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Our team of experts is on hand to provide you with face to face business advice through our consultation service.

If you would like to receive free and practical advice on your particular business case for the China market, you can book a time slot [below] to speak to one of our market access advisors in our Beijing office.

All consultations are treated with the utmost confidentiality and no data will be passed to a third party.

How does it work?
You can book a time slot with a relevant expert to get a free 30 – 40 minute consultation. We have market access advisors that can give professional and independent advice in the fields of business development, legal, standards and human resources. Please note that only registered companies can book consultations with our experts. To register before booking a consultation, click here.

What do you need to provide?
To make your meeting as efficient as possible, it is advisable to provide a background to your company and indication of the specific topics/questions you would like to cover.

 

In order for your enquiry to be submitted please login. If you are a new user you have 24 hours to create an account. If you do not create an account or log in - your enquiry will be deleted. Please note the EU SME Centre is a project funded by the EU Commission and therefore will not be able to answer enquiries from non-EU SME companies.


Our experts are also available to provide consultations at events,
to see upcoming events in your area. Visit our event page for more information.

Frequently Asked Questions

What are the procedures and costs for obtaining the CCC?

There are two different conformity assessment procedures for obtaining the CCC mark:

§  Third-party certification for 84 products with high safety risks and close contact with final consumers.

§  Self-declaration method for 19 products with stable quality and low safety risk. The self-declaration method is, in turn, divided into method A (requiring type test in any labs recognised by CNAS or members of ILAC, and self-declaration), and method B (requiring type test in specifically designated CCC labs, and self-declaration).

Therefore, first step is to check the CCC Catalogue to determinate which specific procedure applies to the concerned product.

The total cost of the certification process for the CCC depends on the specific product: the components, selection of models, variations in critical components, use of spare parts and consumables all affect the cost of certification: these can be significant, especially for small series or for spare parts. The standard fees are as follows:

§  Application fee: 500 CNY per application

§  Approval and registration fee: 800 CNY per application

§  Factory inspection fee: 2,500 CNY / person / day (plus flight tickets and accommodation for inspectors, usually shared with other factories which will also be inspected during the same inspection tour. During the COVID-19 pandemic, factory inspections are generally conducted online)

§  Product inspection fee: 90% of the amount stipulated in the NDRC’s Notice on Releasing the Compulsory Product Certification Charging Standard (Trial) (No. 38)

In total, the entire process should cost between 15,000 and 25,000 CNY. Additional costs may include consulting fees to intermediary companies assisting with the process, as well as the annual and irregular costs for certification maintenance.

Useful resources:

-        Guidelines – CCC (2020): https://www.eusmecentre.org.cn/article/updated-guidelines-china-compulsory-certification-ccc-scheme

-        Webinar recording (2019) – Conformity in China | The CCC Mark and its progress in 2019: https://www.youtube.com/watch?v=aYVcps9r-Tw

-        More information on Chinese standards and certification, can be found on the website of the Seconded European Standardisation Expert in China (SESEC) project (www.sesec.eu), co-funded by the EU.

-        Europe-China Standardisation Information Platform:https://webgate.ec.europa.eu/cesip/#navSearch

What types of companies can I establish in China?

There are different types of companies that foreign investors could establish in China, each with its own advantages, featuring different levels of risk, and requiring different levels of resources:

-        Wholly Foreign-owned Enterprise (WFOE, 外商独资企业)

-        Equity Joint Venture (EJV, 中外合资企业)

-        Cooperative Joint Venture (CJV, 中外合作企业)

-        Representative Office (RO, 代表处)

-        As well as other less common forms such as Foreign-Invested Company Limited by Shares, and Foreign-Invested Partnership Enterprise.

In some cases, only joint ventures might be allowed to be established by foreign investors in certain restricted sectors, as regulated by the Foreign Investment Negative List(see FAQ ‘Are there restrictions for setting up foreign-invested companies in China?‘ below).

Useful resources:

-        Webinar recording – What does it take to set up and operate a foreign company in China? (2021): https://www.eusmecentre.org.cn/event/2021-03-11/what-does-it-take-set-and-operate-foreign-company-china

-        Webinar recording – How to manage your business in China remotely (2021): https://www.eusmecentre.org.cn/event/2021-12-09/how-manage-your-business-china-remotely

-        Report – Ways to enter the Chinese market: https://www.eusmecentre.org.cn/report/ways-enter-chinese-market

-        Report – How to establish a foreign-Invested enterprise in China (2019): https://eusmecentre.org.cn/guideline/how-establish-foreign-invested-enterprise-fie-china-2019-update.

-        Article – Due diligence for joint ventures in China: https://www.eusmecentre.org.cn/content/due-diligence-joint-ventures-china-0.

Can European SMEs get loans from Chinese banks?

The short, general answer is yes.

However, in practice the situation is more complicated that it should be. Specifically, the financial requirements for loans from Chinese banks are generally higher than those in the EU and compared to domestic companies, and must be obtained against guarantees from banks outside China – thus requiring further risk assessments. At the same time, loans in foreign currency are affected by ‘borrowing gaps’ – i.e. foreign debt quota, that is the maximum amount that can be borrowed from offshore third-parties.

Indeed, ‘access to financing’ continues to be one of the top issues encountered by foreign companies in China. More detailed information on this issue for SMEs, can be found on the EU SME Centre’s annual publication “SMEs in China: Policy Environment Report”, available at: https://www.eusmecentre.org.cn/report/sme-policy-environment-report-2021-update; as well as on the Position Paper of the Inter-Chamber Small and Medium-sized Enterprise (SME) Working Group, available at: https://www.europeanchamber.com.cn/en/publications-archive/962/Small_and_Medium_sized_Enterprise_Forum_Position_Paper_2021_2022

Dairy products (not including infant formula): EU producers authorised to export to China

Exporting dairy products to China is a complicated and long process. According to Chinese laws and regulations, dairy products can be exported to China only after a protocol is signed with the government of the exporting country. Therefore, before any planning, dairy exporters should ensure that a protocol is in place between their country and China. All EU Member States except Malta and Romania have done so.

If there is a protocol in place, each individual production establishment must also register on China’s GACC platform, following the procedure for “high-risk products”, i.e. through recommendation from competent authorities in the country/region where they are located (see corresponding FAQ above). In short, the production establishment contacts its national competent authority, which in turn verifies the establishment’s compliance with China’s food safety requirements, and release a username and password to login on GACC’s Single Window platform. The establishment will then complete the registration on the platform by submitting all the relevant documentation and information required. GACC will then conduct a substantive technical review, including document examination, video checking, on-site reviewing, or a combination of these. If the assessment and examination results are positive, GACC will issue the registration number and notify the competent authority in the country where the establishment is based. The whole registration process is relatively complicated and long.

The updated list of approved producers for dairy exports to China is provided (in Chinese) on the website of Chinese customs: http://jckspj.customs.gov.cn/spj/zwgk75/2706880/2811812/jkrpjwscqyzcmd3/index.html, including for individual European countries authorised to export.

Other useful resources:

§  Webinar recording: Uncovering China’s dairy sector (2021): https://www.youtube.com/watch?v=qBNiLo63yzs

§  Report: Exporting dairy products to China (2016): https://www.eusmecentre.org.cn/guideline/exporting-dairy-products-china

Should I pay taxes in China if I sell services?

As a general principle, China-resident enterprises are taxed on worldwide income, while non-resident enterprises are taxed on Chinese-sourced income. Therefore, even if a company is based abroad, services provided to China-based clients/buyers will still be considered by Chinese tax authorities as income generated in China. This means that VAT must be paid on the transaction.

If the service provider is based abroad, the VAT must be paid by the client/buyer in China on a withholding basis. There have been frequent cases reported of European providers receiving a small payment than expected, because of a percentage withheld by the Chinese client/buyer. Therefore, it is strongly advised to draft service contracts requiring all amounts payable by the Chinese client/buyer to be net of taxes, thus requiring them to be liable for all taxes imposed in China. Chinese clients/buyers will likely resist this approach, often recurring to threats of abandoning the negotiation: in this case, one could try to increase pricing in advance or renegotiating the deal.

Useful resources:

-        Webinar recording – China’s taxation on non-resident enterprises: https://www.youtube.com/watch?v=OnHJJBdbEfQ

-        Report – Understanding Non-resident Enterprise Taxation in China (2017): https://www.eusmecentre.org.cn/guideline/understanding-non-resident-enterprise-taxation-china

What to do when a commercial dispute arises?

What you can do and what you cannot do in case of commercial disputes, such as late payments, will depend on the governing law and dispute settlement clauses stipulated in your contract. The first step, therefore, would be to check these two items. At the same time, a lot will also depend on the quantity and quality of evidence available to you; you should start collecting evidence as soon as possible, before it becomes unavailable.

In general, the following steps should be followed:

§  Keep following up with the Chinese business partner, showing that you are determined about solving the dispute. It is advisable to involve not only the specific department you have been dealing with, but also other departments such as finance, sales/business development, etc.

§  Continue to collect as much evidence as possible

§  Submit to the Chinese company an Attorney´s letter from a Chinese law firm, which will put some pressure and make them understand that the EU SME is duly assisted to act in China, aware of its rights and willing to defend its interests by any means.

§  If the above does not work and the dispute over the agreement cannot be solved in an amicable manner, the EU SME should then file a lawsuit against its Chinese business partner as a result of the breach of contractual obligations.

§  Arbitration can be considered if a relevant valid clause was included in the business contract (see dedicated FAQs in this section).

§  Litigation the last option which will probably lead to a termination of your business relationship with your client.

The EU SME Centre has produced a robust set of webinars in the area of commercial dispute resolution, see for instance:

§  Webinar recording (2021) – Drafting sales contract in China: https://www.youtube.com/watch?v=SZLNsBYi_fw

§  Webinar recording (2019) – The ABC to handling late payments as foreign businesses in China: https://www.youtube.com/watch?v=NXKlKL81sH4

§  Webinar recording (2019) – Commercial FIE litigation practice in China: https://www.youtube.com/watch?v=4G0ilCXLzn8

§  Webinar recording (2018) – Debt collection in China: https://www.youtube.com/watch?v=FzFPgYzqisc

Webinar recording (2017) – How to resolve commercial disputes in China: introducing Chinese arbitration and litigation systems: https://www.youtube.com/watch?v=0priu92F-nc

How to know what custom duties apply to my products to be imported in China?

It depends on the HS code classified for the relevant product. Once the HS code is identified, the relevant custom duty rate can be found on the effective Customs Import and Export Tariff of the People's Republic of China (http://app.gjzwfw.gov.cn/jmopen/webapp/html5/jckspslPC/index.html). Please keep in mind that, HS codes in China might vary from those used for other countries, as only the first six digits are universally equal; the competent Chinese customs will have the final say on the HS classification (more information can be found in the dedicated FAQ ‘Can I use the same HS code that I use to export in other countries’ in the section ‘Exporting to China’).

It is also noteworthy that every year in December, the Chinese customs and State Council publish annual plans of temporary duty rates for certain goods. The latest plan for 2022 is available at: http://www.gov.cn/zhengce/zhengceku/2021-12/15/content_5660939.htm.

Intellectual Property Right

The EU SME Centre does not provide technical assistance on IPR-related issues. Such enquiries should be directed to the China IP SME Helpdesk – a project launched in 2008 by the European Union in order to assist SMEs in protecting their Intellectual Property (IP) when doing business in or with China. During the past 14 years of its operation, the Helpdesk has received thousands of questions from SMEs representing all industry sectors and EU Member States about how to protect, manage and enforce their Intellectual Property Rights (IPR) in China. More info: https://intellectual-property-helpdesk.ec.europa.eu/regional-helpdesks/china-ipr-sme-helpdesk_en.

