I’ve been posting on a few threads about China and I’m astonished at the level of ignorance and willful denial about “New China”. I’m currently in Shanghai with the goal of doing the initial research to start a WOFE (wholly owned foreign enterprise) and basing myself permanently in Shanghai within 6-9 months.
Fire away, ask me any questions about China, Shanghai and especially the business environment here. I am willing to assert that China offers the best environment in the world for small entrepreneurs right now, especially for Digital entrepreneurs and creative services in Shanghai.
I’m not a multi-millionaire, anyone with $25,000 savings and five years experience in their field could do the same as I’m doing. This will however be the 3rd small business I’ve started and I have 15 years experience in my field (Visual Effects). The other two businesses still exist and are breaking even and paying for me to live but not doing spectacularly. I intend to keep them going (working with other business partners).
Why China? It sounds like your doing creative, digital work, which has educated creative and culturally aware talent as it’s number one requirement, and my understanding is that this is not China’s real comparative advantage right now. Unless you’re working mostly or entirely for Chinese customers, I’m wondering what the advantage to China is.
Good questions. Why China? Yes I will be servicing locally based Ad Agencies and Production companies who are producing commercials and other video work for the local market. That market is now huge and growing rapidly and Shanghai is where most of that work happens. Of course once set up we can also do work for other east asian countries or work remotely on jobs from the UK, US and Australia.
I’m still working out exactly how much equity I will need initially and then how much over two years. The minimum for a WOFE in Shanghai is $22,500 US initially and $150,000 over two years. Of course costs from your revenue such as wages, rent etc all count towards the $150,000, you don’t need to have that much cash. I’m not going to need any debt initially, I’ll use debt to expand when I need it.
Initially I’ll need to invest in a lease, studio fit out, computers and other video technology, wages and training. The goal would be to train up talented locals to international post production standards over two years and then have myself and a few other key expats.
Omar, I don’t have the answers to the rest of those yet, I’m meeting with a consulting company tomorrow to get full details. I have a girl friend who is moving to Shanghai with me and will be helping to get the business started, but no children.
Ok I learnt some new information today. As I am seeking to start a media related WOFE, the approval process is more complicated and may take 6-8 months. During this time I will base myself in Osaka in Japan so I can easily come back and forth.
A foreigner who has had a WOFE here for many years has recommended to use Hang Seng bank as they apparently have better service and cheaper fees than HSBC or other banks that deal with WOFE’s
What is your experience with China? Do you have much experience with China outside of the East coast? What do you think about Tibet? What are your favorite and least favorite things about living in China? How much baijiu can you drink?
Even Sven, I have never been to China before this trip, however I do intend to travel to remote areas when I can. I’m an avid Photographer and Motorcyclist and I would to get into some remote areas. Tibet and border areas near Vietnam and Laos interest me the most but I’m sure I’ll travel to far west China one day. I have travelled all over South East Asia widely and worked in India and Singapore so I’m very comfortable travelling and living in Asia in general.
The situation with Tibet is unfortunate, but the reality is that China will never give it up. True Autonomy within China with preservation of their culture and religious freedom is however a worthy goal and something I sincerely hope they will achieve once China has developed a bit more. I have actually made a documentary about Tibetan Refugees in Ladakh, in India. India gives refugee status and residency rights to any Tibetans that cross over and Tibetan culture is flourishing in Ladakh and Dharam Sala.
I won’t post my best and least favorite things about China yet, I haven’t been here long enough. I don’t like the native Chinese spirits I’ve tried, but I am a fan of Japanese beer and Sho-Chu and am very happy to see they are easily available in Shanghai.
When you set up your WOFE, you may want to consider structuring it with a combination of equity and debt from a company you set up outside of China, (the WOFE’s parent). Because of China’s rules on foreign investment, using approximately 1/3 equity and 2/3 debt will reduce the amount of trapped cash you are forced to keep in China. So if you need $22,500 to start-up your company. Structure it as $7,500 of capital stock (equity) and $15,000 loan from parent. Because of the capital reserve requirements you will be able to maximize the amount of cash that is not trapped in China. Talk to your consultant and tax advisor.
