The People’s Republic of China is a drastically different country in terms of political structure, business customs, etiquette, as well as language. Starting a business in China requires a lot of forethought and solid commitment to researching well about the country. It is also quite an important factor to learn the local language, as a language barrier can pose a serious issue in starting as well as conducting business in the long term.
The goal of starting a business in China can thus be extremely complex and time-consuming, especially for foreign business owners and investors. There are quite a number of governmental procedures as well as documents needed in order to successfully incorporate a company in this part of the world. To complete all of these can take months.
One major positive factor for foreign investors and business owners in starting a business in China is that there are a number of local agencies in China which can help you through the entire process. However, to ensure that you get the most efficient solutions, you need to have a strong handle on the prevalent commercial laws too. Additionally, all business owners need to have strong knowledge of the consumer market.
Quick Overview
Starting a business in China is quite a challenging and daunting task. As such, if you are a foreign national or investor looking to invest in this country, you need to follow some extremely important procedures. Before starting a business in China, enterprising individuals should conduct some much-needed research on the market and the region. There is a need to assess the risks related to starting a venture here or investing in the economy, which everyone needs to be fully aware of. You may also want a local partner to help you through the process and hold a key position in this company.
Process of setting up a business in China
Before starting a business in China, investors and business owners must familiarize themselves with the process of setting up a business in China. There are a lot of steps to be followed before the successful incorporation of a business, and China is quite stringent about its rules being followed to the T. With the multitude of permits to acquire, procedures to follow, and documents to produce, it can get overwhelming to set up a business in this country. However, it is possible with a little perseverance to establish a successful business in the fastest growing economy in the world. Here are the steps needed to follow for starting a business in China:
- Market Research: Starting a business in China is quite a commitment. This is because the processes involved in establishing a business in China or investing here are much more complex than you would expect. It is crucial to conduct thorough research about the business structures in the country, the prevalent laws and actual practices, and how the overall environment would be. Analyzing market risks is a key factor in deciding on China as the suitable destination for your next venture. You must also conduct research into the consumer market to determine which business would be suitable if you are starting completely fresh.
- Location: Every business needs to find a suitable market. China is quite a big nation, which requires budding entrepreneurs to figure out the best location for their venture. You would need to consider the requirements of the business, resources available in a particular part of the country, the kind of employees you would require, and whether or not there would be ample consumers for your product and service. You can also take into account regional laws (if applicable)
- Legal Structure: Determining the legal structure of the business is extremely important, and one of the first few steps before you can register your company. The People’s Republic of China recognizes 5 legal structures, including Joint Venture, Umbrella Company, Representative Office, Wholly Foreign-Owned Enterprise, and Distribution Company. As per the local laws, a Wholly Foreign-Owned Enterprise is equivalent to a Limited Liability Company. All of these structures have their own advantages, and every investor must find out the most favorable option for them.
- Bank Account: Opening a bank account is the next step to starting a business in China, especially if you have a Wholly Foreign-Owned Enterprise. Other forms of companies can choose from one of the non-resident types of bank accounts.
- Company Registration: Company or business registration in China is also dependent on certain factors, and there is no exactly uniform method of getting this done. It can take between 3 and 6 months to get the company incorporated. The factors determining the registration procedure are the business industry, which essentially means what line of business the company is into, and the legal structure of the company. Various governmental departments like the Ministry of Commerce, State Administration of Taxation, National Bureau of Statistics, General Administration of Customs, and more are involved in this process.
- Hiring Staff: The next and final requirement to starting a business in China would be to hire staff, preferably Chinese locals, to work for your company. It is important that you do not discriminate in employment based on any of the following factors: race, sex, age, disabilities, religion, etc. Hiring local employees would help in understanding the market, and they can even help make legitimate suggestions about how to grow the company and improve your product or service, to better cater to the market and make it more appealing, based on their experience as citizens of this country. This is where Zimyo comes to the fore with its incredible consultants to help with the recruitment of the best personnel.
Hiring Employees in China
Hiring employees in your company is one of the most important aspects of running a business anywhere in the world. When starting a business in China, employers need to make themselves aware of the labor laws prevalent in the country. The People’s Republic of China invited foreign investors to invest in the country for the first time in the 1980s. Since then, they have made several policies and allowed a lot of agencies to be set up to oversee the employment process being carried out.
These agencies ensure that the employers are utilizing proper means and not taking advantage of their financial growth to wrongly attract employees to work for them. As per the labor laws of the country, some of the aspects that need to be checked out are:
- Trial Period/Probation Period: The probation period in China can vary depending upon the length of the contract of employment. As such, if an employee is hired for a duration of 3 months to 1 day less than one year, the probation period would be one month. Employees being hired for a duration of 1 year to 1 day less than 3 years would have to undergo a probationary period of 2 months, and employees being hired for over 3 years would have to complete a probation period of 6 months.