The China IP SME Helpdesk has also produced a handbook of FAQs on IPR-related issues, covering general aspects, cross-cutting issues, as well as specific issues relating to copyrights, designs, patents, and trademarks. The FAQs handbook is accessible via this link: https://intellectual-property-helpdesk.ec.europa.eu/regional-helpdesks/china-ipr-sme-helpdesk/china-frequently-asked-questions_en

Can I select foreign testing, inspeciton and certification bodies?

Testing, inspection and certification (TIC) requirements and procedures in China are mainly governed by the Regulations on Certification and Accreditation (中华人民共和国认证认可条例). By the end of 2019 there were 415 foreign-invested TIC bodies officially registered in China, a +23% increase on the previous year, but still accounting to less than 1% of the total TIC bodies registered in the country. Only TIC bodies officially registered in China can be selected for conformity assessment.

However, there are exceptions. Not all TIC bodies can be selected for all conformity assessment procedures; each body has specific fields of specialisation and must apply to the authorities to be able to release a certain certification. In fact, most certification schemes in China are released only by a limited number of officially recognised certification bodies – which may or may not include foreign-invested ones; such officially recognised certification bodies accept test results from different laboratories in China, which may or may not include foreign-invested ones. For instance, CCC certification can only be released by 35 officially recognised certification bodies – none of them is foreign-invested; these certification bodies might accept test results from 243 officially recognised laboratories, 6 of which are foreign-invested.

If a certification scheme does not have a specific list of officially recognised certification bodies (e.g., in the case of the Pre-shipment Inspection Certificate for used equipment), is it possible to use TIC bodies in Europe? In principle, yes, but there is evidence of test results occasionally not recognised by Chinese customs once the goods arrive in China, leading to delays. The advice, therefore, is to use those European TIC bodies with extensive experience working with China, or which have cooperation partnerships with Chinese TIC bodies.

Useful resources:

-        Database of designated TIC bodies in China: http://cx.cnca.cn/CertECloud/index/index/page?currentPosition=

What are the main tax preferential policies for companies registered in China?

The Chinese government has established a preferential Corporate Income Tax (CIT) rate for small scale and low profit enterprises (小型微利企业),i.e. enterprises with an annual turnover below CNY 3 million (around EUR 378k, less than 300 employees, and total asset value below CNY 50 million. Specifically, from 1 January 2022 to 31 December 2024:

§  SMEs with an annual turnover below CNY 1 million (around EUR 126k): 20% CIT rate calculated only on 12.5% of their turnover;

§  SMEs with an annual turnover above CNY 1 million (around EUR 126k) but below CNY 3 million (around EUR 378k): 20% CIT rate calculated only on 25% of their turnover;

In addition, various preferential tax schemes were established to attract or stimulate investment in certain priority areas or regions. Key examples include the CIT rate reduction from 25% to 15% for companies which are recognised with High- and New-Technology Enterprise status (HNTE, 国家高新技术企业)or Technology Advanced Service Enterprise status (TASE, 技术先进型服务企业): the former requires ownership from the China-based entity of the IP rights, as well as R&D investments in key sectors exceeding 5% of the turnover; the latter requires the company to be engaged in BPO, ITO or KPO services. Similar tax breaks is offered for a few years to software and integrated circuit enterprises. The CIT rate reduction to 15% is also provided to foreign investors investing in certain sectors in particularly encouraged geographical areas, such as central and western regions (according to the national Catalogue of Priority Industries for Foreign Investment in Central and Western China, link), or in the Hainan Free Trade Port.

It is also noteworthy that tax incentives or subsidies may also be given by local governments to foreign investors investing in priority sectors within their jurisdictions. A common incentive, for instance, is the reimbursement of a certain % of the CIT paid by the enterprise in the previous year; or subsidies paid back based on the amount of taxes paid. Such incentives are usually specified in ad hoc policy documents usually published on the websites of the local government, and should be a key factor to consider before investing in China, and to negotiate with the local administration.

Finally, in addition to CIT incentives, other tax incentives offered may include the exemption of input VAT for all imported high-tech equipment that cannot be produced domestically.

Useful resources:

-        Webinar recording – Public Incentives for Tech SMEs: Examples from Zhejiang and Hangzhou (2021): https://www.eusmecentre.org.cn/event/2021-11-26/public-incentives-tech-smes-examples-zhejiang-and-hangzhou

-        Report – Incentives, subsidies and funding for tech SMEs in China (2021): https://www.eusmecentre.org.cn/report/incentives-subsidies-and-funding-tech-smes-china

-        Article – Overview of preferential policies for foreign investors within the Beijing Free Trade Zone (2020): https://www.eusmecentre.org.cn/article/overview-policies-foreign-investors-beijing-free-trade-zone

Do I need to set up a company in China?

Not all types of businesses necessarily require the establishment of a legal entity in mainland China. In some occasions, distribution agreements or a representative office may be sufficient; a company registered in Hong Kong SAR may also be an option.

Whether a legal entity is needed in mainland China depends on your business, your objectives, as well as the specific industry in which you operate. In general, it is needed for businesses that require payments to be made and received in China without paying intermediary fees, for businesses that require a large number of employees in the country, as well as for businesses involving production activities.

It is also noteworthy that many foreign investors choose to register a company in Hong Kong SAR as an entry point to mainland China. The advantages include: less market entry restrictions, the use of English as official language in contracts and business, internationally-renowned litigation and arbitration mechanisms, free movement of capital and people, as well as generally easier access to capital.

Useful resources:

-        Webinar recording – Ways to enter the Chinese market (2022): https://www.eusmecentre.org.cn/event/2022-03-08/capacity-building-webinar-series-session-3-ways-enter-chinese-market

-        Webinar recording – What does it take to set up and operate a foreign company in China? (2021): https://www.eusmecentre.org.cn/event/2021-03-11/what-does-it-take-set-and-operate-foreign-company-china

-        Report – Ways to enter the Chinese market: https://www.eusmecentre.org.cn/report/ways-enter-chinese-market

-        Report – How to establish a foreign-Invested enterprise in China (2019): https://eusmecentre.org.cn/guideline/how-establish-foreign-invested-enterprise-fie-china-2019-update.

How do I translate my brand name in Chinese?

Giving your brand a good Chinese name is an essential step to ensure your company’s future success in the Chinese market, especially for companies that sell products directly to Chinese customers. A good translation, which is a combination of both sound and meaning, boosts the chances of your products being remembered and recognised by more local Chinese customers. But it is essential that you register your name and trademark in China before you even enter the country! Having it registered in the EU doesn’t grant you protection in China.

The following should help SMEs that have not yet decided on a Chinese brand name get on the right track from the start.

1. Translate your brand names into Chinese and register the relative trademarks

In China, registration of a trademark in roman characters does not automatically protect the trademark against the use or registration of the same or similar trademark written in Chinese. Therefore, it is highly advisable to register a Chinese version of a foreign trademark to protect your business from the start. In addition, if there is no existing Chinese character name for a foreign brand, random translations by shop keepers, customers, suppliers and even competitors may occur, which sometimes carry negative connotations. To get further advice on registering trademarks in China, please contact the China IPR SME Helpdesk, another EU-funded project providing free services to European companies: https://www.china-iprhelpdesk.eu/.

 

2. Choose a translation with both phonetic and semantic associations with the original and adjust the emphasis and visibility of the Western/Chinese name according to the targeted consumer categories and the relative marketing strategies.

There are four common strategies that foreign companies in China adopt to translate their brand names: (i) no adaption; (ii) sound adaption; (iii) meaning adaption; and (iv) dual adaption. The best outcome is to have a Chinese name with both phonetic and semantic associations with the original (dual adaptation), especially for those companies that aim at reaching the wealthier sections of Chinese consumers.

To ensure your translation is adequate, ask for advice from your local Chinese friends, colleagues or professional translation companies. It is also noteworthy that a wide range of articles and case studies on this topic are available online.

Useful resources:

EU-funded project – China IP SME Helpdesk, providing free assistance on IP-related issues in China: https://intellectual-property-helpdesk.ec.europa.eu/regional-helpdesks/china-ipr-sme-helpdesk_en

What is the return policy for CBEC imports?

For goods imported to China via CBEC, the Chinese domestic agent of the exporting company, or its authorised postal/express delivery enterprise, are allowed to apply for sales return. Returned goods should be qualified for second-time sale and should arrive, in original condition, at the customs supervision area within 30 days from clearance. Relevant tax will not be levied.

In practice, due to the complexity of returning goods back to bonded areas or even to the original exporting country, some companies may stock the goods outside customs supervision areas. There are potential risks of violating relevant provisions such as being considered as reselling CBEC retail imports and/or failing to meet the requirements regarding qualified consumers.

Detailed guidelines on cross-border e-commerce have been produced by the EU SME Centre, including:

§  The e-commerce ecosystem in China (2021 update): https://www.eusmecentre.org.cn/report/e-commerce-ecosystem-china-checklist-european-smes-2021-update

§  Guidelines on Cross-border E-commerce (2019): https://www.eusmecentre.org.cn/guideline/guideline-cross-border-e-commerce-china-2019

What is the distinction between ‘General VAT payer’ and ‘Small-scale VAT payer’?

All companies incorporated in China need to register for the payment of VAT once their sales exceed a certain level (varying between regions, but generally very low e.g. starting at 10,000 - 20,000 RMB per month). When the registration is made, companies need to choose whether they are ‘General VAT payers’ or ‘Small-scale VAT payer’, based on their annual turnover. The distinction is very important:

§  ‘Small-scale VAT payer’applies to companies with annual turnover below 800,000 RMB for commercial companies, or 500,000 RMB for manufacturing companies. For them, the VAT is calculated at a flat rate of 3%, rather at the statutory rate (13%, 9% or 6%). However, small scale VAT payers will not be able to deduct input VAT, nor to issue Special VAT invoices (‘fapiao’) to Chinese clients.

§  ‘General VAT payer’for all other entities, for which VAT is calculated at the statutory 13%, 9% or 6% rate. A general VAT payer enjoys input VAT credit for the purchase of goods or services.

It is noteworthy that, in limited cases for certain businesses, SMEs may find it more convenient to register as ‘General VAT payer’ rather than ‘Small-scale VAT payer’, because for some businesses the benefits from deducting input VAT may be higher than those obtained from lower VAT rates; at the same time, the majority of Chinese suppliers will require VAT invoices (fapiao) when doing businesses, which ‘small-scale VAT payers’ will be able to provide only through intermediaries (after the payment of a fee).

More details on China’s VAT system can be found in a dedicated guide published by the EU SME Centre in 2016: https://www.eusmecentre.org.cn/guideline/understanding-company-administrative-and-reporting-rules-china; as well as in an article written by the EU SME Centre: https://www.eusmecentre.org.cn/article/small-businesses-guide-value-added-tax-vat-system-china-scope-taxpayer-vat-rates-invoice

Are there preferential policies for setting up a company in China?

In addition to the Catalogue of Encouraged Industries for Foreign Investment (see FAQ ‘Are there restrictions for setting up foreign-invested companies in China?’ above), in general all local-level authorities – starting from district/park level to provincial level – have some latitude to adapt and apply local rules which may be advantageous to FIEs.