Thanks Omar, I have two Australian Pty Ltd companys and I will be setting up a Hong Kong company as well for tax reasons, I am meeting with Sino Invest tomorrow to advise me on the best way to proceed. If you can recommend any other Shanghai based consultants that would be appreciated.
Do you spend a lot of time entertaining your business prospects?
What measures are you taking to prevent some Chinese company from copying your ideas? (For example, Youtube -> Tudou, Yahoo -> Badiu, MSN -> QQ, Bang! (card game) -> Sanguosha
In Singapore there are lots and lots of stories of Singaporean businessmen being burnt over in China due to not being street-wise enough and not understanding the culture (and most of the businessman are Chinese diaspora!). So I’m interested to see how it is now.
Learn to drink the baiju. It is the number one business skill, and an essential part of building trust. With the exception of very high end whiskey, foreign spirits (especially Japanese spirits!) do not have the effect. Drinking culture IS business culture, especially for anyone over 40.
Never let anyone know about your documentary, especially if you are doing media. One word to the right person, and any number of things could get suddenly difficult for you. If you are out of favor, you may not know when it happened or who is involved. Things sometimes just stop working.
Good luck! China is an immensely complicated place, and there is a steep learning curve ahead of you. I suggest you take it slow and look deeper than the surface and not take too much at face value- even (or especially) from fellow expats. Foreigners can have a lot of fun and make a lot of money, especially in the key cities. But it can become a vaccuous existence if you don’t learn about the history, cultures, languages, modern politics, and sheer breadth of experience in the country. None of this knowledge will be made easy for you except on the surface level. Assume there is always more to the story, and cultivate the intellectual curiousity and genuine friendships (not dinner friends or drinking buddies or girlfriends) that will illuminate the rest of the story.
I’m still learning about Chinese business culture and sure I’ll drink baiju if I have to. However my industry is a very specialised creative service industry and a lot of my clients will be other expats based in Shanghai. At least initially they’ll be close to 100 percent of my clients which smooths out a lot of issues.
There are already chinese companies doing visual effects, and they do it badly. One of the key things my business is selling is myself, they can copy the business but they don’t have someone with my experience and the list of feature film credits that I have. Thats what opens the doors to the big budget high end jobs in this market.
Yes sure I am taking it slow, initially I haven’t committed any money except the airfare and hotel to get here to do the research and as I mentioned it’s going to take some time to get the WOFE setup, luckily there are other ways I can legally do some initial work here with lower outlay (sponsored work visa for short term contracts).
You don’t have to drink baijiu in Shanghai. It’s there but beer, wine and Shaoxing Wine are much more popular than baijiu.
A true WOFE can be set up for just USD200k these days? I assume you’ve checked but it didn’t used to be this low. A lot of people set up a rep office instead and you should be clear if it’s a WOFE or a rep office, and whether you can issue official receipts.
Shanghai can be a great place. I lived there for 12 years and know quite a few westerners that have small businesses. Most are in small trading / sourcing companies. Sigh, I miss Shanghai. My small business experience in Shanghai ended about 10 years ago so not current.
I’m not sure that China and/or Shanghai offers the best environment for *foreign *small entrepreneurs. Certainly there are opportunities and it’s pretty much unbridled capitalism. That said, there are a lot of hidden costs of doing business. Retaining staff can be very challenging. Having staff walk away and set up a competing business is commonplace. Most of the people I know who have done it, including myself, struggled for a long time making a very mediocre living. A few do quite well. Also, if you don’t speak business level Chinese, you’ll *probably *find it very difficult both professionally and personally. Generally, I think people figure out after a couple of years that it’s a lot harder and you make a lot less money than you thought, and that’s the main reason for shutting down.
What kind of wages do you intend to pay? Is there a minimum wage there? I don’t know currency conversion amounts, but are you trying to recruit and train up average joes, self-taught talents, or college grads?
Do you intend to register your software, or will you be taking advantage of the fact that corporate software piracy is the standard MO there?
yes, even less than that. $22,500 upfront and then $150,000 over two years, you get to claim of course the revenue from the business spent on rent, wages equipment etc towards that $150,000.
It used to be higher just for Shanghai, they lowered it in Jan this year.
