1. Dezan Shira & Associates
Strategies and Best Practices for Doing Business in China - Overview of Chinese Business Culture -
David Chan
Senior Associate
Dezan Shira & Associates

2. Dezan Shira & Associates
The Asian Practice
18 years in China
10 Offices in China, 5 Offices in India, 2 Offices in Vietnam
2000 clients from 81 countries
Provide business incorporation, tax & accounting, legal and HR services 1

3. New Opportunities for Business in China
New Consumers, New Opportunities:
Chinese have money
Stronger currency increases demand for
higher quality products
Increase in demand opens up new markets
for foreign investors 3

4. Risk of Violation of IP Rights in China
Higher penalties for export and import enterprises for violation of IP rights
Increased international cooperation
to fight IP piracy
Intensified moves to crack
down on IT-related piracy
More security for foreign products and foreign IP! 1 4

5. U.S. Exports to China 2010 Grand Total: $91,878,263,856 5
Source: U.S. Department of Commerce 5

6. Biggest US Exporters To China
(in 1,000 US$, 2010)
California 12,468,134
Washington 10,300,279
Texas 10,254,205
Louisiana 6,457,418
Oregon 4,046,199
New York 3,365,649
Illinois 3,179,793
Pennsylvania 2,673,049
Georgia 2,393,007
Ohio 2,295,100
North Carolina 2,236,229
Massachusetts 2,193,392
Michigan 2,179,919
South Carolina 2,156,012
Alabama 1,934,798
18. New Jersey 1,389,623
Source: 6

7. Types Of Legal Structures -Strategy MUST follow structure-
Freelancer
Representative Office
Wholly Foreign Owned Enterprise (WFOE)
Foreign Invested Commercial Enterprise (FICE)
Joint Ventures (JV)
Foreign Invested Partnerships (FIP)
Hong Kong Holdings

8. Freelancer  Usually only used as a first step Pro Contra Flexibility
Reliability
No Permanent Establishment
No full commitment
Uncomplicated & Fast
Potential waste of time & money for training
Cheap
Risk of job changeover
 Usually only used as a first step 10

9. Representative Office
Typical uses:
Marketing, Research, Liaising
Hiring of employees in China (visa, residence permit, working permit)
Advantage
Disadvantage
Incorporation quick and easy to set up (2-3 months)
No possibility to issue invoices in RMB (Fapiao)
Cheap
Common, but not imperative, monthly payment of 10.94% business tax on overheads
RO example: Sourcing in China 11

10. 12

11. Wholly Foreign Owned Enterprise (WFOE)
Typical Use:
Can engage in manufacturing, processing & assembling, services & consulting and/or trade
Advantage
Disadvantage
Can directly hire employees
Application and incorporation procedure: at least 4 -6 months
Can issue invoices in RMB (Fapiao)
Standard problem: Ratio between registered capital and total investment
Important: Exit Strategy, Cash Flow! 13

12. 14

13. Joint Venture (JV) Typical Use:
Can engage special in manufacturing, processing & assembling, services & consulting and/or trade
Advantage
Disadvantage
Able to enter a restricted market
Same bed, different dreams
New network or sales channels
Contract negotiation time-consuming & eventually expensive 15

14. 16

15. Foreign Invested Partnership (FIP)
- New Investment Vehicle (“3rd Road to China”)
- Ideal for High-Tech enterprises
Advantages:
Easy incorporation
Only approval by SAIC and regional authorities, not by MOFCOM
Flexible Structure
Management structure defined by partnership agreement
Dividend distribution
No minimum registered capital has been set yet
Registered Capital can be brought in as: Cash (legally obtained RMB or foreign currencies), Land use rights, IP Rights, Technology, Know-How, Service/Labor
Income Tax Incentives: No Corporate Income Tax for FIP, partners file separate tax returns
Disadvantages:
No detailed regulations yet, no approval for Beijing yet
Uncertainty regarding issues, such as customs, foreign exchange etc.
Limitations regarding investment (certain industries are prohibited)

16. Hong Kong Companies Legal: Easy and fast to set up “cheap” Tax:
Set-up costs
Ongoing compliance
No “real” office necessary
Tax:
Corporate Income Tax 16.5% (compared with 25% in mainland China)
Dividend distributed from mainland via Hong Kong back to headquarters could be tax efficient HQ 0%
10%
HK Company 5%
Mainland
WFOE

17. Business Issues: Labor Law
Common Misconceptions:
Labour is “cheap” in China
Documents are correct
Flexibility:
I can hire and dismiss employees as I please

18. Fixed-Term Contract Most common type of contract
Duration set by employer and employee
Can only be renewed once (Art. 14 III)
Afterward the employee must receive an open-term contract
If the fixed-term contract is not being renewed severance must be paid – one monthly salary for every year of the labor relationship
Exceptions: The employee refuses to renew a contract, which contains at least the same conditions

19. Open-Term Contract What is this? Preconditions for such a contract:
A contract, which only ends with the retirement of the employee
Preconditions for such a contract:
After a one-time renewal of the fixed-term contract , the employee must receive an open-term contract
An employer has failed to provide a written contract after one year of labor relationship
Problem: Almost impossible to terminate the contract

20. Overall – A Great Market 17

21. Publications
Magazine
Websites
Books 18

22. Media Portfolio – DSA Library
Registration is free
The library provides in-depth resources on doing business in China:
- Reports
- Articles
- Detailed PDF documents
Receive regular updates on regulatory changes and tax issues 19

23. THANK YOU FOR YOUR ATTENTION!
Q&A
Mob:
THANK YOU FOR YOUR ATTENTION! 21