The key point to keep in mind is that, local governments in China often compete very fiercely to attract foreign direct investment within their jurisdictions, particularly when involving advanced technologies or operations in line with national or local priorities. Therefore, in order to increase their attractiveness vis-à-vis other competing local administrations, local administrations regularly offer a series of incentives and preferential measures, such as relaxed market access requirements, favourable terms for the acquisition of suitable land, fast channels to obtain permits or licenses, tax rebates, etc. Preferential policies are generally specified in ad hoc policy docs available on the websites of the local administration, but it has been reported that ad hoc incentives tailored to the investor’s specific needs may be negotiated in case of particularly strategic and large investments.

Furthermore, it is noteworthy that pilot FTZs feature innovative policies with respect to finance, customs, liberalisation of foreign investment, tax treatment, and simplified administrative measures e.g. reduced investment barriers with respect to the qualifications of foreign investors, application requirements of some licences, equity holding percentage and business scope restrictions.

Useful resources:

-        Webinar recording – Public Incentives for Tech SMEs: Examples from Zhejiang and Hangzhou (2021): https://www.eusmecentre.org.cn/event/2021-11-26/public-incentives-tech-smes-examples-zhejiang-and-hangzhou

-        Report: Incentives, subsidies and funding for tech SMEs in China (2021): https://www.eusmecentre.org.cn/report/incentives-subsidies-and-funding-tech-smes-china

-        Article – Overview of policies for foreign investors in the Beijing Free Trade Zone (2020): https://www.eusmecentre.org.cn/article/overview-policies-foreign-investors-beijing-free-trade-zone.

What are China’s main e-commerce platforms?

China’s e-commerce is not only Taobao or Alibaba. In fact, China has a wide range of e-commerce platforms addressing different types of audiences across different geographical locations, presenting different features, and selling different types of products. The most popular ones are:

§  Taobao: owned by Alibaba, is a C2C and B2C e-commerce platform with more than 700 million active users, allowing individuals and small businesses to sell all types of products and services directly to consumers, including food and beverage.

§  Tmall: owned by Alibaba, is a B2C platform with more than 500 million active users, covering all China and featuring a wide range of products from fashion to electronics and food. It also has a dedicated CBEC platform (Tmall Global)

§  JD.com: second largest B2C platform, with more than 200 million active users, it features a wide range of products but it is most famous for electronics, home appliances and books. It also has a dedicated CBEC platform (JD International).

§  Kaola: Kaola has become China’s second largest CBEC platform. In contrast to Tmall Global and JD International, Kaola is a standalone CBEC platforms, and its user base consists of premium customers such as daigou sellers and upper-middle class parents in first- and second-tier cities.

§  Pinduoduo: China’s largest social commerce platform, with more than 350 million active users, it sells mainly low-cost items for audiences based in lower-tier cities across China. In the past, it had a negative reputation of selling fake goods, but significant efforts have been made by Pinduoduo to solve this issue (e.g. opening of a dedicated section for certified branded goods)

§  Vipshop: China’s largest flash sales platform, with more than 60 million users, sells medium to high-quality products (including renowned fashion brands) at discounted rates, but only for limited periods of time.

§  1haodian: owned by JD.com, and with 90 million active users, it sells mostly food and beverage products, including fresh food, as well as FMCG and healthcare products.

§  Xiaohongshu: lifestyle sharing platform that functions as a guide community for e-commerce, famous mostly for imported and overseas products. It has more than 250 million active users and it is most popular among developed cities on China’s eastern coast.

§  Suning: China’s largest Online-to-Offline smart retailer, with over 400 million active users, focusing on electronics and home appliances.

Each platform has its own strengths, weaknesses, target base, and operating costs. European producers should carefully analyse these aspects and develop a complementary portfolio mix accordingly. A detailed introduction of these platforms is available in the following EU SME Centre’s resources:

§  The e-commerce ecosystem in China (2021 update): https://www.eusmecentre.org.cn/report/e-commerce-ecosystem-china-checklist-european-smes-2021-update

§  Guidelines on Cross-border E-commerce (2019): https://www.eusmecentre.org.cn/guideline/guideline-cross-border-e-commerce-china-2019

§  How to set up a cross-border Wechat shop (2018): https://www.eusmecentre.org.cn/guideline/how-set-cbec-wechat-shop

§  Webinar recording: CBEC and opportunities for SMEs (2021):https://www.youtube.com/watch?v=R4BvtHUnVNw

§  Webinar recording: How well are you prepared to sell online in China? (2021): https://www.youtube.com/watch?v=lfIJOIRxi0Q

§  Webinar recording: Selling through livestreaming in China (2021): https://www.youtube.com/watch?v=d7k_IhcZjWQ

What resources does the EU SME Centre have in the F&B sector?

F&B has long been one of the key sectors of focus of the EU SME Centre; most of the enquiries and requests of assistance submitted by EU SMEs and business organisations are related to different aspects of F&B products. For this reason, the EU SME Centre has formulated a strong corpus of reports, guidelines, case studies, as well as webinars on different F&B categories, such as meat products, seafood products, dairy products, wine, olive oil, snacks, beer, spirits, EU geographical indications, labelling requirements, fruits, etc.

A complete list of available resources and webinar recording is available on our publication list: https://www.eusmecentre.org.cn/sites/default/files/files/Publications%20List.pdf.

What arbitration institutions can be chosen in mainland China?

The Supreme People’s Court of China has, in many of its judicial interpretations, frequently expressed pro-arbitration positions.

There are a number of arbitration institutions in mainland China that are more experienced in handling cases relating to foreign companies, for instance: China International Economic and Trade Arbitration Commission (CIETAC); Shanghai International Economic and Trade Arbitration Commission – also called Shanghai International Arbitration Centre (SHIAC); South China International Economic and Trade Arbitration Commission – also called Shenzhen Court of International Arbitration (SCIA); the China Maritime Arbitration Commission (CMAC); as well as arbitration commissions in different cities such as the Beijing Arbitration Commission (BJAC) and the Xi’an Arbitration Commission.

Among these, CIETAC and SHIAC are probably the most experienced in handling foreign-related arbitration, also thanks to their high number of arbitrators being non-residents of mainland China. Furthermore, in recent years CIETAC and SHIAC underwent through several improvements and changes especially in terms of flexibility. It also offers mediation-arbitration.

It is advisable to recur to arbitration only for high-value or very technical or complex contracts. Otherwise, ordinary courts are in general able to act faster, plus they are relatively impartial and reliable, especially those in first tier cities.

It is noteworthy that in July 2021 the Ministry of Justice published a draft revision of the Arbitration Law for public consultation. Although not yet finalised, the revised draft brings changes about the requirement of unambiguous clauses of arbitration institution.

For more details, guidance and recommendation on how to draft sales contracts with Chinese companies, including arbitration clauses, pros and cons, see:

§  Webinar recording (2021) – Drafting sales contract in China: https://www.youtube.com/watch?v=SZLNsBYi_fw

§  Webinar recording (2017) – How to resolve commercial disputes in China: introducing Chinese arbitration and litigation systems: https://www.youtube.com/watch?v=0priu92F-nc

Can my mainland China business partner be based in Hong Kong?

Finding a trustworthy business partner when exporting, importing or investing is always a mix of good luck, common sense and thorough investigation.

The EU SME Centre has been stressing the importance of asking to see the business licence of the potential partner. However, recently we have received several enquiries concerning business partners registered in Hong Kong but stating a mainland address in the contract. This is generally the case when the actual factory and the effective seat of the Chinese partner are in mainland China while registration of the company (for different reasons – administration and taxes mostly) took place in Hong Kong. In the cases at hand, only a business licence from Hong Kong could be provided by the Chinese partner while the contract was stamped with a company chop showing a similar company name but an address in mainland China. In such cases it can be very difficult to track and decide the right jurisdiction.

The contract would very probably be considered as null when brought before Chinese jurisdiction and, when not properly executed according to Hong Kong regulations, it will be void according to Hong Kong law, too. We therefore strongly suggest paying attention not only to the name of the company and registered seat on the first page when concluding a contract, but to the last page of the contract, too, which bears the signatures and company stamps, and investigate who is authorised to sign on behalf of the company.

At the EU SME Centre, we have many resources guiding you on how to conduct background checks and preliminary due diligence. See, for instance:

§  Webinar recording “Knowing your partners in China” (2021): https://www.youtube.com/watch?v=5l0IOTTOrrU&t=14s

§  Report “Knowing your partners in China” (2018): https://www.eusmecentre.org.cn/report/knowing-your-partners-china

Are there other compulsory certification or administrative requirements in China?

CCC is not the only compulsory certification scheme in China. Other regulations in China may require certain products to comply with other industry-specific mandatory certification or administrative licensing schemes. A few examples include mining products (Mining Product Safety Approval and Certification; Explosion-proof Electrical Product Certification), mobile telecom devices (Ratio Type approval), IT equipment with encryption technology (State Cryptography Administration Licence), software (Software Copyright Certificate, ICP and MLPS filing), medical devices (Product registration, China Metrology Approval, Country of Origin Certification for pre-market approval), re-manufacturing of motor vehicle parts, etc.

Occasionally, these industry-specific mandatory certification / administrative licensing schemes may be based on recommended national standards (GB/T), instead of mandatory ones (GB). The issue with GB/T standards is that they are not promptly notified to the WTO as they should be of voluntary nature. Therefore, knowledge of and ideally compliance with key GB/T standards in one’s sector is vital to ensure smooth market access and operations.

What is the China Compulsory Certificate (CCC)? Does my product need it?

Market access for products and services to China is not automatic: many products and services may require government approval before they can be imported in the Chinese market. These approvals come in various forms, such as licences, certifications, registrations, marks, and in some cases even individual approval of shipments. Compliance will be regularly checked at the borders, or by inspection authorities in China in case of products produced domestically.

One of these compulsory requirements is the China Compulsory Certificate (CCC)scheme. Introduced in 2002 by the China National Certification and Accreditation Administration (CNCA), the scheme applies to all products and systems – both imported and domestically manufactured – that are sold in China and that present health, safety and environmental protection risks. Any product or system that requires the CCC mark, must undergo a strict inspection, testing and certification procedure, before it can actually enter the Chinese market.

The product categories that require CCC certification are listed in the CCC catalogue. The Catalogue was last revised by SAMR in April 2020, and currently contains 103 categories of compulsory certification items, divided in 17 product groups, namely: (i) wires and cables; (ii) circuit switches and electrical devices for protection and connection; (iii) low-voltage apparatus; (iv) low power motors; (v) electrical tools; (vi) electric welders; (vii) equipment for household and similar uses; (viii) electronic products and safety accessories; (ix) lighting appliances; (x) motor vehicles and safety accessories; (xi) agricultural machinery; (xii) fire products; (xiii) security and protection products; (xiv) building material products; (xv) children products; (xvi) explosion-proof materials; and (xvii) household gas appliances. Products not listed in the Catalogue do not require CCC mark. In general, it can be said that products and systems requiring CCC mark are consumer products for personal/domestic use; industrial products for commercial use usually do not require CCC mark (but must comply with other factory- or work safety-related regulations). Products with low safety risks are also generally exempted from CCC mark – such as those with low-voltage (generally <12 volts).

