Expanding your food processing business into China requires much more than a capital investment—it requires a significant investment in upfront planning and research. Expats who are currently operating a business in the country can be your greatest source of information, both in navigating China’s financial industry and in identifying trusted sources. Here are a few key things you need to know about banking, taxes and staffing before expanding your food processing operations in China.
- In order to establish a banking relationship in China, a referring U.S. bank must provide a formal, written letter of introduction that must be hand-delivered to your Chinese bank. This is one area where understanding Chinese customs is crucial. Chinese business in general is very formal and it is important to learn about the cultural expectations, including how to greet colleagues, the proper procedure for handing someone a business card, and the expectation for long, formal business dinners.
- All financial transactions in China are via electronic transfer, which incur additional expenses. There are no checks, and non-Chinese citizens are limited in their ability to obtain credit cards from a Chinese bank.
- Banking in China has very specific requirements as to the types of accounts required. In some cases, three separate bank accounts – capital, tax and checking – are required just to begin operating. In addition, moving money into or out of a capital account is very cumbersome and requires approval of Chinese authorities, so ensure you do your research to understand the process and penalties.
- It’s critical that you find a trusted tax advisor, preferably referred from your U.S. advisors or from an expat with experience in this area. Tax advisors do not serve as counselors as they do in the U.S. and each one interprets the law quite differently. Different interpretations can lead to tax rates varying tremendously and creates a new set of opportunities when budgeting for taxes.
- It’s also important to understand the fapiao system. A fapiao is a formal tax receipt required to show proof of payment. Deductions for expenses without a fapaio mean the company cannot deduct the expenses when calculating taxable income. As a result of this requirement, every company must have their own unique fapiao stamp in order to fulfill customers’ requirements to meet their tax needs.
- The best advice for establishing a workforce in China is to build a strong local team. Surround yourself with local talent who can help you understand the culture and customs and navigate the complexities of the market. Talk to other firms and expats to help build this team.
- Chinese culture leads to very low level of employee loyalty. Workers will frequently move around for very small pay increases.
- Understand the nuances to employment and payroll. Typical Chinese employees expect a “13 month” of pay as part of their compensation package, a guaranteed bonus that is not typical in the U.S. China also has a very generous holiday policy, which mandates numerous paid holidays and can literally stop businesses from operating for up to a week at a time.
If you’d like to learn more strategies for financing and staffing your business in China, please email me at email@example.com.