US JLJ - China Business FAQ

Market Research & Consulting FAQ

Q: What are the critical questions for companies approaching the China market?

Understanding the business environment is critical to a successful entry into the China market. Critical questions include:

Whether there is a market in China for your products/services
Market size, growth potential and possible opportunities
Potential barriers (such as market competition, protection of intellectual property, regulatory constraints, etc.)
Type of legal entity to best address your business objectives
Optimal location for your business in China
Target customers, pricing, sales & distribution channels, marketing activities
Recruit and retention of key talents

Q: Why would a company use consultants?

Conducting market research and developing business strategies in China is different and, in general, significantly more challenging than it is in developed countries, because of the size and diversity of the country, the lack of reliable centralized/official information databases, as well as speed of change of the business environment as well as the whole China economic system.

Professional consultants can increase chances of success and accelerate time-to-market by leveraging in-depth knowledge of the local market conditions and past experience from dozens of similar projects.

Q: What is the track record of JLJ Consulting?

JLJ Consulting has a broad portfolio of clients that include SMEs (Small and Medium size Enterprises), large companies including Fortune500, as well as various governmental and international organizations. Our projects cover a wide range of topics, from simple market research to complex strategy consulting work related to entry & growth in the China market.

The team has first-class consulting experience gained at top international consulting firms such as The Boston Consulting Group and has a cumulative experience of well over 100 consulting projects executed in and outside China.

Providing tangible value to our clients is a key priority for JLJ and is the best way to build a strong reputation in the market place and establish long-term relationships. Therefore, we strive to meet or exceed our clients’ expectations in every project we undertake. New clients are often referred to us by previous clients or recurring clients.

Q: Does JLJ consulting have specific industry expertise?

JLJ has specific experience in several industries in China, including the following:

Agriculture Products / agricultural processing
Automotive & Automotive Components
Chemical & Special materials
Environmental and Energy
Fast Moving Consumer Goods (FMCG)
Financial Services
Food & Beverage
Health & fitness products
Information technology
Logistics, Warehousing & Transportation
Luxury Life Style (Yacht, Golf, etc.)
Machinery, Machine Tools and Industrial Components
Media, Entertainment, Internet and Gaming
Medical and Dental Equipment & Devices
Real Estate
Regulatory environment & business practices – labor law, taxation, Human resources, trading
Retailing & franchising
Shipbuilding
Textile & Garment
Pharmaceuticals
Pulp & Paper

However, given our proven research methodology, extensive network, and experience of well over 100 consulting projects already executed, we are able to serve virtually any clients in any industry, even without previous exposure.

Q: How does JLJ price consulting projects?

Fees for market research and consulting projects vary greatly depending on several factors including project scope, specific deliverables, manpower needed, and level of seniority dedicated to the project.

A definite quotation is given as part of the proposal once the project scope and deliverables are fully clarified and agreed with the client. JLJ Consulting prepares proposal free of charge and with no obligation from the client.

Corporate Formation FAQ

Q: What are the different legal set-up options available for starting a business in China?

There are four basic options to choose from when deciding the type of investment to commit to, namely:

1. Representative Office (Rep. Office)
2. Wholly Owned Foreign Enterprise (WOFE)
3. Equity Joint Venture (EJV)
4. Cooperative Joint Venture (CJV)

Each of these four options caters to different business needs and has its own set of requirements and restrictions. For example, Rep. Offices do not require minimum investment but are not allowed to conduct certain activities such as directly hire local employees and handle business transactions. On the other hand, WOFEs may legally conduct business transactions within China and hire local employees on its own accord, but require a minimum investment that is dependent upon the locality and nature of the business. More information about the different legal set up options in China can be found in our China Market Entry Handbook.

Q: What is the minimum capital investment for a business establishment in China?

All Foreign Invested Enterprises, including WOFEs and Joint Ventures, are required to declare their registered capital during registration. The registered capital provides its creditors verification of the company's financial adequacy and should cover all the initial and immediate start up expenses including rents, salaries and setup costs. Although there is a theoretical guideline for minimum registered capital based on total investment, the Chinese government will consider and approve each registration on a case by case basis. More details about the minimum registered capital guideline can be found in our China Market Entry Handbook.