The Catalogue specifies the basic information of the products and systems involved, i.e. their names, attributes and features, applicable scope and applicable standards. However, in some cases, products may be so complex that it becomes hard to assess clearly whether CCC is required or not. Sometimes, the specific name and description used to claim one product (for customs purposes) when exporting to China may also make a difference. Another possible way to assess whether CCC is required, is to consult whether the HS code under which one product is traded is included in the CCC Catalogue, available in the practical guidelines on CCC produced by the EU SME Centre in December 2020: https://www.eusmecentre.org.cn/article/updated-guidelines-china-compulsory-certification-ccc-scheme.

Useful resources:

-        Guidelines – CCC (2020): https://www.eusmecentre.org.cn/article/updated-guidelines-china-compulsory-certification-ccc-scheme

-        Official CCC Catalogue (in Chinese): http://gkml.samr.gov.cn/nsjg/rzjgs/202004/t20200428_314776.html

-        Official CCC Catalogue (in Chinese) with implementation rules: http://www.cnca.gov.cn/zl/qzxcprz/ssgz/202008/t20200804_60455.shtml

-        Webinar recording (2019) – Conformity in China | The CCC Mark and its progress in 2019: https://www.youtube.com/watch?v=aYVcps9r-Tw

-        More information on Chinese standards and certification, can be found on the website of the Seconded European Standardisation Expert in China (SESEC) project (www.sesec.eu), co-funded by the EU.

-        Europe-China Standardisation Information Platform:https://webgate.ec.europa.eu/cesip/#navSearch

What are the requirements for travelling to China during the pandemic?

In March 2020, China closed its borders to nearly all foreign travellers, in response to the spreading of the COVID-19 pandemic in Europe. To date, China remains one of the very few countries in the world sticking with its notorious “zero-tolerance” policy. The following is a summary of the requirements for international visitors to go to China:

§  Entry in the country is allowed only to foreign citizens with a valid Chinese residence permit (for work or family reunion purposes). There are several cases of foreign citizens with valid residence permit leaving China and re-entering – but still subject to strict testing and quarantine requirements (see below).

§  Foreign citizens without a valid residence permit, need to be invited by a China-based entity, and apply for a new visa. As part of the application materials, the applicant must submitted an Invitation Letter (“PU Letter”) issued by the Foreign Affairs Office of the province where the inviting entity is based. However, applications for new PU letters were suspended in late 2021 in preparation for the Beijing Winter Olympics.

§  The number of international flights available is extremely limited, with skyrocketing prices which can be even 10 times more expensive than in pre-pandemic period. In addition, international flights are regularly cancellated and suspended for several weeks if positive cases are found on a previous flight.

§  Before boarding the flight to China, the foreign citizen must obtain a green Health Declaration Code (HDC) from the Chinese embassy in the country where it is located. This requires the applicant to upload reports of two negative PCR tests done within 48 hours if they are fully inoculated with vaccines; or alternatively one negative PCR test, and one negative IgM test.

§  Only direct flights from the foreign citizen’s home country to China are allowed. If no direct flights are available, transfer flights might be selected, but the foreign citizen must re-do two PCR tests (or one PCR test and one IgM test, depending on vaccination status) in the transfer country, and apply for a second HDC code to the Chinese embassy in the transfer country.

§  Pre-departure tests might only be taken in specific facilities officially designated by the Chinese embassy in the country, with prices easily reaching a few hundred euros per test.

§  After arrival in China, the foreign citizen must undergo a 14-day or 21-day centralized quarantine in specific facilities, at the traveller’s expense – even if the foreign citizen owns or rents an apartment in the destination city. During the quarantine period, it is not possible to leave the hotel room, and several throat, nasal and even anal swabs must be taken.

§  If local outbreaks occur in the city where the foreign citizen is having its quarantine, then at the end of the quarantine period it might still be impossible to return to the Chinese city of residence – even if for the entire period the person was locked in a hotel room.

There is no indication on when China might ease its international travel restrictions, but it is likely that these will remain in place at least until the end of 2022.

How can I find the relevant Chinese standard for my product? Full texts in English?

Chinese standards have different prefixes: GB and GB/T for national standards (mandatory and recommended, respectively); JB/JBT, YY/YYT for sectoral standards; DB and DB/T for local standards, etc.

Finding relevant Chinese standards for one product is not an easy task – it requires knowledge of China’s standardisation system and Chinese language. We strongly suggest working with professionals in this field, or to reach out to the EU SME Centre through our Ask-the-expert function for assistance. In any case, a preliminary search of standards can be done through the National Public Service Platform for Standards Information (全国标准信息公共信息服务平台) established by the State Administration of Market Regulation (SAMR): http://std.samr.gov.cn/.  Users may:

-        Type in the query tool key words in English, as for each standard issued and published on the platform, the translation of the standard’s name in English is always provided. However, translations are not always entirely accurate.

-        Use the ‘advanced search’ tool, for a more targeted search based on various criteria, including the International Classification for Standards code (ICS, which can be obtained from ISO’s website). However, it must be noted that the ICS system is not particularly diffused in China; a better option is to use the Chinese Classification for Standards code (CCS).

The main issue with Chinese standards is that the full texts are not always available. Although in recent years China has made a lot of efforts to increase the transparency and public accessibility of its standards, this applies only to mandatory national standards (GB) and not to others – a dedicated platform was established by SAMR for this purpose: http://openstd.samr.gov.cn/bzgk/gb/index.

In addition, nearly the totality of the full texts available are in Chinese; it is very rare that official translations in English of Chinese standards are produced, and if so, it is limited to Chinese standards which are being strongly pushed by the government to become the basis for new international standards, or for standards in countries where its exports are strong (e.g. electric vehicles in Belt and Road countries). To date, China has published only 500+ foreign language versions of GB standards, in cooperation with publishing houses, but these are accessible only after purchasing. Basic information in English on Chinese standards for a number of sectors can be found on the Europe-China Standardisation Information Platform or the SESEC projects. In some occasions, unofficial translations in English are done by foreign embassies or chambers of commerce in China.

Useful resources:

-        Webinar recording – Chinese Standards & Compliance for European Exporters (2021): https://www.eusmecentre.org.cn/event/2021-01-28/chinese-standards-compliance-european-exporters-online-workshop

-        Webinar recording – China-EU Eco-design Standardization: Similarities and Differences (2021): https://www.eusmecentre.org.cn/event/2021-05-11/china-eu-eco-design-standardization-%E2%80%93-similarities-and-differences

-        More information on Chinese standards and certification, can be found on the website of the Seconded European Standardisation Expert in China (SESEC) project (www.sesec.eu), co-funded by the EU.

-        Europe-China Standardisation Information Platform:https://webgate.ec.europa.eu/cesip/#navSearch

What are inspection and quarantine requirements for CBEC imports?

Goods sold via CBEC are considered personal goods and therefore granted customs clearance, without the need of pre-registering the product, obtaining relevant certifications or licences, or to comply with e.g. labelling or packaging standards. However, not all goods are allowed to be sold via CBEC; in addition, certain goods can only be exported via CBEC through the bonded warehouse pattern and therefore cannot enter through any port in China; finally, some goods must not include ingredients or components which are considered as endangered flora or fauna. The Chinese imported will need to notify and apply for inspection to the local customs.

For the above, many goods which would otherwise not be allowed to be exported to China (e.g. in case of certain food products which require a dedicated government protocol signed between the exporting country and China), may be exported via CBEC.

More details on CBEC, including details on CBEC platforms, customs supervision codes, tax policies, etc., see:

§  The e-commerce ecosystem in China (2021 update): https://www.eusmecentre.org.cn/report/e-commerce-ecosystem-china-checklist-european-smes-2021-update

§  Guidelines on Cross-border E-commerce (2019): https://www.eusmecentre.org.cn/guideline/guideline-cross-border-e-commerce-china-2019

Seafood: EU producers authorised to export to China

Exporting seafood products to China is a complicated and long process. According to Chinese laws and regulations, seafood products can be exported to China only after a protocol is signed with the government of the exporting country. Therefore, before any planning, seafood exporters should ensure that a protocol is in place between their country and China. The updated list can be found on the website of Chinese customs:http://www.customs.gov.cn/spj/zwgk75/2706880/2811792/3030674/index.html.

If there is a protocol in place, each individual production establishment must also register on China’s GACC platform, following the procedure for “high-risk products”, i.e. through recommendation from competent authorities in the country/region where they are located (see corresponding FAQ above). In short, the production establishment contacts its national competent authority, which in turn verifies the establishment’s compliance with China’s food safety requirements, and release a username and password to login on GACC’s Single Window platform. The establishment will then complete the registration on the platform by submitting all the relevant documentation and information required. GACC will then conduct a substantive technical review, including document examination, video checking, on-site reviewing, or a combination of these. If the assessment and examination results are positive, GACC will issue the registration number and notify the competent authority in the country where the establishment is based. The whole registration process is relatively complicated and long.

The updated list of approved establishments for seafood exports to China is provided (in Chinese) on the website of Chinese customs: http://jckspj.customs.gov.cn/spj/zwgk75/2706880/2811812/2812040/index.html, including for individual European countries authorised to export (Belgium, Bulgaria, Croatia, Denmark – including Greenland and Faroe Islands, Estonia, Finland, France, Germany, Greece, Iceland, Latvia, Lithuania, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Spain, Sweden).

Other useful resources:

§  Report: Exporting seafood to China (2017): https://www.eusmecentre.org.cn/guideline/exporting-seafood-china-market-trends-regulations-and-procedure

How can I repatriate profits from China to the parent company abroad?

The most common way to repatriate profits from China to abroad, as in the case of a China-based subsidiary to its parent company in Europe, is to pay dividends. However, dividends (as well as interests and royalties) are subject to a 10% Withholding Tax; in addition, dividends can only be repatriated on the accumulated profits of the China-based subsidiary, and only for profit that has been audited in that year.

The 10% Withholding Tax may be reduced under tax treaties signed by China and the country of residence of the company receiving the dividends. For instance, when the overseas shareholder is a company which at least directly owns 25% of the capital of the foreign investment enterprise, the withholding tax rate is reduced to 5%.

Useful resources:

-        Report – Understanding Non-resident Enterprise Taxation in China (2017): https://www.eusmecentre.org.cn/guideline/understanding-non-resident-enterprise-taxation-china

Cosmetics: certificate of free sale in the EU as a requirement to export cosmetics to China

In order to export cosmetics to China, relevant manufacturers must go through a filing or registration process of their products with China’s National Medical Product Administration. During the registration process, manufacturers might be asked to provide a proof that the cosmetic had already been selling in the country of origin and/or in the European Union. However, there was uncertainty in terms of what could constitute such proof.

Such proof is a document, in general (there can be differences depending on individual Member States) issued by central, or regional, government agencies for medical and health products. In some countries can also be issued by chambers of commerce. One example of such proof is the ‘certificate of free sale’ below:

Useful resources:

-        Webinar recording – Update on new regulations and animal testing exemption for cosmetics (2022): https://www.eusmecentre.org.cn/event/2022-04-12/update-new-regulations-and-animal-testing-exemption-cosmetics

-        Webinar recording – The organic and natural cosmetics market in China (2021): https://www.eusmecentre.org.cn/event/2021-11-11/organic-natural-cosmetics-sector-china

-        Cosmetics policy updates, landscape & non-compliance case study in China (2021): https://www.eusmecentre.org.cn/event/2021-06-03/cosmetics-policy-updates-landscape-non-compliance-case-study-china

Report – Exporting cosmetics to China (Regulations update 2022): https://www.eusmecentre.org.cn/report/exporting-cosmetics-china-regulations-update-2022

How do I select a location for setting up my company in China?