- Leave and Holidays: Upon completion of 1 year of working, employees are entitled to a minimum of 1 week of paid vacation time. This number increases by 1 day for every year completed. In addition to this, employees are also entitled to about 10 days of public holidays. Apart from that, the government of China can also announce special holidays at very short notice.
As far as sick leave is concerned, employees are entitled to paid sick leaves. However, not all employees received full pay during this time. The payment for sick leave is set between 60%-100% of the regular wages of the employees, depending on their seniority. The minimum duration is set at 3 months of sick leave, while the maximum is unlimited sick leave for older employees.
- Maternity Leave: Female employees are granted 90 days of paid maternity leave in China starting from the day of the birth of the child. During this time, employers must not employ any other person in place of the original employee, and they cannot terminate the employee at this time. Paternity leave is allowed for about 3 days after childbirth.
- Termination of Services: In order to terminate services of an employee or with an employer, both parties are required to reach mutual consent, and the employer must provide at least a one-month notice unless otherwise mentioned in the written employment contract.
- Pension: Pension is one of the various benefits ensured to all employees in China. Men over the age of 60 and women over the age of 55 are eligible to retire and reap the benefits of the retirement pension plan. Different cities and provinces have different rates of contributions to the retirement fund, and the location of the company would determine how much contribution the employer needs to make in this regard.
- Work Hour Norms: Working hour norms in China have undergone some changes over the years. While employees can only be hired to work for a maximum of 8 hours per day and no more than 44 hours a week, they once were only able to get one day off per week to rest. However, now employees are entitled to two days off per week.
Overtime work is allowed for a maximum of 1 hour per day or 3 hours per week, with a cap of 36 hours per month. Those employees who work overtime are entitled to 150% of their wages. If an employee is asked to work on a rest day, they will receive 220% of their regular wages, and if asked to work on holidays, they would receive 300% of their wages.
How easy is it to conduct business in China?
The Ease Of Doing Business index is a comprehensive report which assesses various countries across multiple parameters that play a key role in forming a business-enabling environment in the country. A lot of uniform criteria and aspects are taken into account, and a uniform system of assessing them is used. Apart from the criteria mentioned below, there are a lot more parameters that are judged in this report. As per the latest index, China ranked 31 in a pool of 190 countries. The overall rank is determined based on the cumulative rank of a country in various different areas. However, some crucial areas of starting and conducting business smoothly in any country are as follows:
- Starting a Business: China was able to pull up its score and improve its rank in terms of starting a business here. As per the latest reports, China ranked 27th on the parameter of starting a business. It scored 94.1 out of 100 as there are merely 5 procedures that need to be completed, and it only takes 9 days to complete all formalities. This parameter judges starting a basic Limited Liability company.
- Managing Permits: Dealing with permits and managing multiple permits can be a very tedious task, especially for a new business. China is continuously striving to make processes easier and, as a result, has been able to pull up its rank in this area as well. As per the latest ranking, China secured the 33rd rank in terms of dealing with construction permits. There are 18 procedures to undertake, which take about 111 days to complete.
- Getting Electricity: Getting electricity is extremely important for starting as well as running a business with Ease. Recognizing the importance of this factor, China has made certain infrastructural changes over the years and thus has been able to come up to the 12th rank. There are only 2 processes to get an electricity connection, and it only takes 32 days to complete the procedures and get the connection.
- Getting Credit: Getting credit is another extremely important aspect of starting a business in China. However, in this aspect, the country has ranked 80 and has not been able to improve its rank from the last index.
- Managing Payroll: Managing payroll is important, especially as the company grows. There would be a number of employees in the company, and maintaining detailed records of each can be difficult if there are no proper processes in place. Fortunately, China has a lot of agencies and departments which will help you in doing that. By availing of payroll management services offered by Zimyo, you can certainly enjoy a hassle-free working experience in China.
- Paying Taxes: While China has been able to improve its rank in this aspect, the country still has a long way to go when it comes to paying taxes. While there are just 7 taxes to be paid every year, it can take about 138 hours to complete filing them. As such, China has only been able to rank 105 in this aspect.
- Enforcing Contracts: While it can take 498 days in China to get processes relating to enforcing contracts completed, China has still managed to rank at the 5th position. This has been possible due to the cost of claim value and the quality of judicial processes being able to balance out the long duration.
- Resolving Insolvency: In the event a company is unable to meet its liabilities or resolve its debts, it would be considered insolvent. In such a case, the country’s ability to resolve insolvency comes into play. China has improved its ranking in this regard as well and has secured the 51st position in the latest report.
While China has a lot of scope for improvement, it is also one of the fastest-growing countries in terms of technology, infrastructure, and economy. In fact, it is the second-largest economy in the world, closing following The United States of America. In its endeavor to become the most technologically advanced and largest economy in the world, the People’s Republic of China is continually bringing reforms to its existing processes. This dynamic attitude is what leads to the presence of multiple developmental opportunities in this country, making it a great place to start a business in.
Zimyo is a leading HR and Payroll management services provider in China with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.
