How to set up business in China

Is it best to set up a local base or operate from the UK?

In China, relationships are the key to winning business, so you must put a lot of effort into showing your face and making contacts. This requires a permanent base in the country. Indeed, you really need a physical presence where your work is - there's no point trying to win work in Chongqing from Shanghai, says British Expertise, a private-sector body promoting professional services from the UK. Popping in and out does not go down well with Chinese clients; it might save you money in the short term but could scupper your long-term prospects. Plenty of firms base themselves in Hong Kong, which is fine for winning work in the Pearl River Delta but won't help much when it comes to reaching more far-flung clients.

Do you need to form a joint venture with – or even buy – a local firm?

The two main ways of incorporating yourself in China are through a wholly owned foreign enterprise (WOFE) or a joint venture. Going in as a WOFE allows you to retain complete control and helps maximise return. But partnering up can make things easier at the beginning because of the local expertise the second-party investor will bring. There are also plenty of companies for sale, but doing due diligence is tough. You really have to do your research before making an acquisition or forming a JV.

Should you start with existing clients or can you go in cold to win work?

Going in with a client can help, especially if it has a large development programme and can keep you in work for a while. If you leave after doing one, short job, it could harm your reputation and your purse. The success of going in cold will depend on your location. In more remote areas, where there are fewer foreigners, lighter bureaucracy and a more welcoming culture than in the big cities, you may win work quite easily, though it can be hard to do due diligence. Another method is to join a trade mission, which will get you networking with the right people.

What are the best ways to network with local contacts?

A lot of the real business gets done over dinner after meetings, when people are a little more relaxed. Be prepared to respond to plenty of toasts and to get stuck into the karaoke. Drinking games are also popular. Seminars and lectures can also be a good way of making contacts, as well as networking events at the local chambers of commerce - the Shanghai branch holds one on the second Thursday of every month.

To ensure you get paid, should you insist on a large amount up front?

Make sure you get guaranteed letters of credit. Payment up front is not usual.

Is it best to hire locals or ship out staff from your UK office?

Chinese staff are important - they know how the system works, will already have contacts and speak the language. In certain areas, such as PPP, homegrown expertise is lacking so you will need senior staff from the UK. Either way, it is best to try to keep hold of employees for the long term so that they have a chance to build up the relationships that are all-important to business in China.

Are extra financial or other incentives necessary to attract staff?

If the spot in question is Shanghai, then the nightlife, shopping and general buzz sell themselves. More remote cities may be a harder sell, though they are catching up fast. As work dries up in the UK, the chance to work in a dynamic economy may be more and more appealing.

What bureaucratic hurdles do you face to establish yourself and generally get things done?

Chinese bureaucracy is notorious, for good reason, but it is getting better. Contractors are split into four grades - special, one, two and three - and only those with the “special” licence may bid for the most prestigious projects. If you manage to win a bid, you then face having your every move pored over by a “local design institute”. But consultants that hook up with well-connected developers (do your research!) will have an easier time.

What is the most tax-efficient way of operating?

Navigating local tax laws can be a bit of a minefield. The best thing to do is employ somebody who understands the system, to help you maximise efficiency. You can also seek advice from the UK Trade and Investment office.