Law relaxation has made China a firm favourite

deregulation of company law in China is making it easier for Yorkshire SMEs to enter the world’s second-biggest economy, according to DLA Piper.

Josh Wong, a Leeds-based partner at the international law firm, said the trend started when China joined the World Trade Organisation a decade ago.

In the early years, however, it was only large businesses, such as major retailers and manufacturers, that could guarantee a big enough investment to break through.

But all that is changing after the People’s Republic decided to ease its incorporation laws to open up the market to smaller companies.

The Chinese authorities allow foreign businesses to incorporate trading companies, which can be used to buy goods from China to export to the UK or to import goods from the UK to sell into the Chinese market.

“Instead of relying on agents to sell or source their products, Yorkshire companies can do it themselves by establishing their own business out there,” said Mr Wong.

It takes an average of three months to establish a trading company. This might be slower than in the UK, but it represents an improvement as the process used to take up to two years.

Mr Wong said: “What’s improved is the amount of discretion the Chinese government has.

“There used to be times when you were never certain what would be approved. Now Yorkshire companies know they can get a trading company if they pass through all the formalities.”

While there might be a lot of paperwork and administration, it is not a difficult process, added Mr Wong, who estimated that the legal fees involved are around £10,000, depending on how complicated the set-up.

The other cost to bear in mind relates to minimum registered capital, which is the sum of money that needs to be invested in the trading company.

Amounts vary according to region as each district is able to impose its own limit, but the average minimum registered capital for trading companies in big cities is $100,000 (£62,000), said Mr Wong.

This can be invested over two years and can include the value of equipment, he added. Manufacturing companies usually have to pay more – often in the region of $250,000 (£155,000).

Once established, the trading company can employ Chinese staff and staff from the UK via secondee arrangements. UK workers need a visa, but as an employee of a Chinese company these are relatively easy to obtain.

Mr Wong, originally from the Guandong province, said firms in Yorkshire that are considering doing business in China must understand that the main driver for doing business is the relationship.

He added: “Relationships come first, then business. It flows on from that. The important thing is building a network of people you know in China.”

The role of local government is also very important, more so than in the UK.

Mr Wong explained: “In this country, we don’t usually expect local government to have any influence at all in business.

“China is a political regime in which government has an overarching responsibility for everything that happens and that includes business.

“The most successful companies from Yorkshire are ones with excellent relationships with local government.”

Prof John Shutt, of Leeds Business School, said underlying everything in China is state investment of one form or another. He added: “If you are not at ease with that it could be difficult. Everything is still controlled by the Communist Party. You have to engage with those mechanisms.”

Mr Wong said foreign firms entering China will soon be met by officials from the Foreign Investment Bureau. They can help companies with applications and introductions to potential business partners, customers and suppliers and also to other Western companies in the area.

“They are important people to know and they can be extremely helpful,” he said.

He is seeing a cultural shift in Yorkshire as more companies consider doing business in China, when previously they would not have thought it possible.

He said: “They would have thought they are too small, or it is too expensive or would take too long. But more and more Yorkshire companies are seeing it as an option for them.”

Key advantages include the ability to cut out the middle man – the Chinese agent – with companies often employing former agents to work for them.

Working for Western companies carries real prestige, said Mr Wong.

Another advantage for Yorkshire businesses in setting up in China concerns quality control, in that they can check goods before export to the UK.

Mr Wong said: “From DLA Piper’s point of view, in the last two years we have set up 60 companies for UK businesses in the north of England, with Yorkshire being a big part of that.

“The previous two years there was only 10. There’s been a big increase.”

He added: “There’s a huge amount of resource for Yorkshire businesses when they are considering investing in China; obviously law firms and accountants who are established in China as well as Yorkshire.”