Q: What does the process of registering a business in China involve?

China is notorious for its bureaucracy and the business registration process is no exception to the country's penchant for regulations. Before October 2004, companies were not even allowed to register by themselves and were required by law to use an authorized agent. Although the statutory requirement has been abolished, the process remains complicated and engaging a professional and experienced agent can substantially smoothen and speed up the process.

The registration process typically involves numerous Chinese governmental offices including the Ministry of Commerce, the Administrative Bureau for Industry and Commerce, State Administration of Foreign Currency, Taxation Bureau, the Customs Office, and the Statistics Bureau. The detailed process of business registration can be found in our China Market Entry Handbook.

JLJ is fully licensed by the Chinese government to execute registrations for foreign companies and has a proven track record of effectively guiding foreign investors through the complicated process of business registration.

Accounting FAQ

Q: How are foreign companies taxed in China?

Foreign companies in China must register with the relevant tax authorities within 30 days after they receive their business license. Subsequently, they will be subjected to various forms of taxation, including corporate income tax, business tax, stamp tax, housing tax, vehicle & vessel tax and value-added tax. The tax rates vary with the type of establishments formed, the location of the company as well as the industry sector of the business.

The companies will also need to file annual audits before the end of every March. Their profits can only be distributed and repatriated to their home country after the annual audit and the settlement of their relevant income tax liabilities. More details on how Rep Offices and WOFEs are taxed in China can be found in our China Market Entry Handbook.

Q: How does individual income tax vary between local and foreign employees?

There is no uniform application of individual income tax rates in China and significant differences exist between cities such as Beijing, Shanghai and Guangzhou. For Shanghai, local employees are liable to an individual income tax (IIT) based on 9 progressive rates ranging from 5% to 45% and includes a deductible equivalent to 1,600 RMB plus their contribution to social insurance. Foreigners, who do not contribute to social insurance, are subjected to the same 9 progressive tax rates, but are entitled to a deductible equivalent to 4,800RMB. Furthermore, not all foreign nationals' incomes are taxable, and a key factor that influences their tax liabilities is the duration of their stay in China. More details on the calculation of IIT can be found in our China Market Entry Handbook.

Recruitment FAQ

Q: What are the benefits of using an Executive Search Firm?

Fuelled by foreign investors' demand for high caliber talent, Executive Search has been a popular service in China since 1992. The benefits of turning to a professional search firm are apparent, given the high expectations for candidates and the limited talent pool in China.

1. Reaching candidates not currently in the job market. Through executive search firms' network and candidate records, it is possible to uncover suitable candidates who are happily employed and not actively looking for new employment opportunities.

2. Ensuring reliability in reference checks. Unlike in-house HR staff which do not have the network and have to rely heavily on references provided by the candidates, recruiters in professional search firms tap into their reliable and usually more realistic sources to get an honest story on candidates.

3. Executive hiring mistakes are extremely expensive. Professional search firms can help companies avoid hiring mistakes that often occur when inexperienced in-house HR staff mis-communicates job expectations or requirements.

Q: What are the differences between a retainer contract and contingency contract?

Recruiting firms function in one of two ways, either on a retainer basis or a contingency basis. There are many differences between these two types of services beyond the superficial difference of how the recruiter is paid.

A retainer executive search is defined as an exclusive project undertaken on behalf of a client to identify and screen suitable candidates for a particular position; typically mid to senior level executive positions with selective criteria. A portion of the fee is paid upfront with the balance paid when the search is over.

Contingency search are typically used for junior or entry-level positions with clearly defined requirements, and when speed of hiring takes precedence over finding the ideal candidate. The search firm receives payment only if they successfully fill the positions and it is not unusual for the same job opening to be assigned to a number of search firms.

Q: What is the recruitment process like and how long does it take?

