| 1. There are three principal business models for foreign | | | | accounts from company headquarters, and financial |
| companies seeking to establish themselves in China : | | | | statements from the main bank. |
| Joint Ventures, Wholly Foreign-Owned Companies, and | | | | An explanation of the foreign company's areas of |
| Representative Offices (ROs). | | | | business interest. |
| 2. Foreign companies are often wary about | | | | The address of the premises to be used for the RO, if |
| establishing a permanent office in China , in view of the | | | | available. |
| high running costs and the complexities of setting up an | | | | 14. The documents are sent to MOFCOM, which will |
| RO. | | | | respond with a formal application form on which the |
| 3. There is no substitute for having a person on the | | | | foreign company will be asked to provide the same |
| ground in China to monitor local economic trends, | | | | information again. MOFCOM will normally take two to |
| identify business opportunities, liaise with potential | | | | three months to make any further enquiries and to |
| customers, deal with local officials, and build up a | | | | reply. Approval to open an RO will then normally be |
| corporate presence. Not all agents can be relied upon | | | | granted. Approval certificates are valid for three years, |
| to perform these tasks to the standards a company | | | | but still have to be renewed annually. Any change of |
| requires. | | | | foreign representative will mean the company has to |
| What Does an RO Do? | | | | go through the approval procedures outlined above. |
| 4. The Chinese distinguish between a "representative | | | | 15. Within 30 days of approval having been received, |
| office" (RO) and a fully-fledged "branch office" of a | | | | the company then needs to complete other approval |
| foreign company. An RO must be in place before the | | | | procedures, most of which involve registering itself with |
| company can have a branch in China . Permission to | | | | the following organisations :- |
| "up-grade" an office is at the discretion of the Chinese | | | | The local office of the State Administration for Industry |
| authorities. | | | | & Commerce (SAIC), presenting the same |
| 5. Foreign companies' ROs are not allowed to transact | | | | collection of papers as those required by MOFCOM, |
| business directly in China . Chinese regulations only | | | | together with the latter's approval certificate. |
| allow them to "build relations and provide technical | | | | The Public Security Bureau (PSB) (with respect to |
| support". But this does mean that they are able to | | | | future visa applications). |
| carry out the liaison activities with Chinese government | | | | The Customs Administration (regarding import |
| and commercial organs, which are essential to | | | | procedures for personal effects). |
| successful business in China . | | | | The Tax Bureau. Both the RO and each of its staff |
| 6. ROs operate under two sets of Chinese legislation, | | | | members must register with the local tax bureau of |
| the Interim Regulations for Control of Resident | | | | the Ministry of Finance. |
| Representative Offices in China , issued in 1980, and | | | | The Bank of China (BOC) (regarding company and |
| the 1983 Procedures for the Registration & | | | | personal bank accounts). Certain other Chinese banks, |
| Administration of Resident Representative Offices of | | | | including the Bank of Communications and the CITIC |
| Foreign Enterprises in China . ROs for banks and other | | | | Industrial Bank are also authorised to deal with |
| financial institutions are governed by separate | | | | foreign-related business. |
| regulations. In addition, some municipalities and provincial | | | | Expatriate Workers |
| governments have rules of their own, covering specific | | | | 16. In addition to the Chief Representative, Chinese law |
| areas. Local differences can be confusing. For | | | | allows an RO to be staffed by other expatriate |
| example, although there is no nationwide duty-free | | | | representatives. Only the ROs for banks and other |
| import policy for ROs, Tianjin allows the duty-free | | | | financial institutions have limits placed on the numbers |
| import of two cars per RO, and Dalian has no | | | | of expatriates who can be employed (law firms will |
| restrictions whatsoever. | | | | have the latest details). The larger ROs, which require |
| 7. In general ROs are allowed to do the following :- | | | | a number of skilled overseas staff (such as |
| Liaise with the foreign company's Chinese trading | | | | consultants, accountants and interpreters), often |
| counterparts. | | | | appoint them all as "representatives" to avoid being |
| Liaise with the host organisation and host Ministry for | | | | obliged to recruit staff from one of the State |
| specific projects. | | | | Employment agencies (see below). |
| Organise business meetings, and business visits from | | | | 17. Prospective representatives should register |
| company headquarters. In this respect, ROs can often | | | | successively with the company's Chinese sponsor, the |
| help obtain business visas more easily for visitors. | | | | local SAIC office, and the local PSB office. The PSB |
| Conduct public relations work. | | | | (who will require a set of matching photographs and a |
| Undertake local administration. | | | | registration fee) will grant a foreigner's residence |
| 8. The official limits on ROs' activities are not clearly | | | | permit. The representative should at the same time |
| defined. A number of business representatives in ROs | | | | apply for a six-month multiple entry visa. Finally, the |
| have found loopholes in the regulations prohibiting | | | | applicant should register with the local tax bureau within |
| revenue-earning activities. As a result, in 1993 the | | | | 30 days of starting work. |
| Chinese Government introduced a tax on ROs' | | | | How to Find Local Staff |
| "unofficial" income. But companies should be aware | | | | 18. Chinese staff for ROs must be supplied by a State |
| that violating the official restrictions on ROs' activities | | | | employment agency. For the most part, companies are |
