Setting Up in China? It Takes Time

Despite having introduced a number of reforms, China still requires a lot of elbow grease when you incorporate there

Written by Tom Gardner

Recently, I’ve run into a lot of people who say something like “Oh, it’s now so much easier to set up shop in China.” As it happens, these people are never actually in the process of setting up shop there themselves. China has done a good job of creating the appearance that it’s made it easier to establish a Wholly Foreign Owned Enterprise (WFOE, pronounced “woofy”) there, but for Canadian SMEs, nothing’s really changed. The process is still time-consuming and onerous.

The most talked-about recent change to Chinese regulations for WFOEs has been a revision to capital requirements that went into effect in March of this year. Previously, businesses had to meet specific capital requirements (which differed depending on the type of business) to get a business licence from Chinese authorities. Now, specific capital requirements have been thrown out the window and replaced with the requirement that a WFOE needs to have a “reasonable” amount of capital to obtain a licence.

While that may seem to make the process simpler, it really only makes it less clear. Your definition of reasonable might not be congruent with a Chinese bureaucrat’s definition of reasonable. The real effect of the new rules is to give the bureaucrat more flexibility, not you.

Read: China Offers Opportunities and Challenges for Canadians

Another recent reform affecting multinationals has been China’s new visa regime. The new rules include the creation of an “R1” visa for talented foreign workers that Chinese authorities decide they need urgently. If you can make the case that your expat workers deserve the R1 designation it could help you. But overall the reforms actually complicate the rules by adding a slew of new visa types, and there’s been no across-the-board loosening of rules for expat workers

The new Shanghai Free Trade Zone, with the promise of all sorts of relaxed rules on business activities (you can even sell video game consoles there, unlike in the rest of the country) was opened last year with much fanfare. Crucially, capital controls were supposed to be loosened, but a year into the experiment, they still have not been. As a September headline in the Financial Times put it, “Shanghai free-trade zone struggles to live up to its hype.”

Read: China’s Growing Hunger for Canadian Goods

Meanwhile, it was an unusually active summer for the Chinese authorities in charge of monitoring multinational businesses. In recent months, the government has hit foreign companies with investigations, enforcement actions and bans, citing bribery, antitrust violations, and security concerns. Audi, Chrysler, Symantec, and GlaxoSmithKline have all been hit. Some see the stepped-up activity across multiple agencies as part of a single move by the Chinese state to flex its regulatory muscle in the face of growing global commercial activity.

China still remains open for international business with a large and lucrative market for Canadian businesses willing to make the leap, and you can believe the government line—that they’re eager to attract more and more of it—up to a point. The Chinese government does want to attract foreign firms, but only on their terms. For Canadian SMEs looking to enter China and operate there, it’s possible that some of these reforms will make it easier, but it is still far from easy.

Tom Gardner is the Canadian country manager for Radius, a provider of international business software and services.  Its technology and services help organizations capitalize on global growth opportunities by simplifying the management and control of international expansion and operations.

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