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DOING BUSINESS IN CHINA: MODES OF ENTRY

DOING BUSINESS IN CHINA: MODES OF ENTRY. Prepared by The JLJ Group – Solutions for China Entry & Growth. The Big Picture Modes of entry in China. AGENDA. CHINA: A CONTINENT MORE THAN A COUNTRY. ~ Km 3500. Company. ~ Km 5,000.

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DOING BUSINESS IN CHINA: MODES OF ENTRY

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  1. DOING BUSINESS IN CHINA: MODES OF ENTRY Prepared by The JLJ Group – Solutions for China Entry & Growth

  2. The Big Picture Modes of entry in China AGENDA

  3. CHINA: A CONTINENT MORE THAN A COUNTRY ~Km 3500 Company ~ Km 5,000 Hierarchical government structure: central – region – province – municipal – district – local

  4. CHINA, KEY GLOBAL DESTINATION FOR FDI Source: National Bureau of Statistics FDI in 2008: 92.4bn ~24% increase over 2007 – however growth slowed at the end of the year (-14 % in Nov. y-o-y)

  5. THE PACE OF CHANGE IN CHINA… Pudong, Shanghai 1990 Pudong, Shanghai 2008 …is striking and far outpaces that of any developed country

  6. DOING BUSINESS IN CHINA Snapshot • Opportunities in China do exist - country has been opening up, growth rates are impressive, population is getting wealthier, FDI have been pouring in… • However, competition is fierce; China market should be approached gradually, un-emotionally and with realistic expectations • Long-term vision is a must, quick profits are unlikely – time, money and effort are necessary • There is no such a thing as one China market, rather several regional/ provincial/ local markets • Applying the logic and mindset of the mother country would not work - gaining local knowledge of business environment and practices is crucial • Conducting proper due diligence, developing a sound strategy, and finding the right partners may also be key success factors Opportunities in China do exist – proper preparation and planning are key

  7. AGENDA The Big Picture Modes of entry in China

  8. MODES OF ENTRYSnapshot • Business setup process difficult for foreign companies to navigate due to complex bureaucracy and regulations - laws & regulations constantly changing • Regional differences may exist; national regulations may differ from local applications • There are three main legal setup options in China – Rep. office, WFOE and JV, with different capital requirements and business scopes • NO one solution for all companies; solution depends on specific company’s business and objectives for China • When deciding on the optimal legal entity, look for advice and assistance from professional service providers – getting it right from the start is key Key to leverage reliable service providers and get it right from the start

  9. NATURE OF THE INVESTMENT Foreign Investment Catalog When considering setting up in China, first step is to check the catalog

  10. FOREIGN INVESTMENT CATALOGLegal Set up Options Allowed business scope depends on specific sector and type of entity

  11. NATURE OF BUSINESS Import/Export Rights Domestic Distribution Service Activities Capital Requirements Registration Complexity Rep. Office Service WFOE Manufacturing WFOE FICE WFOE’s provide greater flexibility for future operations

  12. No less than 70% of total investment, with a minimum of ~15,000 No less than 40% of total investment with a minimum of 5 million if total investment is below 12.5 million No less than 50% of total investment with a minimum of 2.1 million if total investment is below 4.2 million No less than 1/3 of total investment with a minimum of 12 million Less than 3 million Between 3 and 10 million Between 10 and 30 million Between 30 and 36 million CAPITAL REQUIREMENTS Injection Methods Total Investment Registered Capital • Complete injection within 6 months • -or- • Capital contributed in installments: 20% within first 3 months with the remaining injected within 2 years • Currency: US Dollars Investment capital ratio depends on total investment

  13. Registered Capital Equity (100%) Total Investment Total Investment Equity (70%) Debt (30%) CAPITAL REQUIREMENTS Investment ratio example Example 1 Registered Capital Example 2 Shareholder loans are an alternative means of profit repatriation

  14. The economy slowdown has spurred local governments to provide additional incentives for establishing FIE within their jurisdiction Recognizing encouraged statuses before official approval Reduced tax rates for local portion of corporate income tax 2/3 Tax holidays Reduced fees for land-use rights Subsidized housing However, local incentive programs, once secured, may be tenuous at best, especially once the economy rebounds WHAT ABOUT INCENTIVE PROGRAMS ? Latest Trends However, special Incentives should not be the only priority in choosing a location

  15. BUSINESS REGISTRATION PROCESS WFOE Example Company’s Chinese Name Approval Stage I: Licensing Approval to Establish Company Registration of Business License Filing and Carving Seals* Enterprise Code Certification** Foreign Exchange Approval Registration with Tax Bureau Stage II: Post- Licensing • *Official company stamps required for many business and banking transactions in China • **Equivalent to a personal identification number for the licensed company • † This process can be completed at any stage following foreign exchange approval and registration with the tax bureau Statistics Bureau Registration† Open RMB & Foreign Currency Bank Accounts Stage III: Post-Capital Injection Capital Verification Update Business License A complex process… but it can be done!

  16. FINAL CONSIDERATIONS • Be clear on objectives, level of commitment, and time horizon for China… • Things will take longer than you expect, patience (and persistence) are a must… • Be ready for steep learning curves and, for sure, some surprises... • Do your due diligence, biz environment is complex yet not impossible to grasp… • If you are considering a JV, make sure you have compelling reasons for it … • Get advice / support from professional service providers… China’s business environment is complex – yet NOT impossible to grasp

  17. ABOUT THE JLJ GROUP • One-stop service provider assisting foreign companies to enter & grow in China • One of very few firms in China legally licensed to provide true full-package services • Served 400+ clients from 30+ countries – from Government organizations to SMEs to Fortune 500 companies • Offices in USA and in China – providing end-to-end service

  18. THANK YOU FOR YOUR ATTENTION! The JLJ Group SHANGHAI OFFICE Suite 603-605Oriental Center699 Nanjing West Road Shanghai, 200041 China Tel: +86 21 5211 0068 Fax:+86 21 5211 0069 BEIJING OFFICE Suite 2002, Building 1 Blue Castle International Center 3 Xi Dawanglu Road, Chaoyang District Beijing, 100026China Tel: +86 10 65820268 Fax:+86 10 65820251 BOSTON OFFICE 77 Martin Street, # 37 Cambridge, MA 02138 USA Tel: +1 857 636 2596 Email: info@jljgroup.com Website: www.jljgroup.com Shanghai Beijing

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