should I set up?
This question is crucial, for each solution you must weigh the pros and cons. Here is a list of existing structures:
- The joint venture, which requires a Chinese partner.
- The Representative office, which are easy to create and require no minimum capital. Nevertheless Chinese law strictly regulates the structure, particularly its object. It is thus not possible with this type of structure to sell products or services, or even generate profits. The structure therefore exists to represent and communicate about the main company in China.
- The WFOE, which is the most permissive structure, however, the procedure leading to its creation is heavy and the minimum capital can be very important in function of the business activity.
- A fourth category has to be in this list although this is not, strictly speaking, a social form: Umbrella companies such as INS. They support all the back office of your company and can recruit your employees so that you do not have to create a structure in China. They thus provide you with a solution allowing you to focus on your core business.
The choice of the structure defines the heaviness of the initial investment. It is also possible to begin the settlement in the Chinese market via an umbrella company for example, and create a WFOE when the activity is already profitable and well established in China.
How to finance my business?
This issue is also crucial. You must initially respond to the above questions because the cost will be very different if you create a WFOE or simply use an umbrella company. In the second case, the cost of implementing the company will be equal to the salary of a business developer who will contact companies and potential business partners in the Chinese territory. It is therefore necessary to budget the cost of the whole operation.
Cash flow is the first and often the main solution, the main company based in the home country decides to finance and funds development in the Chinese market.
Agencies from different countries are also putting aids available to help entrepreneurs to expand abroad. In the case of France, there is support and state guarantees such as “Pret export Bpifrance” or the “Assurance Prospection COFACE”. The VIE (International volunteer in companies) is also a solution, as it allows the company to have a skilled business developer on the Chinese territory while having tax benefits in France.
These aids may help to fund your presence in China. It is therefore necessary to learn upstream from state agencies that encourage firms to move towards the Chinese market.
What is the tax applicable to my business?
The fiscal environment in China is changing, especially with a law passed in 2007. Income tax is 25% today, but there are differences depending on the sector of activity or place of the implementation “small taxpayers” are taxed at 20%, say “high-tech” companies to 15%.
You will need to learn before about the tax rate applicable to your business.
Be sure to precisely answer these four questions before starting your new settlement on this booming market.