Mainland China consists of 23 provinces, four municipalities and five autonomous regions, and within these there are 22 pilot Free Trade Zones, more than 200 national industrial/economic development zones, more than 170 high-tech zones, and numerous local industrial parks. European investors generally only think about first-tier cities such as Beijing, Shanghai and Shenzhen when trying to enter China; in practice, lower-tier cities might also be very attractive locations for European SMEs.

There are various factors to consider when selecting a location for your foreign-invested company in mainland China, including (but not limited to):

-        Target consumer group/suppliers/partners: where are your clients/partners concentrated?

-        Infrastructure: different locations are connected in different ways (both domestically and internationally), each presenting different logistics challenges, time and costs

-        Human resources required: highly skilled talents (e.g. top scientists and engineers) are more available in first-tier cities and areas with polytechnic universities; however, larger cities have higher salary requirements

-        Incentives provided by the local administration: including tax incentives, financial subsidies, access to services, reduced red tape, support when applying to grants or loans, etc.

Currently, most FIEs are concentrated along the eastern coast and in large cities. This has led to a significant imbalance in terms of socio-economic development vis-à-vis central and western regions, as well as old industrial bases such as Northeast China, or specific regions within provinces (e.g. north Guangdong; northwest Anhui, etc.). For this reason, foreign investment in those regions is highly encouraged by both the central and local administration through various preferential policies and incentive schemes (e.g. the national Catalogue of Priority Industries for Foreign Investment in Central and Western China).

How can I recognise if chops used by Chinese companies are real?

In China, a company stamp (“chop”) is equivalent to the signature of the company CEO. Every official company document – including business transactions with European companies – must be stamped with the company chop, otherwise it can be called into question. Chinese legal chops have standardized elements that make it easy to recognised if they are real and have legal value, i.e.:

§  Circled shape

§  Red ink

§  Big red star in the middle

§  Full legal name in Chinese of the entity.

Sometimes, the chop registration number is also shown; in other cases, chops might also be bilingual, but they always replicate the standardised shape and colour of monolingual chops. All chops featuring different sizes, shapes, colours, or chops only in English, have absolutely no legal value in China and they are generally a red flag for a potential scam – especially when the scammer is trying to sell to Europe.

At the EU SME Centre, we have many resources guiding you on how to verify the validity of company chops in China (with pictures), as well as on how to conduct background checks and preliminary due diligence. See, for instance:

§  Webinar recording “Knowing your partners in China” (2021): https://www.youtube.com/watch?v=5l0IOTTOrrU&t=14s

§  Report “Knowing your partners in China” (2018): https://www.eusmecentre.org.cn/report/knowing-your-partners-china

What to do if I find a counterfeit product on Chinese e-commerce platforms?

* This FAQ was provided by the China IP SME Helpdesk, an EU-funded project which provides free technical assistance to EU SMEs on IPR-related issues in China: https://intellectual-property-helpdesk.ec.europa.eu/regional-helpdesks/china-ipr-sme-helpdesk/china-frequently-asked-questions_en

The specific regulations related to the internet stipulate that if the IP-protected material is uploaded without the right holder’s consent, he/she may request in writing that the internet service provider (ISP) removes the infringing work, or removes the relevant website from the ISP’s network and disables access to the copyrighted material. This kind of written warning is known as a ‘take-down notice’. The general rule is that if the ISP removes the infringing content following a ‘take-down notice’ it will not be held liable for any further compensation. If however, the ISP knew or should have known about the infringement, the ISP will be held liable jointly with the person who uploaded the infringing content. In order to avoid liability, Chinese ISPs have developed systems to aid take-down notices. For a successful take down action, you will have to provide the ISP with the registration documents of your Chinese trade mark, patents or copyright.

E-commerce websites usually have dedicated systems for dealing with product infringing IPR. For Alibaba and Taobao, for example, the procedure is free of charge and can be completed within 1-2 weeks.

For further information on notice and take-down procedures, consult the China IP SME Helpdesk’s “How to Remove Counterfeit Goods from E-commerce Websites in China” guide – which also includes specific case studies for Alibaba and Taobao platforms: https://intellectual-property-helpdesk.ec.europa.eu/system/files/2020-10/v9_How_to_remove_counterfeits.pdf.

How long does it take to set up a company in China?

Setting up a company in mainland China is a complex matter. Although the new Foreign Investment Law that entered into force in 2020, simplified the company setting up process, the complexity of the process still depends on:

-        Type of business, e.g. manufacturing, trading or consulting

-        Specific sector, i.e. whether it is encouraged, permitted or restricted for foreign investment – as stipulated by the Foreign Investment Negative Listand Positive List

-        Location and support of the local government

The time needed for registration varies accordingly. It can be as short as two months for simple consulting FIEs, to up to six months or even more for FIEs operating in restricted areas or requiring special permits or approvals.

The smoothness of the application process also depends on how well your application documents are prepared. This requires in-depth knowledge of law requirements when drafting the application documents, but also a deep understanding of local practices which may vary from region to region. Although the entire process can be completed alone, it is strongly advised to seek advice from experienced advisors to avoid mistakes and unnecessary delays. Fees can be very modest especially in case of consulting firms, starting from as low as 10,000 RMB.

When engaging local advisors to help with the setting up process, one should always be very careful of what services are specifically covered: it has been reported that some advisors may limit their understanding of the company setting up process only to the obtainment of the business licence; in fact, there are still a number of other actions that must be completed after the release of the business licence and before starting operations – e.g. arranging tax registrations, opening accounts, carving company seals, etc. Clearly clarify at the outset whether such actions are included or not in the scope of the service.

-        Webinar recording – What does it take to set up and operate a foreign company in China? (2021): https://www.eusmecentre.org.cn/event/2021-03-11/what-does-it-take-set-and-operate-foreign-company-china

-        Report – How to establish a foreign-Invested enterprise in China (2019): https://eusmecentre.org.cn/guideline/how-establish-foreign-invested-enterprise-fie-china-2019-update.

How do I know when new standards are published for my product?

There are different ways to monitor the formulation and development of new standards in China – although all require knowledge of Chinese language:

§  The ‘Latest Notices’ section on the website of the Standardisation Administration of China: http://www.sac.gov.cn/gzfw/zxtz/

§  Sections such as ‘Documents Published’ and ‘Standards and Normalisation’ of various competent ministries, such as MIIT for industry sectors, the National Health Commission for food safety, etc. (examples for MIIT:

https://www.miit.gov.cn/jgsj/kjs/wjfb/index.html; and https://www.miit.gov.cn/jgsj/kjs/jscx/bzgf/index.html)

§  Websites of specific standardisation technical committees (TCs) or working groups, e.g. the National Information Security Standardisation Technical Committee – TC260, https://www.tc260.org.cn/).

§  Websites of industry-specific standards associations and institutes, such as the China Communications Standards Association (CCSA, http://www.ccsa.org.cn/), the China Electronics Standardisation Association (CESA, https://www.cesa.cn/index), the China Electronics Standardisation Institute (CESI, http://www.cesi.cn/), the China National Institute of Standardisation (CNIS, https://www.cnis.ac.cn), the China ITS Industry Alliance (C-ITS, http://www.c-its.org.cn/, etc.)

In addition, mandatory national standards (GB) are regularly notified to the WTO, while recommended standards are not. Please do not hesitate to reach out to the EU SME Centre through our Ask-the-expert function for assistance in finding relevant standards applicable to specific products.

Useful resources:

-        Webinar recording – Chinese Standards & Compliance for European Exporters (2021): https://www.eusmecentre.org.cn/event/2021-01-28/chinese-standards-compliance-european-exporters-online-workshop

-        More information on Chinese standards and certification, can be found on the website of the Seconded European Standardisation Expert in China (SESEC) project (www.sesec.eu), co-funded by the EU.

-        Europe-China Standardisation Information Platform:https://webgate.ec.europa.eu/cesip/#navSearch

Are EU Geographical Indications recognised in China?

In September 2020, the EU and China signed an agreement on cooperation and protection of Geographical Indications (GIs) – according to which China will recognise and protect 100 EU agri-food GIs (96 excluding the UK), and the EU will do the same with 100 Chinese agri-food products. The agreement will come into force in January 2021. The full text of the agreement and the list of EU GIs covered is available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.LI.2020.408.01.0003.01.ENG.

The agreement will in particular safeguard the protection of the translation and transliterations of GI names in Chinese language; it will also automatically reject all trademark applications misusing the GIs, as well as third-party registration of protected GIs.

Furthermore, four years after its entry into force, the scope of the agreement will expand to cover an additional 175 GIs from both sides; a mechanism to add even more GIs in the future is also included.

Useful EU SME Centre resources in this area:

§  Webinar recording: Communicating the value of European F&B GI products in China (2022): https://www.youtube.com/watch?v=I7qQdbrSE_U

How to conduct primary due diligence in China?

Due diligence is an essential requirement when doing business with Chinese partners. The only way to be safe is to spend time to scrutinise every aspect of your potential partner’s business. This consists of ensuring that the company is legitimate and properly established, has a solid financial foundation, and is operationally capable of fulfilling your needs. Searching the company on web engines is not enough, although some potential red flags may already be triggered if the company is not easy to find, or if there is no Chinese version of the website (indicating the legal Chinese name of the company). Other key steps include:

§  Ask a copy of the company’s business license;

§  Verify the validity of the information included in it, especially the company’s social security number and whether the name showed on the business license perfectly matches that used in the business contracts;

§  Verify whether your contact person is allowed to negotiate on behalf of his/her company;

§  Verify the company stamp (chop): Chinese legal chops have a standardized shape, i.e. circled, red, with a star in the middle; other shapes of chops are not valid;

§  Avoid paying in advance, and instead use safer payment methods such as letters of credit or documentary collections which are commonly used in China;

§  Hire professional agencies to conduct on-site inspection of the goods before they actually leave the Chinese port.

The EU SME Centre receives, on a weekly basis, emails from EU SMEs that have been scammed when purchasing goods from China. In the majority of cases, such scams could have been avoided with the above steps. The EU SME Centre can assist in conducting free-of-charge preliminary due diligence on potential partners (through our Ask-the-expert function). However, for major transactions and complex deals we always recommend you seek professional legal advice from licensed law firms, as they can obtain access to the company’s registration documents filed with local authorities. The EU SME Centre also has dedicated resources in this area:

§  Webinar recording “Knowing your partners in China” (2021): https://www.youtube.com/watch?v=5l0IOTTOrrU&t=14s

§  Report “Knowing your partners in China” (2018): https://www.eusmecentre.org.cn/report/knowing-your-partners-china

Which is the safest payment method to be used in transactions with China?

It depends. In international trade transactions, different payment methods are used, each presenting different levels of risk. In general, letters of credit (l/c) are a relatively safe option, but in fact the safest payment method depends on the nature of your relationship with your partner.  

If you are a European SME selling to China, the safest option will be to request an advance payment before the goods are actually shipped. The problem with this payment method is that your Chinese buyer will not be very willing to do so as this option is the riskiest for them. Your second-best option would be the letter of credit – a document issued by the importer’s bank guaranteeing full remission of the transaction amount. The problem with this method is that the bank would charge a percentage of the transaction amount, and that the process is very formal and requires a high degree of attention when drafting the terms of the transaction. If you are selling to a long-term and trustworthy partner, then documentary collections would be a good option as they are less formal and flexible; while you will definitely want to avoid open account payment methods. The entire process, however, is reversed if you are a European SME importing from China: your safest option would be an open account, followed by a documentary collection and then a letter of credit; you definitely need to avoid paying in advance.

