Are you looking at doing business in China?
This page will kick off our English series on doing business in China and setting up or closing down a company.
It’s important to have all the information before you start.
If you know what you are looking for already, you can click on the subpage lower down in the article to learn more.
Each page will cover Chinese business topics in greater detail.
Starting a company:
- Setting up a joint venture with a Chinese company
- Wholly Foreign-Owned Enterprise (WFOE)
- A Representative company
- Immigrating to China
- Intellectual property
- Making connections in China (consulting services)
- Raising capital in China
- Employment contracts
- Shareholder agreements
- Joint venture agreements
- China company due diligence (is the company a scam?)
Dealing with problems:
- Criminal charges related to business (if you get arrested or detained in China, prevention)
- Shutting down your company
- Bankruptcy in China
- Lawsuits in China (starting or defending)
- Divorce in China (affects your business)
While we are lawyers, we like to act more like a consulting company. Some people are scared to talk to law firms but happy to talk to consultants.
Therefore, instead of consultation, we will prepare a proposal.
Photo: (ClearWay Law CEO- Alistair Vigier)[/caption]
Advantages Of Doing Business In China
The opportunities are massive in China. It has the second-largest economy in the world.
Let’s say you start doing business in Australia and become very successful. If you own the Australian market, you are limited by the size of their economy.
If you do business with China and own the market, you could become one of the world’s largest companies.
Take a look at the largest market caps in the world. They are almost all American and Chinese companies.
The other advantage of doing business in China is that you will likely find it easier to raise money.
People and investors will get excited that you are taking a big risk with a potentially big reward if it works out.
In investment terms, this is called the total addressable market.
Doing business in China legal issues
Since we are a legal consulting company with lawyers and paralegals in Canada and China, we will also talk about the risks of doing business in China.
Many of the legal issues are covered in the subsection blogs at the end of this article.
However, we will give you a quick overview of many of the common legal issues that happen in China.
The main two issues are intellectual property theft and criminal threats. Divorce can also be a real issue that can tie into criminal threats or exit bans.
The main issue has a simple solution, get your trademark professionally registered. Also, have a business in China who can enforce your trademark.
If you have no plans to enforce your trademark, then what’s the point in registering it?
If someone steals your IP , make sure you have a Chinese lawyer who can start a lawsuit.
Your lawyer will show the registered trademark to the judge, along with the proof that another company was using it illegally.
China criminal justice system
We will only cover the criminal justice system as it can be used against foreigners.
Sometimes when a joint-venture is very successful, the Chinese partners might try to push out the foreign partners.
Sometimes this can be done by making allegations to the police, which will lead to exit bans or detention while the police investigation.
Assuming it was not true, you could still spend several nights in prison, which is scary.
The police can hold people for up to 37 days before formally arresting you. This can happen if you upset the wrong types of people.
Spending 37 days in the prison of a foreign country is not a joke. Once arrested, they can hold you for over a year without criminal charges .
You must be careful when doing business in China. The opportunities are massive, but so are the risks.
Keep in mind that things that are not criminal in Canada, the United Kingdom, and Australia could be illegal in China.
Speak to your business lawyer to prevent this sort of thing from happening. Having strong agreements with the joint venture company is important.
If you have already gotten into trouble with the police, you will need to connect with one of our criminal lawyers in China.
If the individual you are working with is wealthy, they can hire their own lawyer to apply to the court for you to be arrested.
This is called a “criminal lawsuit.” This is unique in China.
In short, criminal law can become tied to business law in China. This will especially be true if you are seen to be breaking government rules.
Business do’s and do not’s in China
- Do your research
- Hire a lawyer
- Register your trademark
- Have tight contracts with companies and employees
- Don’t upset the government
- Do not act like China is the same as your foreign country
- Don’t upset wealthy people or people in power
- Do make connections with powerful people and treat them with respect
- Do not bribe people (criminal law)
Opportunities and threats of doing business in China
You are going to have to consider other “boring” things as well. These include taxes and corporate structure.
Everyone wants to read about marketing, search engine optimization, and sales. No one wants to read about taxes and legal compliance.
However, if you do a great job at sales and marketing, but you are not following China law, you will be worse than nothing.
Everything you have built will be taken away, and you will likely end up in a worse position than if you hadn’t come to China at all.
You need to be properly set up. It would help if you had proper legal advice.
There are different legal and tax structures, and each has its own pros and cons.
You will also need to do due diligence on the Chinese company you partner with.
Our legal team can look to see if they have a history of criminal problems or other issues. Our team can see if there are any lawsuits against the company.
Legal Disputes In China
As a foreigner, if you get into trouble with the law in China, it’s going to be hard for you.
You will have problems understanding unless you speak perfect Chinese. If you are speaking English, the courts or police will likely not understand you.
There are also cultural misunderstandings that you might not understand. You might be offending the judge or police, and you don’t even know it.
When dealing with small things, like taking pictures in the wrong place, normally foreigners won’t have any problems.
The police will assume you don’t know what you are doing.
However, larger things can be a problem. For example, if you are accused of owing money to a Chinese person, you might go to jail or get exit banned.
If you ever get in trouble, call us. Once you are in jail, it’s not the right time to start doing lots of research on the internet.
Better yet, our lawyers can help you avoid getting into trouble in the first place.
Relationships With Chinese People
Below is a story about a business person from Australia who moved to Tianjin.
You might wonder what relationships have to do with running a business in China? Everything.
If you get into lawsuits, get arrested, or get banned from China, it’s going to impact doing business in China.
There is a person that we will call Steve. Steve was dating a Chinese girl called “Sarah.” Sarah found out that Steve cheated on her.
Sarah got into his house and destroyed it with a golf club. All of his furniture, the windows , Steve’s clothes were destroyed.
Sarah then hits Steve with the golf club, and Steve hit her back to grab the golf club. Sarah calls the police and Steve gets arrested.
The police say that Sarah needs $10,000 to let the issue go. The police take away Steve’s Australian passport until he pays the money.
This is essentially the same thing as exit banning someone. You cannot board a flight to another country without showing your passport.
Steve paid the money. But Steve also could have hired a lawyer, spent $2000 on legal fees, and that likely would have been the end of the issue.
He also did not get compensation for his destroyed house, which was around $7000 in damage.
Author: Alistair Vigier is the CEO of Clearway and can be reached on Wechat at: alistairvigier