by Peter Hann

Created on: August 26, 2010

The approach to doing business in China should not to be taken lightly, owing to the challenges presented by local business customs, potential language difficulties and differences in the legal and regulatory framework. These factors present difficulties for all types of business and mostly they can only be overcome by receiving advice from local consultants and employing managers with local knowledge.

One of the keys to success in China is to have a good network of business connections and to put the daily business management in the hands of people who know how things work in the local business environment. The most dangerous mistake is to go into China armed with a few books on how to do business and attempting to proceed without any outside help.

Restrictions on trading

One important question to establish at the beginning is what restrictions may exist in your particular industry in China. There may be certain activities that it will not be possible to do, particular regulations that must be adhered to or permissions that must be gained before commencing business activities. Enterprises wanting to do business in China should consult China’s Catalogue Guiding Foreign Investment in Industry which indicates areas where foreign investment is not permitted.

Form of doing business

Another major issue is to choose the appropriate legal form for doing business in China. A first step in doing business in China could be to set up a representative office. However such an office is not permitted to perform any activities that result in earnings, so the scope of its activities will be limited.

It is likely that the enterprise will eventually need to set up a company in China. The business must establish whether it is necessary to allow participation by a local Chinese company in the business or to trade through a joint venture company. It is now possible in many industries where foreign investment is encouraged to form a wholly owned foreign company, without the need for local residents to hold any of the shares.

If the enterprise needs to trade through a joint venture with a Chinese enterprise, either for regulatory reasons or to provide more market access or local knowledge, the Chinese partner must be chosen carefully. One problem is that there may be little reliable information available about local enterprises, as often not much business information is filed officially by a local company. The position must therefore be researched thoroughly and it may be necessary

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