| might also result in the suspension of the company's | | | | required to recruit personnel from FESCO, but recently |
| business activities in China , together with a fine. | | | | other more specialised State bodies have been set up, |
| Where Should the RO be Based? | | | | and to which foreign companies can legitimately apply. |
| 9. The most popular sites for ROs are Beijing , | | | | 19. Foreign companies usually make their bid for staff |
| Shanghai , Guangzhou or Shenzhen. Beijing 's | | | | to FESCO, who will send for interview a selection of |
| advantages are that it gives access to Government | | | | personnel whom they claim meet the company's |
| departments, Embassies and other foreign businesses. | | | | conditions. Once staff have been recruited, the |
| 10. Shanghai is experiencing a period of rapid economic | | | | company must make a monthly payment to FESCO |
| development, and may be a good site for the RO of a | | | | for staff salaries. In order to offer staff incentives, and |
| company setting up a Joint Venture there. Guangzhou | | | | to discourage speculative job-hopping, most foreign |
| is a useful base for companies with operations in | | | | companies pay staff a separate allowance to make |
| South China . Shenzhen, the Special Economic Zone | | | | up what would otherwise be quite paltry salaries. |
| (SEZ) across the border from Hong Kong, is a major | | | | Upgrading to Full Branch Status |
| workshop for companies sub-contracting to Hong | | | | 21. Once the RO has been in operation for several |
| Kong firms. A number of overseas firms have set up | | | | years the company may find it appropriate to seek to |
| ROs in China 's other SEZs or Open Coastal Cities . | | | | upgrade it to a full branch office. The circumstances |
| Shenzhen is the best choice for doing business in | | | | might be the formation of a Joint Venture with a |
| China . Situated in the Pearl River Delta, Shenzhen is | | | | Chinese partner, or some other form of long-term |
| the first Special Economic Zone since China carried | | | | collaboration. The procedures for upgrading an RO to |
| out reform and open-door policy 30 years ago. | | | | a full operational branch office are quite complex, and |
| Shenzhen has an area of 1953 square km's and a | | | | vary from one industry to another. Approval will often |
| population of more than 10 million. Shenzhen is the best | | | | have to be sought from a number of related Ministries, |
| city both for living and working in China as well as the | | | | a process which is usually extremely time-consuming. |
| fastest growing city in the world. In Shenzhen you can | | | | Clearly, if a British company were to contemplate a |
| enjoy the sound infrastructure and the intensive | | | | step of this kind, its board would need to have made a |
| industrial chain for trading, manufacturing and value | | | | firm commitment to a long-term relationship with China . |
| investment. Since Shenzhen is bordering Hong Kong , | | | | 22. Even if a company sets up an operational branch |
| you can also take great advantage and opportunity | | | | in China , it may still be appropriate to maintain a |
| from the "one country, two systems" policy. | | | | separate RO, especially if the company is part of a |
| Applying for an Office Licence | | | | group with other interests in China . |
| 11. All foreign companies wishing to open an RO must | | | | Points Made by Expatriate Managers |
| obtain Chinese Government approval. The decision lies | | | | 23. The following points represent some of the more |
| with the Ministry of Commerce (MOFCOM), which is | | | | common views on running ROs expressed by local |
| now the sole supervisory agency for all except | | | | expatriate managers. |
| companies operating in the financial sector, who must | | | | A number of managers have commented that the |
| apply to the People's Bank of China (PBOC). | | | | effective management of a Chinese RO requires a |
| 12. The foreign company needs first of all to obtain a | | | | wide range of skills. A knowledge of Mandarin is a |
| letter of invitation from a "host organisation", a local | | | | distinct advantage, as is the ability to be an efficient |
| sponsor which is usually a Chinese company with | | | | operator under adverse conditions. It is also helpful to |
| which the foreign firm has had business dealings in the | | | | know how to transact business with the Chinese |
| past. Sponsors can also be selected from among the | | | | bureaucracy. |
| consultancies, which are attached to Government | | | | According to foreign company representatives based |
| bodies such as MOFCOM or the Foreign Enterprise | | | | in China , the quality of local personnel can vary widely. |
| Service Corporation (FESCO). | | | | It is increasingly difficult to find staff with the right |
| 13. The Chinese sponsor's letter introduces the foreign | | | | combination of skills. Companies find that they often |
| company to MOFCOM (and the PBOC in the case of | | | | need to provide basic training in Western business |
| financial firms), and recommends that the company be | | | | methods and marketing skills. Experience has shown |
| permitted to establish an RO. The Ministry will then give | | | | that the best employees should receive financial |
| the foreign company a list of documents that need to | | | | bonuses over and above the standard salary as an |
| be submitted before an application can be considered. | | | | inducement to loyalty. |
| These documents will normally include :- | | | | The cost of renting property in China is extremely high |
| A letter from the company Chairman, identifying the | | | | by world standards, but seems to have levelled for the |
| company representative. | | | | time being. Telecoms charges are high. The cost of |
| A complete list of the Board of Directors. | | | | expatriate packages is also very high, in view of |
| Articles of association. | | | | accommodation costs, rest and recreation breaks, |
| Annual company reports for the previous three years, | | | | health insurance and other benefits. |
| plus the most recent balance sheets and profit/loss | | | | |