At the EU SME Centre, we receive, on a weekly basis, emails from European SMEs which fell victims of scams by Chinese sellers/buyers. In nearly the totality of cases, scams can be avoided by taking very simple steps to conduct due diligence on the company: practical tips to avoid such scams and to minimise risks will be provided in specific FAQs in the “Legal and disputes” section.

Useful resources:

-        Webinar recording – Drafting sales contracts when exporting to China (2021): https://www.eusmecentre.org.cn/event/2021-08-26/drafting-sales-contracts-when-exporting-china

How to avoid common mistakes when drafting sales contracts in China (2016): https://www.eusmecentre.org.cn/guideline/drafting-sales-contracts-when-exporting-china

What is Cross-Border E-Commerce, its advantage, and how does it work?

In China, there are two main ways to sell products; through general trade; and through Cross-Border E-Commerce (CBEC). CBEC involves the sale of e-commerce products across borders and through online platforms. It is one of the corner stones of the Chinese government’s strategy to increase the volume and quality of imports and exports. Through CBEC, after Chinese customers make an order, the products are shipped individually in one of the following ways:

§  Direct import pattern: goods are shipped from overseas warehouses to Chinese consumers, after an order is made on an e-commerce platform

§  Bonded warehouse import pattern: goods are shipped anytime by overseas companies, and stored in a bonded warehouse in mainland China; after an order is made on an e-commerce platform, goods go through customs clearance and are shipped from the bonded warehouse to the final consumer in China.

The main advantage of CBEC is that it provides easier access to the Chinese market for European brands, and it is an effective way to first test the product in the Chinese market and collect feedback before making more costly investment decisions. This is because goods sold via CBEC are considered personal goods and therefore granted customs clearance, without the need of pre-registering the product and obtaining relevant certifications or licences. Therefore, CBEC is particularly important for those product categories with strict compliance requirements such as cosmetics, infant formula and health nutrients. In addition, goods sold via CBEC enjoy preferential import tax policies.

However, only products included in a dedicated Catalogue of Products Authorised for Retail Import via Cross-Border E-commercecan be sold via CBEC. There currently are 1,441 items in the list (see http://images.mofcom.gov.cn/cws/202001/20200110143527533.pdf; as well as the last 2022 adjustments: http://www.gov.cn/zhengce/zhengceku/2022-02/21/content_5674854.htm).

An unofficial translation English of the Catalogue can be provided by the EU SME Centre upon request (please use the ‘ask-the-expert’ function). More details on CBEC, including details on CBEC platforms, customs supervision codes, tax policies, etc., see:

§  The e-commerce ecosystem in China (2021 update): https://www.eusmecentre.org.cn/report/e-commerce-ecosystem-china-checklist-european-smes-2021-update

§  Guidelines on Cross-border E-commerce (2019): https://www.eusmecentre.org.cn/guideline/guideline-cross-border-e-commerce-china-2019

§  How to set up a cross-border Wechat shop (2018): https://www.eusmecentre.org.cn/guideline/how-set-cbec-wechat-shop

§  Webinar recording: CBEC and opportunities for SMEs (2021):https://www.youtube.com/watch?v=R4BvtHUnVNw

§  Webinar recording: How well are you prepared to sell online in China? (2021): https://www.youtube.com/watch?v=lfIJOIRxi0Q

What are the requirements for foreign citizens to be eligible to work in China?

The basic eligibility requirements that foreign citizens to be employed in mainland China are:

§  More than 18 years’ old, less than 60 years’ old, and in good health (no communicable diseases)

§  University degree

§  Possession of the skills and 2+ years of work experience in the job for which the foreign citizen is hired (note: this requirement could be relaxed if the applicant has recently graduated from a renowned Chinese or international university)

§  Absence of criminal record in the home country and in China (if the person has lived in China before)

§  Valid passport

§  To be hired by an employer legally established in mainland China.

Some degree of flexibility exists in certain regions or areas (e.g. high-tech zones, western regions, etc.), particularly in case of urgently-needed and highly-skilled talents.

Furthermore, since 2017, foreign workers in China are assessed and classified based on a three-tier point scoring system:

§  Tier A: scoring >85

§  Tier B: scoring >60, <85

§  Tier C: scoring <60

A-grade workers are most welcome and enjoy specific advantages, such as eligibility to apply to China’s permanent residence permit (green card), longer duration of residence permits and shorter waiting times. Tier B workers do not seem to face particular restrictions, while those in Tier C face stricter entry requirements, lower duration of work and residence permits, and possible harsher conditions in the future as China is trying to focus only on quality and skilled foreign workers. The points of the scoring system are calculated based on criteria such as: annual salary, time spent working in China every year, education background, work experience, proficiency in Chinese language, age, location of employment (points given to workers in Western/North-eastern regions or least developed areas); extra points may be given to workers with previous work experience in Fortune 500 companies, graduated from world-leading universities, with registered IPR and patents, or who have already worked in China for 5 years.

Please note that, since the beginning of the COVID-19 pandemic, the issuance of new work permits and Z visas is suspended; entry into China is granted – under extremely tough quarantine measures – only to foreign citizens in possession of valid residence permits (for work or family reunion purposes). Only in exceptional cases may foreigners without a valid residence permit be allowed to enter China.

What are the benefits of outsourcing HR management in China?

It is very common for foreign companies and organisations in China to outsource their human resources management to professional third-party agencies. In fact, China has complex labour regulations and a fast-evolving regulatory environment, which can often baffle foreign companies in the market. For instance, employers are required to file their staff employment and dismissal with relevant government bureaus, withhold and pay social benefits, as well as individual income tax on behalf of their employees.

Outsourcing employee recruitment management means that SMEs can reduce costs, as they will not need to hire an in-house HR team. In some cases, such as for Representative Offices, this is the only possible way to hire and manage human resources in China. The services provided by professional HR firms in China commonly include:

§  HR outsourcing/dispatching Chinese staff to representative offices

§  Personnel file transfer & management

§  Social insurance & housing fund management

§  Medical services & local employee welfare solutions

§  Payroll & taxation services for local employees

§  Recruiting services

§  Training & development

§  Chinese labour law consultancy

What taxes are involved when goods are imported into China?

Different taxes are applied to goods imported into China:

§  Custom duties: China’s custom duties include (i) general duty rates; (ii) temporary duty rates; (iii) MFN duty rates; (iv) Conventional duty rates; (v) Special preferential duty rates (2022 list available at this link); and (vi) Tariff rate quota (TRQ) rates. Certain imports may be temporarily exempt from custom duties, as it is the case for key technical equipment not produced domestically. Occasionally, higher custom duties may be applied e.g. as retaliation to political disputes or trade wars; while custom duties are exempted for many products originating from countries with which China has signed Free Trade Agreement (list available at this link).

§  Value-added tax: since April 2019 (Announcement of the State Taxation Administration on Deepening the VAT Reform: http://www.chinatax.gov.cn/n810341/n810755/c4160283/content.html), China’s import VAT on imported goods has been lowered to:

o   13%, applicable mostly to manufactured goods;

o   9%, applicable mostly to agricultural and utility goods;

o   6%, applicable to services.

§  Consumption tax: applicable to products that are harmful to health (e.g. tobacco or alcohol), luxury products (e.g. jewellery and cosmetics), as well as high-end products (e.g. passenger cars, boats, etc.). The specific rate of the Consumption Tax varies depending on the type of product (e.g. ranging from 1% to 56%), and can be calculated by using either the ad valorem or quantity-based method.

Notarisation in China: necessity or scam?

The EU SME Centre has received a few enquiries from EU SMEs about notary fees or other administrative fees, asked to be paid by a local Chinese company right before signing a sales/purchase contract. The fees would not be paid directly to the notary, but to the local Chinese company which promises to ‘arrange’ or ‘take care of everything necessary’.

According to Chinese law, there is no mandatory provision to notarise ordinary sales and purchase contracts. This requirement exists only for some contracts of special importance, as for example real estate transfers. Moreover, even if both parties agree on the notarisation of a contract, the physical presence of both parties in the notary office is required, otherwise it will be impossible to notarise a signature.

In one specific case that the EU SME Centre dealt with, the foreign company was wise enough to question the notarisation of a contract/signature without being present in the notary’s office themselves, as this was not common practice in their home country. Those justified doubts saved them about EUR 8,000 of such ‘notary fees’ as well as more money and troubles in the future, as the likelihood of repeat offences would have been very high. Such naive attempt to cheat a prospective partner should serve as a warning and discourage any further engagement, as a formal due diligence procedure would likely expose many more risks, making sustainable business with them very unlikely.

How are payments handled on Chinese CBEC platforms?

Selling goods to China via CBEC is relatively simple. Cross-border payments are usually managed by the e-commerce platform on which the transaction is made: no additional bank accounts must be opened, only a transaction and currency conversion fee apply. Companies operating in CBEC can initiate transactions in the currency of sale, convert to Chinese Yuan (CNY) and route converted payments to payees throughout China via the local clearing system (CNAPS). This creates advantages that mutually benefit e-commerce merchants and their suppliers.

One exception could be if goods are sold via your own website: in this case, it is strongly recommended to work with a third-party provider to enable your platform popular payment methods such as Wechat and Alipay. International credit card payment methods, or other platforms such as PayPal, are not common in China. In general, selling via your own website is much more difficult (and costly) compared to opening official stores on Chinese popular e-commerce platforms.

Are there restrictions for setting up foreign-invested companies in China?

Entry in the Chinese market is regulated by a series of ad hoc regulations, most notably those called ‘negative lists’. These documents stipulate open, restricted or prohibited sectors for foreign investment. There are three main types of negative lists:

§  The Special Administrative Measures on Access to Foreign Investment, also called Foreign Investment Negative List, applies nationwide and indicates the industries and sectors in which foreign investment is restricted or prohibited. The latest 2021 edition, featuring 31 items, was published by NDRC and MOFCOM in December 2020, and can be accessed at this link.

§  The Free Trade ZoneSpecial Administrative Measures on Access to Foreign Investment, also called FTZ Foreign Investment Negative List. It follows the same logic of its nationwide counterpart, but contains less restricted or prohibited sectors and it only applies to the 22 Free Trade Zones established across China. The latest 2021 edition, featuring 27 items, was published by NDRC and MOFCOM in December 2020, and can be accessed at this link. Similar Negative List exists for the Hainan Free Trade Port, containing even less restricted items for foreign investment and trade in services.

§  The Market Access Negative List is similar to the previous lists, but it applies to all actors in mainland China regardless of their nature (state-owned, private, non-profit) and country of origin (Chinese entity or foreign-invested). The latest 2022 edition, featuring 27 items, was published by NDRC and MOFCOM in March 2022, and can be accessed at this link.

Foreign investors looking to open companies in China should carefully review all these lists before making any decisions, starting from the Foreign Investment Negative List (either national or FTZ) and ending with the Market Access Negative List. According to the new Foreign Investment Law (entered into force in January 2020), for all sectors not included in any of the above lists, foreign investors are supposed so be treated on equal footing as domestic investors with no need for pre-approval from authorities.

Besides the negative lists, China has also established the Catalogue of Encouraged Industries for Foreign Investment, a ‘positive list’ indicating which sectors are particularly open and welcoming for foreign investment, both nationwide as well as in central and western regions. Foreign investors in these sectors will receive much stronger support from local administrations, in terms of incentives, preferential policies, access to administrative services, etc. The draft of the 2020 edition of the list was published by NDRC and MOFCOM in December 2020, and can be accessed at this link. The Positive List is expected to be updated again during the course of 2022.

