Sara Cheng By

Sara Cheng

Formally Head of International Business, My Business

Sara Cheng, Head of International Business at My Business, shares her eight "must-knows" before starting a business in China.

1. You have more than one option for a local presence in China

When setting up a business in China, your presence may be in the form of a wholly-owned foreign enterprise, a contractual joint venture, an equity joint venture, a representative office or a local representation by a third party (local secretary/representation service companies).

2. Carefully define your business scope for your presence in China

China National Development and Reform Commission may prohibit, restrict, permit or encourage your business set-up based on your business categorisation and scope. As such, it is critical to carefully define your business scope so as to be permitted or encouraged to set up the presence.

3. Select the right location for your China operation

China abandoned its preferential tax rate for investments of foreign companies from 1 January 2008. However, some areas still offer local preferential policies for foreign investors in terms of land leasing/procurement, recruitment and management and local tax. 

Before setting up a business in China, it’s a good idea to research locations to find out which one will offer the most beneficial policies for your circumstances.

4. Confirm the minimum registered capital for your China operation

The Chinese government requires certain minimum registered capital for various types of businesses. However, local Industry and Commerce Administrations may decide on your minimum registered capital based on their judgement of your business scope and operation scale. 

With this in mind, you need to confirm with local government agencies the minimum registered capital through local contacts before taking any other actions in case they require an amount far above your financial resources available for the China operation.

5. Integrate commercial clauses in the Articles of Association to maximise profit repatriation into Australia

You may have commercial arrangements between your Head Office in Australia and the subsidiary in China to guarantee maximum profit repatriation. However, some arrangements must be included as part of your Articles of Association – a document covering the internal governance of your company – to be valid.

The Articles of Association must be submitted to local government agencies for approval and filing during business licence registration. Therefore, you must incorporate the necessary clauses in the Articles of Association.

6. Fully understand employers’ responsibilities and liabilities in China

China issued the new Law of Labour in 2007, which specifies issues on employment contract, redundancy and other matters. Without preliminary knowledge of this law, you may end up spending a huge amount of time and money terminating the contract with under performing employees, as the structure of the contract was wrong. You should also be aware of mandatory employee welfare and benefits and ensure you include these costs in your staffing budget.

7. Conduct thorough due diligence and credit checks on your joint venture partners

Your partners may not be what they claim to be. China has the business culture to show their wealth and status by driving luxurious cars, wearing prestigious watches and owning an impressive factory. In other words, your Chinese business partners may look financially viable and well connected but, in reality, could be living on bank loans and personal debts. Due diligence is crucial to ensuring your business partners are financially sound.

8. Develop a comprehensive local employee management system

It can be challenging to recruit the right employees in a foreign country. It is even harder to effectively manage employees in a foreign country. A sound and robust employee management system will encourage engagement and commitment of local employees and avoid potential risks.

You may also include reporting and communication policies, training, performance assessments, remuneration, career management and employee management manuals in the system.

Sara Cheng

Sara Cheng

Formally Head of International Business, My Business

Sara specialises in international business strategy development, international market development, and business investment in China. She has extensive experience in these areas and previously worked for the Australia China Business Council.