Business China

The Potential Danger of Foreigners Starting a New Business in China

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The number of companies in China is increasing at a rapid rate, with more and more foreign businesspeople investing in the growing economy. With 77 million companies currently registered in China and an estimated 12,000 new businesses being started each day, it’s no surprise that China is the leading economy in the world

But with so many businesses being registered each day, it’s highly unlikely that all of them will succeed. This is largely due to businesses trying to jump ahead without taking into account the potential dangers faced by new companies.

Here are the common dangers foreign trading companies need to watch out for when starting their business in China:

Choosing the Wrong Business Entity When Forming and Registering the Company:

Choosing the wrong type of company and failing to comply with the legal and pre-specified registration requirements is a common issue among foreign entrepreneurs in China. Before starting a business in China, investors need to familiarize themselves with the various business vehicles they can choose. Each type of company comes with its strengths and weaknesses, and has different set-up requirements.

representative office in China.

Failing To Establish Who They're Dealing With:

Establishing who they’re dealing with is of crucial importance for foreign traders who are looking to source products from China. It’s quite common to see companies in China posing as manufacturers while being traders themselves.

This makes it difficult for foreign traders to get competitive deals, and they end up paying jacked up prices with mark-ups and have to deal with order delays and shoddy product quality. The best thing to do is to confirm whether the company they are dealing with is a legal business and has a proper license. If possible, foreign traders need to establish direct contact with them while checking out their online credentials.

Drawing Up Insufficient Contracts That Lack Enforceability:

Drawing up a proper contract is a vital part of protecting the interests of your company in China. A lot of contracts drawn up by foreign businesses aren’t specific enough and lack enforceability under the Chinese court of law. This is in part due to the language barrier. Whilst certain terms might imply something else where the entrepreneur comes from, they might not mean the same thing under Chinese law.

The best course of action is to get professional help. Prospective investors should consult local companies such as Business China that deal in helping foreigners set up their company in China. This way they can get expert legal advice and can draw up enforceable contracts in the Chinese language to protect their assets and interests.

Give us a call today at +86-020-2917 9715 for any queries and assistance you might need for setting up your WFOE, representative office or small business entity in China.

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