Useful resources:

Flowchart on the differences among these negative lists, and the processes that foreign investors should follow, was produced by the European Union Chamber of Commerce in China: https://europeanchamber.com.cn/en/national-news/3025/invest_in_china_how_to_navigate_the_negative_lists.

What is the procedure for hiring foreign citizens in China?

In order to be able to work in China, all foreign citizens must possess a legal work permit, and a residence permit for work purpose. Working without such permits prohibited and can lead to administrative detention and even deportation, as well as fine for companies.

Similar to Chinese employees, foreign employees can only be hired directly by WFOEs and JVs; representative offices must hire them through third-party HR agencies. The procedure for hiring foreign employees is mainly based on 5 steps:

§  The employer and foreign employee sign a letter of intention of employment in line with the Chinese law, and obtain a health certificate after a physical examination.

§  The employer submits a pre-application for the work permit, through an online system of the provincial-level labour bureau where it is legally established. Hard copy materials (which should include notarised and legalised copies of academic degrees, health certificates and criminal records issued by foreign institutions) will be submitted through appointment after the approval of the pre-application.

§  After the work permit is obtained, the employer will apply for an invitation letter to the commerce/industry department where it is legally established.

§  With the work permit and the invitation letter, the foreign employee applies for a Z visa to the Chinese consulate in his/her home country.

§  Within 30 days after entry into China, the Z visa must be converted into a residence permit for work purpose at the Public Security Bureau.

The foreign employee is not allowed to start work until the work permit is released. This applies regardless of whether the foreign employee is already based in mainland China or not. The entire procedure may take as long as 4 months.

It must be noted that the work permit is tied to the specific employer, and that the foreign employee is allowed to work only within the scope and region specified in his/her labour contract. After the labour relationship between the employer and the foreign employee is terminated, the employer must immediately start the procedure for cancelling the work permit of the foreign employee. Foreign employees that change jobs and employers in China must, within 10 days of termination of their previous job, start the procedure for transferring their work permit to the new employer – which is much simpler.

Please note that, since the beginning of the COVID-19 pandemic, the issuance of new work permits and Z visas is suspended; entry into China is granted – under extremely tough quarantine measures – only to foreign citizens in possession of valid residence permits (for work or family reunion purposes). Only in exceptional cases may foreigners without a valid residence permit be allowed to enter China.

What is a fapiao?

In China, all business transactions are required by law to be recorded on an official invoice (or ‘fapiao’ 发票in Chinese). Contrary to other countries, fapiaos are more than just ordinary invoices. Fapiaos are distributed, and administrated by tax authorities, and taxpayers are required to purchase the fapiaos they need from the tax authorities according to their business scope. Fapiaos are physical paper invoices printed with a special printer by qualified employees of companies that have ‘General VAT taxpayer’ status (see FAQ ‘what is the distinction between General VAT payer and Small-scale VAT payer?).

Fapiaos clearly indicate the name and tax identification number of the individual or the business for which they were issued. Fapiaos can be sorted into two categories:

§  Special VAT fapiao: the most commonly input VAT vouchers for input VAT deduction, issued by a general VAT taxpayer to another business;

§  General VAT fapiao: for all other instances, including sales to small-scale taxpayers and consumers, VAT-covered transactions done by small-scale taxpayers, or sales of tax-free goods and services.

When an enterprise is incorporated, it needs to state what activities it intends to perform on its Business License, and keep its actual operations within this scope. The fapiao system is one means to enforce this requirement, as the enterprise cannot issue fapiao for activities outside its business scope.

More details on China’s VAT system can be found in an article written by the EU SME Centre: https://www.eusmecentre.org.cn/article/small-businesses-guide-value-added-tax-vat-system-china-scope-taxpayer-vat-rates-invoice

Is it possible to hire foreign interns in mainland China?

In order to be able to legally work in China, foreign workers must possess: (i) a work permit linked to a specific employer, and (ii) a residence permit for work purpose. Work under any other categories of visa is prohibited and can lead to detention and even deportation. In recent years, however, China has introduced more flexibility for hiring foreign interns in mainland China, specifically:

§  Foreign students studying in Chinese universities and therefore already based in China: they can apply for an “internship remark” on their residence permit for study purpose, which needs to be approved in written form by the student’s university (overseas student office). After the “internship remark” is obtained, foreign students can legally start their off-campus internship.

§  Foreigners studying in foreign universities and based abroad, only have one option: being invited for internships by ‘renowned’ enterprises or institutions registered in China. In this case, foreign interns will need to apply to an S2 visa with an “internship remark”, which will have a duration of maximum 180 days.

It is not recommended for foreign interns to enter China with other categories of visas, such as tourism or business. Although until recently a very common practice, this is illegal and can lead to detainment and even deportation (and consequent multi-year ban from re-entering China). It is also noteworthy that a number of countries, e.g. France, are negotiating or have successfully negotiated bilateral agreements with China to allow the exchange of fresh graduates looking for internships.

Please note that, since the beginning of the COVID-19 pandemic, the issuance of new visas is suspended; entry into China is granted – under extremely tough quarantine measures – only to foreign citizens in possession of valid residence permits (for work or family reunion purposes). Only in exceptional cases may foreigners without a valid residence permit be allowed to enter China.

Infant formula: EU producers authorised to export to China

Exporting infant formula products to China is a complicated and long process. According to Chinese laws and regulations, infant formula products can be exported to China only after a protocol is signed with the government of the exporting country. Therefore, before any planning, infant formula exporters should ensure that a protocol is in place between their country and China. The updated list can be found on the website of Chinese customs:http://jckspj.customs.gov.cn/spj/zwgk75/2706880/2811812/jkrpjwscqyzcmd3/index.html.

If there is a protocol in place, each individual production establishment must also register on China’s GACC platform, following the procedure for “high-risk products”, i.e. through recommendation from competent authorities in the country/region where they are located (see corresponding FAQ above). In short, the production establishment contacts its national competent authority, which in turn verifies the establishment’s compliance with China’s food safety requirements, and release a username and password to login on GACC’s Single Window platform. The establishment will then complete the registration on the platform by submitting all the relevant documentation and information required. GACC will then conduct a substantive technical review, including document examination, video checking, on-site reviewing, or a combination of these. If the assessment and examination results are positive, GACC will issue the registration number and notify the competent authority in the country where the establishment is based. The whole registration process is relatively complicated and long.

The updated list of approved producers for infant formula exports to China is provided (in Chinese) on the website of Chinese customs: http://jckspj.customs.gov.cn/spj/zwgk75/2706880/2811812/jkrpjwscqyzcmd3/index.html, including for individual European countries authorised to export (Austria, Denmark, Estonia, Finland, France, Germany, Ireland, Italy, Netherlands, Poland, Spain, Sweden).

Other useful resources:

§  Webinar recording: China’s food and drink market (2022): https://www.youtube.com/watch?v=teJFibfemDs

§  Webinar recording: Uncovering China’s dairy sector (2021): https://www.youtube.com/watch?v=qBNiLo63yzs

How do I find the right distributor / agent in China?

Depending on the geographical region and the market segment, companies selling to China may need to engage several different distributors and sales offices in China. Since SMEs typically do not have sufficient resources to build an extensive sales network, it is advisable to use a two-stringed sales and distribution model, relying on local distributors in combination with their own direct sales force. The local distributors provide geographical and market scale while the internal sales force’s focus should be on the direct access to existing and new customers, as well as end-users.

In general, importers/distributors/agents in China fall within two large categories:

§  State-owned and private importers which play a significant role in the import of food and beverages to China. These companies focus on volume, and look for products which are already accepted by the general population, like meat, wine, olive oil, dairy, seafood, etc. Price, brand and production capabilities are very important for them; there have been many cases reported of negotiations failed because of disagreement on decimal points.

§  Smaller companies, sometimes set up by foreigners, who understand European products and cater to five-star hotels, foreign restaurants or gourmet stores specialised in imported goods. These operate mainly in first-tier cities and are usually more flexible on volumes and more willing to accept new products.

No matter which option is better suited for your business, it is not recommended to sign any exclusive agreement with one single distributor (unless it is linked to large volumes of sales), as this will limit efficiency and control, especially during expansion.

Finding the right distributors and partners is critical. A very straightforward approach is to ask customers and industry contacts for recommendations. Chambers of commerce and other supporting trade organisations in China are also good contact points: they can usually provide you with a list of importers/distributors. Trade shows offer the opportunity to meet both small and big distributors.

Useful resources:

-        Webinar recording – Indirect sales and business partners in China: how to identify, approach, select and secure them (2021): https://www.eusmecentre.org.cn/event/2021-06-22/indirect-sales-business-partners-china-how-identify-approach-select-and-secure-them

-        Webinar recording – Get ready for the show: How to prepare to trade fairs in China (2021): https://www.eusmecentre.org.cn/event/2022-01-20/get-ready-show-how-prepare-upcoming-trade-fairs-china

What are the general accounting requirements for foreign enterprises in China?

In general, China’s accounting principles are pretty close to international financial reporting standards. All foreign companies in the country must strictly follow the rules of the central and local government where they are based in order to be compliant. Basically, the following steps must be followed:

§  Annual audit report: composed of a balance sheet, an income statement and a cash flow statement. This must be conducted by external licensed firms and finally signed by a certified public accountant registered in mainland China.

§  Corporate Income Tax (CIT) reconciliation report: though CIT is generally paid on a quarterly basis, an annual CIT reconciliation report must be prepared to certify that all taxes have been paid, and to eventually know if supplementary taxes must be paid or reimbursements obtained.

§  Annual report to local bureaus of industry and commerce: through the enterprise credit and information publicity system of the jurisdiction where the enterprise is located.

§  Annual report to national authorities: through a dedicated reporting system.

In general, all the above documents must be completed within the first four or six months of the following year. It is possible to outsource these procedures to professional accounting firms: costs are based on the volume of transactions (higher costs for higher volumes), with prices starting for as little as 1,000 CNY for a couple of dozens of fapiaos every month. Start-ups and SMEs, which have less resources and a relatively small volume of transactions, would therefore benefit from outsourcing their accounting services: in this way, they do not need to pay salary plus social security costs for in-house accounting employees. On the other hand, larger companies or those with large volumes of transactions should opt for a dedicated in-house team.

For more details on the reporting requirements that companies need to follow in China, see a dedicated guide published by the EU SME Centre in 2016: https://www.eusmecentre.org.cn/guideline/understanding-company-administrative-and-reporting-rules-china.

Alibaba, Aliexpress, Taobao, Tmall? What are the differences?

Alibaba, Aliexpress and Taobao all belong to Alibaba Group founded by Jack Ma. However, they present major differences which do not make them competitors, for instance:

§  Taobao and Tmall focuses mostly on Chinese domestic market (therefore they are available only in Chinese language), while Alibaba and Aliexpress target international customer buying mostly Chinese products from anywhere in the world (therefore both are available in English language).

§  Alibaba is a B2B platform aiming at wholesale or large-volume transactions between businesses; Aliexpress is a B2C platform where generally there is no requirement in terms of minimum order.

§  Payments on Alibaba and Aliexpress are generally easier (e.g. concluded through PayPal), while payments made on Taobao and Tmall are more complicated for users not based in China.