The recruitment process comprises three stages: Planning, Candidate Sourcing and Assignment Closure. The detailed process flow is as follow:

The whole recruitment process, from project commencement to acceptance of job offer by selected candidate, typically takes two to three months. However, the time required may vary, depending on the search difficulty of the job position, client’s internal recruitment processes and communication of expectations.

Q: Which industries does JLJ’s Recruitment division, Huijie, serve?

Over the past years, JLJ's recruitment division, Huijie, has established a proven track record in executive search and staffing for industries including pharmaceutical, industrial and engineering, high-tech as well as FMCG (fast-moving consumer goods).

We have successfully helped both multinational and local companies recruit suitable candidates for a variety of functional roles including HR, Finance, Sales & Marketing, Operation, Technical and others.

JLJ leverages on our large network of high-quality candidates, covering broad industries and functions, and experienced professional headhunters to help companies overcome the challenge of talent shortage.

Payroll & HR Outsourcing FAQ

Q: What are the issues to consider when hiring local employees in China

A company should first find out if it is legally authorized to hire local staff directly in China. Rep Offices, for example, are not allowed to hire local staff directly and must engage an authorized employment agency to dispatch talent for their HR needs.

The compensation rules in China may be different than the company is accustomed to. Basic components of an employee's compensation include base pay, incentives/bonuses, allowances and benefits - both mandatory social security benefits and employer-determined supplemental benefits.

The company (or its representing employment agency) and its employees must agree on an employment contract that satisfies the China Labor Law requirements. Should the employer terminate the employment without valid cause, it may be subjected to legal action and required to pay termination compensation to the employee. More details on the regulations governing employment in China can be found in our China Market Entry Handbook.

Q: How can I optimize my HR operations?

Many foreign companies would not like to be hindered by the various HR issues and prefer to outsource their business operations to a solution provider. A company can substantially optimize its HR operations by engaging two types of services - Talent Dispatching and HR Agency Services.

Talent Dispatching Services are available to companies which are either unauthorized to recruit local staff directly (eg. Rep Offices), or companies which need temporary manpower for short-term projects. The service provider assumes the role of the official employer and is obligated to pay all necessary taxes and social benefits on their clients' behalf.

HR Agency Services provide ease to companies by managing HR activities such as Employment Procedure Management, Personnel File Management, Payroll & Benefit Setup & Administration, Personal Income Tax Filing, Labor Dispute Resolution and Visa/Permit Application & Renewal. More details on how to optimize your HR operations can be found in our China Market Entry Handbook.

Q: What kind of social benefits do I need to pay for my local employees?

Benefits for Chinese employees can be classified as mandatory or supplemental. Mandatory benefits contributions by both employers and employees are stipulated by the China Labor Law and comprise a significant portion of the total compensation. This contribution goes towards the employees’ pension, unemployment, medical, workplace and maternity insurance, as well as public housing fund.

The total labor cost of a Chinese employee will thus be computed as:
Labor Cost = Gross Salary + Social Benefits (By Employer)

The net salary of a Chinese employee will thus be computed as:
Net Salary = Gross Salary – Social Benefits (By Employee) –Individual Income Tax

More on social benefits in China can be found in our China Market Entry Handbook.

Q: What documents must I prepare for my foreign employee to work in China?

Your foreign employees will need to obtain the following documents In order to enter and work legally in China:

Alien Employment License
Work Visa Notification Letter
Work Visa
Proof of Temporary Residence
Health Check Report
Employment Permit
Residence Permit.

The process of application for the above stated documents is as follow:


Company

Approach

Mission & Values

Management

Network


By Industry

By Region

Case Studies

Testimonials


Boston Office

Shanghai Office

Beijing Office

Milan Office


Boston Office

Shanghai Office

Beijing Office

Milan Office


2012 China Calendar

China Updates

China Focus

China Market Entry Handbook

China Industry Reports

Corporate Brochure

FAQ


Market Research & Consulting

Corporate Formation

Accounting

Recruitment

Payroll & HR Outsourcing

JLJ Non-Profit

Why JLJ