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Business in China #1: Relaxing the Grip of Bureaucracy

Aug 17, 2007
Picture Beijing in the early 1990's: a strong visual presence of communism in the typical courtyard-style housing (12 families housed in a block built around a central yard), grey Mao suits everywhere, almost no neon advertising signs and only occasional cars and mini-vans on the streets. In those days there were two currencies: Yuan and FEC(Foreign Exchange Currency) available only to foreigners, with a lower exchange rate than Yuan (1$=8.9yuan, 1$=7.4FEC). Strong government control, exacerbated by the recent happenings on Tiananmen Square, meant that getting to know Chinese people was almost impossible - they were not allowed to enter hotels and so had no exposure to foreign goods and lifestyle, which were only available in hotels.

The mid-90's brought new perspectives and possibilities to China. Private ownership was booming, bringing changes in life style and rapid expansion overnight in the car industry, service industries, street advertising and real estate. A foreigner wanting to take advantage of the numerous opportunities of setting up a private business in China came up against a mountain of obstacles presented by Chinese law. The only way a foreigner was permitted to start a business was in partnership with a local person, who would have to have a major share of ownership and all legal rights. In order to apply, the name approval, acceptance from MOFTEC (the Ministry of Foreign Trade and Cooperation) and tons of other paperwork all had to be legally registered, which would take many months and was often dependant on how good guanxi (relationship building) your Chinese partner had with local authorities.

The beginning of the 21st Century brought further developments. The previously tedious business registration process could now be done by various consulting agencies, providing this service for a minimum sum in a much shorter time. The easiest way of setting up a company was to apply as a consultancy service, which term covered such a broad spectrum that it effectively allowed the individual to explore business opportunities according to the market growth. Three options became available:
- Full Chinese ownership for the investment of 100,000 yuan
- Joint venture with 51-49% ratio in favor of the Chinese partner for the same amount.
- Full foreign ownership (WOFE: Wholly Owned Foreign Enterprise) for $100,000
At this period China was still looking at limiting market growth to businesses with 'serious' investment, although services for setting up ones own business were much improved and once the business was up and running the only further legal obligation was to pay taxes.

The year 2005 brought in yet more changes and China continues to relax its need for control. Setting up a consulting company now takes only a few months. With a small amount of paperwork and a minimum of $10,000, you can own the business in China, as long as it is already registered abroad, with a Hong Kong bank account. The second step would be to hire an accountant (part-time if necessary) and open a mainland China bank account. For office space, you can run your business from home as long as the real estate management has a licence for such services or if you own the apartment. So, these days you are pretty much free to find your own way, use your own guanxi and explore the many opportunities in the land of dragons.

Copyright 2006 Dalida Turkovic
About the Author
Dalida Turkovic - Master Coach and Master NLP Practitioner has lived and worked in China since 1990. Please visit her business coaching website Small Steps Coaching and her blog at Life Coaching First Steps.
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