While Chinese market offers significant opportunities for foreign businesses, doing business with local companies could be challenging. Cultural differences, intellectual property risks, non-enforceable contracts, delayed payments – you name it. Below we offer a basic guide for selling goods/providing services to Chinese companies.
Get to Know Them
Background Check
Recently, company background and credit checks have become more common in China. Nowadays this practice extends beyond foreign companies seeking to engage with Chinese counterparts, as even domestic companies are increasingly utilizing these measures in their business dealings with one another.
The basic information on Chinese company, including its name, address, date of establishment, and business scope, is accessible to the public through two primary channels:
- On-site search at the registry of the local Administration of Industry and Commerce (AIC).
- Online search via the official website of the local AIC.
Access to more detailed information, such as shareholder structure, historical company changes, and financial data, typically requires providing ID or business license along with a power of attorney authorizing the individual to conduct the search.
Due Diligence
While due diligence has gained increased recognition over the past decade, its prevalence in China remains lower compared to Western standards. Conducting thorough examinations of a company’s operational, financial, and legal aspects to verify that the information presented to you aligns with reality is essential for any foreign entity seeking to establish a long-term, stable partnership with a local counterpart.
Don’t Get Lost in Translation
Dual-language contracts: which language controls
In the dual-language contracts, if you want English version to prevail, both English and Chinese portions of the contract need to clearly state so. The Chinese language always takes precedence over the other language; therefore, the Chinese portion of the contract has to specifically state otherwise. In cases where both English and Chinese language sections of the contract do not specify which portion takes precedence, Chinese courts will defer to the Chinese language portion.
Translations
Make sure to hire a good translator preferably with an experience translating legal documents or a legal background, and have contracts reviewed by a lawyer. We still see cases when the Chinese translation of the contract differs from the English version. In most of these situations Chinese version prevails exposing foreign businesses to risks of financial losses, disputes, strained business relationships, and potential legal repercussions.
When signing a contract drafted by the other party, make sure you have a perfect understanding of what you are signing, because the local lawyer who prepared the contract will always favor the local company over foreign.
Secure Your Money
When working with Chinese companies, one quickly realizes that locals often don’t like paying on time, as well as find ways to reduce the contract price.
Ensuring timely payment should be your main concern when selling goods or services to Chinese clients. To preempt potential challenges, incorporate contract clauses regarding down and net payments. Refrain from starting the work until both parties have signed (and chopped) the contract and you have received a substantial down payment. Always quote the net amount to your Chinese client – this way you will be certain of the sum you receive regardless of tax considerations.
S.J. Grand expert team offers 20+ years of valuable experience to help you safely navigate Chinese business landscape.
S.J. Grand is a full-service accounting firm focused on serving foreign-invested enterprises in Greater China since 2003. We help our clients improve performance, value creation and long-term growth.
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