In the previous article, we talked about regulatory concerns and how to put together a joint venture team. In this article, we’ll touch on bank accounts and prospective partners.
Establish bank accounts for your WFOE
All WFOEs must have at least two bank accounts, according to Chang—a basic account and a capital account. A WFOE can only have one basic account, which is used for settlements and must be opened at the place of registry. The capital account will be used to fund your registered capital into China. Often, companies will establish additional RMB operating accounts to avoid using basic accounts for all their transactions and banking in a given geographic area.
Chang recommended using three guidelines when selecting your banking partners:
Transparency: You should have access to your WFOE bank accounts without having to translate and be able to access them online wherever you are traveling. Visibility to your bank records should be the top consideration of any WFOE when selecting a bank.
Communication: Make sure your banking advisor is fluent in English and will be able to communicate directly with you. Your advisor should be willing to provide you the necessary guidance on documents needed for transactions and provide you with regular regulatory updates. Chang advised against merely relying on the translations of documents and solely relying on the local manager for all banking transactions. Owners are encouraged to have direct access and a relationship with their bank, should their local manager change.
Service: “Always consider the nature of your business and what is important to you as a foreign-owned enterprise doing business in China,” Chang said, and select a banking partner that will support those goals, can service your account across time zones and provide the resources and guidance your particular company needs.
Selecting your banks based on these guidelines will help you avoid running afoul of regulations, as well as prevent fraudulent activity in your business and accounts, Chang said.
Know your prospective partners
However great an opportunity you identify in China, it’s critical that you delve into your prospective partners’ backgrounds and their networks, said Chet Scheltema, senior counsel at Teeple Hall law firm. If you run a small company or are in an industry that’s not heavily regulated, you’ll want to look at the decision-makers' personal networks, Scheltema said. This includes their professional networks, local government contacts, former classmates, and their families to gain insight into their values and ways of doing business.
But if you’re in an industry that is closely linked to the government, such as the automotive industry, you must also take a much closer look at government involvement, Scheltema noted. A business leader in such an industry will have extensive government contacts, and a state-owned enterprise will have government departments to report to. You need to fully understand the relevant government hierarchy and influence in order to make a sound decision about the joint venture. You may opt to hire an agency that specializes in due diligence research and is accustomed to analyzing industries in which there is a great deal of government influence and communication.
Getting to know prospective partners gives you a sense of whether they are people with whom you want to work, but it also establishes a foundation for trust and security. Because not all countries have the same protections regarding fraud and other business risks, relationships can become an important stand-in for regulations that reduce the chances of dishonesty and/or fraud, according to Scheltema.
“Everybody talks about relationships, and it’s true that the key is relationships,” he said. “One of the reasons for that is, then you are able to develop a degree of comfort that you can trust the person. And when they are in your network of friends and connections, too, then the person who might defraud you or cheat you is a little less likely to do that because they know there might be repercussions in that network.”
It’s not just about playing defense, though. Scheltema said that vetting your partners’ networks is important as you look to the future and identify opportunities in other ventures or consider expansion you might want to pursue. Could your partner’s network be of help? The more deeply you get to know your potential partners, the better, and it’s important to pay attention early.
“For the Chinese, the negotiations started when you first met, and it all just blends together,” Scheltema said. “It’s an ongoing process of feeling each other out, trying to understand how the joint venture partnership is going to work.”