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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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slide1
DOING BUSINESS IN CHINA: MODES OF ENTRY

Prepared by The JLJ Group – Solutions for China Entry & Growth

agenda
The Big Picture

Modes of entry in China

AGENDA
china a continent more than a country
CHINA: A CONTINENT MORE THAN A COUNTRY

~Km 3500

Company

~ Km 5,000

Hierarchical government structure: central – region – province – municipal – district – local

china key global destination for fdi
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)

slide5
THE PACE OF CHANGE IN CHINA…

Pudong, Shanghai 1990

Pudong, Shanghai 2008

…is striking and far outpaces that of any developed country

doing business in china snapshot
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

agenda1
AGENDA

The Big Picture

Modes of entry in China

modes of entry snapshot
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

slide9
NATURE OF THE INVESTMENT

Foreign Investment Catalog

When considering setting up in China, first step is to check the catalog

foreign investment catalog legal set up options
FOREIGN INVESTMENT CATALOGLegal Set up Options

Allowed business scope depends on specific sector and type of entity

slide11
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

slide12
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

slide13
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

slide14
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

slide15
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!

final considerations
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

about the jlj group
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
thank you for your attention
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: [email protected]

Website: www.jljgroup.com

Shanghai

Beijing

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