From 5- 10 November 2018, Shanghai will host the China International Import Exposition (CIIE). CIIE was announced in May 2017 by President Xi Jinping during the Belt and Road Forum as a platform to actively open the Chinese market to the world in support of trade liberalization and economic globalisation.

For those attending CIIE, perhaps visiting China for the first time, doing business in China may seem daunting and challenging. In this article, we offer practical tips demystifying business in China.

Business Cards
Business cards are essential in China. During initial meetings, the parties involved will present their name card upon introduction, holding the card with both hands, faced up. Cards from non-Chinese will typically include Chinese language information that corresponds to the native language on the card. In Chinese business culture, one party does not provide a business card, the other party may interpret the counterpart as being impolite, as they have not fully presented themselves, which risks being read as deceptive since there is no formal manner to know who they are and whom they truly represent. Today, in the digital era, business cards may be presented in electronic form, such as is popular for WeChat users. (Tip: if doing business in China, WeChat is a must.)

Customarily, the full Chinese name of the company can be found on a business card, and should clearly indicate the type of company in the Chinese language. The full Chinese name is also the registered name at the Industry of Administration and Commerce, of which can be verified by doing an online search of the company’s profile on the national enterprise credit information publicity system using the company’s Chinse name.    

Example
The full company name of a Wholly Foreign Owned Company (WOFE), of which the capital is 100% foreign and foreign-owned, is usually structured as below (fig. 1). In Chinese-owned companies, the city of where the company is registered is placed before the company name (fig. 2 & 3).

Fig. 1

Wholly Foreign Owned Company

Fig. 2

Chinese Owned Company

Fig. 3

Stated Owned Company

Corporate Structure
Currently, foreign investors can establish a Wholly Foreign Owned Company in China, which is permitted to manufacture, distribute and import and export goods. There is no requirement in the WOFE structure to establish a joint venture with a Chinese party or with the State, except if the industry is restricted to a Sino-foreign joint venture. For more information on the different corporate structures, please see here.

Scope of Business
Companies are limited to business activities defined in the business scope; the business scope can be found on a company’s business license. Any business conducted outside of the registered business scope of a company is forbidden, unless the company changes the business scope by first amending its articles of association and then completing the formalities for the change in registration. Therefore, before entering into negotiations with a Chinese counterpart, it is essential to check the business scope of the company. If the business activity is not registered on the business scope, then the company is, in all likelihood, illegally conducting business outside of their business scope.

Corporate Seals
Each registered company is required by law to hold a set of corporate seals (sometimes referred to as a “company chop”), which is presented at the public security bureau for approval. Once the corporate seals are approved, they are micro-fined and registered with the government. The primary seal of a company is the corporate seal, which is the representative of the company and utilised to conclude contracts. Upon affixation of the corporate seal, a contract is concluded and effective. Without, the affixation of the corporate seal on the contract, the contract is null and void.  

Trademarks
The Trademark Law of the People’s Republic of China utilises as “first come, first serve” approach in filing an application at the Trademark Bureau, with approved applicants having priority over the subsequent application of trademark in similar classes of goods. Generally, companies seek to extend their trademark to China. However, it is often the case where the trademark is only extended to the boundary of China and not within the territory of China. Therefore, in court proceedings, the extension of a trademark is not recognised in China as it is not registered inside the territory of China.

Generally, doing business in China is a smooth process with the correct advice and following the right procedures, such as obtaining the correct licenses or establishing the correct corporate structure. Difficulties often arise when the improper consultation or outdated information is provided, and in instances where a foreign investor acts unlawfully under the Chinese rules and regulations. It goes without saying that bribery of government officials is strictly forbidden and shall result in criminal penalties; therefore, it is important to receive the right advice to proceed in the correct manner before starting a business in China.  

If you would like more information about doing business in China or other related corporate matters, send us an email at talktous@horizons-advisory.com, and we’ll have a Horizons professional contact you.

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