China Law Blog

The relatively new China Supertrends blog has an Interesting and informative post on recently increased difficulties in starting a small business in China. The blog is "the official blog and support website for Supertrends of Future China, a soon to be released book by experienced China businesspersons James K. Yuann and Jason Inch, which describes itself as follows:

You are reading China Supertrends, a Chinese trend and business news website that focuses on the many exciting trends and developments in the PRC.

The industry focus of this site includes the manufacturing, service, and environmental industries, and also more limited coverage of technology and finance sectors. The main topics revolve around what are called the supertrends, the major forces shaping the future of business in China: Value-adding and Innovating, Urbanizing and Servicing, Consuming and Aspiring, Inter-networking and e-Commercializing, and Affluencing [???] and Greening. The supertrends cross industry boundaries and influence the business, culture, and society of China.

The post is entitled, "Starting a Business in China: Things Foreigners need to know," and its thesis corresponds with something we are constantly saying here: China is both firming up its laws and its enforcement of laws against foreign businesses and those businesses that do not get legal and abide by those laws face increasing problems:

In practical terms, this means their business has no legal status in China. That usually doesn’t stop a wily entrepreneur, who may have an offshore or Hong Kong-based company to handle the legal transactions. The situation now, however, is that those entrepreneurs may not be able to get business visas to continue working on their company and will face tremendous time and money costs to establish a legal presence. At this stage, many entrepreneurs are in limbo or frantically looking for ways to set up a WOFE quickly to sponsor their own visas.

Nobody said doing business in a foreign country would be easy, but China has had a notable number of loopholes which are now starting to be plugged. Ironically, the post-WTO era in China is becoming stricter as China harmonizes regulations in line with international practices, such as the unified corporate income tax rate starting this year.

After six years of WTO membership, China has implemented almost all of the commitments it made to join the WTO, even finally opening up the banking sector to full competition. So in theory this means, for an entrepreneur, the business opportunities are more numerous that ever before? Wrong. For large companies the playing field is wider, but smaller entrepreneurs need a company too and there is still no suitable vehicle for foreign entrepreneurs

The post's excellent advice for small businesses is to consider setting up in a second tier city where the minimum capital requirements and overall costs are typically so much lower. So true. We recently worked with a small software company seeking to get into China and trying to decide between Beijing and Dalian. Beijing was going to require around $150,000, but Dalian would accept about 1/7 of that.