§  Sellers on Taobao and Tmall must be companies legally registered in China, while sellers on Alibaba and Alipay can be based in any country.

§  Tmall also has a dedicated section for international brands selling to China via CBEC (Tmall Global), which does not require sellers to be legally registered in China as they can freely open flagship stores on the platform.

Therefore, if you plan to sell your products to Chinese domestic consumers, your best options will be to open stores on Taobao, Tmall, as well as other platforms.

What are the general taxation requirements for foreign companies in China?

Foreign companies registered in China are subject to a large number of taxes in the same way as domestic companies. Companies not incorporated in mainland China but with their effective management therein, will also be subject to the same tax regime. The most relevant taxes are:

§  Corporate Income Tax (CIT): standard tax on income, with the statutory tax rate at 25%. However, small scale and low profit enterprises * enjoy a preferential CIT policy from 1 January 2022 to 31 December 2024:

a.     SMEs with an annual turnover below CNY 1 million (around EUR 126k): 20% CIT rate calculated only on 12.5% of their turnover;

b.     SMEs with an annual turnover above CNY 1 million (around EUR 126k) but below CNY 3 million (around EUR 378k): 20% CIT rate calculated only on 25% of their turnover;

Other preferential CIT rates (e.g. 15%, 175% super deductions, etc.) may be applied for companies operating in sectors particularly encouraged by the Chinese government, e.g. companies with High- and New-Technology Enterprise (HNTE) status, software and integrated circuit enterprises, or investing in priority sectors in central and western regions.

§  Value-added Tax (VAT): standard tax on transactions, it applies as a percentage of the invoiced amount for goods and services. The standard VAT rate is 13%, but reduced rates of 9% and 6% also apply (respectively for retail, hotel, entertainment, transports and logistics; and for financial services, consulting, IT, insurance, etc.). Micro, small and medium-sized enterprises may register as ‘Small scale tax payer’, for which a flat 3% VAT rate is applied (see relevant FAQ below).

§  Consumption Tax (CT): sales-based tax, applicable to products that are harmful to health (e.g. tobacco or alcohol), luxury products (e.g. jewellery and cosmetics), as well as high-end products (e.g. passenger cars, boats, etc.) – either imported or manufactured in China. The specific rate of the CT varies depending on the type of product (ranging from 1% to 56%).

§  Stamp Tax: levied on various contracts, licenses and accounting books. It varies from 0.005% to 0.1% depending on the contract type.

§  Withholding Income Tax: applied to payments done by China-based entities to non-resident enterprises (e.g. parent company in Europe). It is a concessionary 10% tax applicable to interests, rental, royalties and dividends.

Other common taxes include the Real Estate Tax, the Land Value Appreciation Tax, the Resources Tax, etc.

For more details on the type and amount of taxes that foreign companies need to pay in China, see a dedicated guide published by the EU SME Centre in 2016: https://www.eusmecentre.org.cn/guideline/understanding-company-administrative-and-reporting-rules-china.

* Small scale and low profit enterprises (小型微利企业)are defined as enterprises with an annual turnover below CNY 3 million, less than 300 employees, and total asset value below CNY 50 million.

What are the general technical labelling requirements for F&B products?

Labelling and marking is one of the major reasons why products exported to China get stuck at the Chinese customs. The Chinese authorities require that all products imported and sold in China meet specific labelling and marking requirements, which are stipulated in Chinese national standards.

For F&B products, according to various national standards (e.g. GB 7718 for Food Labelling Standards, GB 13432, 28050 and 10344 for labelling of pre-packaged food, etc), in general the labelling should contain information on: specification, net content; producer name, address and contact details; name of the importer and distributor in China; table of ingredients and nutrition facts; production date, shelf life / expiration date; storage requirements; name of food additives; code of product or national standards; and other information in line with applicable regulations and food safety standards. With the entry into force in 1 January 2022 of GACC Order 248, the 18-digit China Registration Code obtained after registration on GACC platform (see corresponding FAQ above) must also be displayed on the label.

All labelling and marking must be registered and approved by Chinese authorities before the products are actually shipped to China. F&B products generally require the label in Chinese and English to be registered (in both paper and electronic) through CIQ: only after approval your product is allowed to be exported.

More information on technical labelling requirements for F&B products can be found in:

§  Guidelines: F&B technical requirements and labelling (2017): https://www.eusmecentre.org.cn/guideline/fb-technical-requirements-and-labelling

§  Webinar recording: China’s food and drink market (2022): https://www.youtube.com/watch?v=teJFibfemDs

§  Webinar recording: China’s food and drink market (2021): https://www.youtube.com/watch?v=9SJo5SfAk-g

§  Webinar recording: the organic and natural F&B market in China (2021): https://www.youtube.com/watch?v=HmsvXv04Gic

Can I choose arbitration in my country instead of China? Or in Hong Kong?

China is a member of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (commonly known as the New York Convention), therefore it is possible to choose arbitration in countries other than China.

However, the key challenge of choosing arbitration outside China is the reluctance of Chinese parties to agree to it, instead arguing for the governing law or dispute resolution to be within mainland China. This is because many Chinese domestic companies are not very acquainted with foreign laws and dispute resolution mechanisms. Still, it is not technically impossible to persuade the Chinese party to choose foreign arbitration, particularly if the Chinese party has extensive global operations.

Considering the reluctance of Chinese parties to agree on foreign governing laws and arbitration in contracts, a compromise could be to choose arbitration in Hong Kong SAR. As a matter of fact, China’s Supreme People’s Court and the government of Hong Kong SAR have an agreement allowing the enforcement of interim measures orders from one territory into the other. This is a unique agreement that allows arbitration proceedings from Hong Kong SAR to be effectively enforced in mainland China.

The advantage of selecting Hong Kong SAR as the forum for arbitration is the territory’s renowned experience as global dispute resolution hub, which also benefits from the large presence of foreign judges and the recognition of English as official language for business and contracts. In addition, Chinese parties are generally more open to accept Hong Kong SAR as a compromise for arbitration.

It is noteworthy that in July 2021 the Ministry of Justice published a draft revision of the Arbitration Law for public consultation. Although not yet finalised, the revised draft brings changes about the requirement of unambiguous clauses of arbitration institution.

For more details, guidance and recommendation on how to draft sales contracts with Chinese companies, including arbitration clauses, pros and cons, see:

§  Webinar recording (2021) – Drafting sales contract in China: https://www.youtube.com/watch?v=SZLNsBYi_fw

§  Webinar recording (2017) – How to resolve commercial disputes in China: introducing Chinese arbitration and litigation systems: https://www.youtube.com/watch?v=0priu92F-nc

Can a company registered abroad employ Chinese citizens in China?

According to China’s Labour Law, a foreign company without legal representation in mainland China cannot conclude labour contracts with Chinese citizens if the place of work performance is in China.

In order to be able to employ a Chinese citizen in China, the foreign company must establish a legal entity in the country, but the procedure changes depending to type of entity established. For instance, representative offices may employ local individuals only through agencies like FESCOor CIIC; joint ventures or wholly foreign-owned enterprises may employ local individuals in their own name. More details on how to establish a foreign company in China can be found in corresponding FAQs in the section ‘registering a company in mainland China’.

Foreign companies which do not wish to have any permanent establishment in China, but still need someone ‘on the ground’, the only possible solution is to establish a commercial relationship / service agreement with a self-employed professional – who will be responsible for paying independently income taxes and social security contributions.

How can I export wine to China?

Importing wine to China is a fairly straightforward process – once you have either found a suitable importer or set up shop yourself in the country.

The first thing to be done is to complete the registration of the production establishment through GACC official system: https://cifer.singlewindow.cn/. This will require the producer to submit a series of document including business identity, information on raw material suppliers, other relevant actors involved in the production process, etc. The wine’s label must also be translated according to Chinese standards, and registered with the China Inspection and Quarantine (CIQ). If all the steps have been completed and all export documents are in order, and the Chinese label sticked on the bottle, customs clearance should not be a complicated process.

Other useful EU SME Centre resources in this area:

§  Guidelines: How to start exporting wine to China (2017): https://www.eusmecentre.org.cn/guideline/how-start-exporting-wine-china

§  Report: the imported wine market in China (2018): https://www.eusmecentre.org.cn/guideline/imported-wine-market-china-2018

§  Webinar recording: the Chinese wine market, what SMEs shouldn’t ignore (2021): https://www.youtube.com/watch?v=bi-EiDP38fo

§  Webinar recording: Communicating the value of European F&B GI products in China (2022): https://www.youtube.com/watch?v=I7qQdbrSE_U

What is the tax policy of goods exported to China via CBEC?

Detailed guidelines on cross-border e-commerce have been produced by the EU SME Centre, including:

§  The e-commerce ecosystem in China (2021 update): https://www.eusmecentre.org.cn/report/e-commerce-ecosystem-china-checklist-european-smes-2021-update

§  Guidelines on Cross-border E-commerce (2019): https://www.eusmecentre.org.cn/guideline/guideline-cross-border-e-commerce-china-2019

Can I use the same HS code that I use to export in other countries?

One of the big issues that European exporters may encounter in China is that the HS code used in their country could differ from the one confirmed by the China customs. This is due to the fact that, normally, only the first 6 digits of HS codes are universally equal, but the remaining may vary from country to country, and this is especially the case of China.

From August 2018, the Chinese Customs changed the HS code to be filled on the Import Declaration Form from a 10-digit code to a new 13-digit code:

-        The 7th to 10th digits consist of the national code assigned by China (illustrated in detail in the Import and Export Tariffs of the People’s Republic of China which are adjusted every year in December);

-        The 11th to 13th digits stand for inspection and quarantine code for customs supervision purpose only.

The 2022 version of the Import and Export Tariff of the People’s Republic of China is available at this link. Please keep in mind that the competent Chinese customs will have the final say on the HS classification.

Want to be sure of what HS code applies to your product? Whether mandatory certification requirements apply? Or whether your product can be exported through Cross-border E-commerce? Reach out to the EU SME Centre through our Ask-the-expert service.

How to tell if an arbitration clause is valid under the Chinese law?

In order to enforce arbitration awards in China, the arbitration clause stipulated in the contract must be considered valid under Chinese Arbitration Law. Therefore, particular attention should be put to the arbitration clause when drafting business contracts. According to China’s Arbitration Law (Art. 16 to 20) as well as judicial interpretations of the Supreme People’s Court, the items that are necessary for ensuring the validity of an arbitration agreement or clause are:

§  Both parties’ expression of interest to proceed with arbitration, which should be referred to explicitly;

§  Clear definition of the items for arbitration, which must be arbitrable (e.g. administrative agreements and antitrust civil disputes, etc);

§  Indication of the juridical seat of arbitration and applicable laws;

§  Written and executed by legal persons with full civil capacity.

A standard arbitration clause recommended is “Any dispute arising from or in connection with this Contract shall be submitted to [arbitration institution name] for arbitration, and shall be subject to the laws of [country where the arbitration institution is located] in effect at the time of applying for arbitration. The arbitral award is final and binding upon both parties”.

It is noteworthy that in July 2021 the Ministry of Justice published a draft revision of the Arbitration Law for public consultation. Although not yet finalised, the revised draft brings changes about the requirement of unambiguous clauses of arbitration institution.

For more details, guidance and recommendation on how to draft sales contracts with Chinese companies, including arbitration clauses, pros and cons, see:

§  Webinar recording (2021) – Drafting sales contract in China: https://www.youtube.com/watch?v=SZLNsBYi_fw

§  Webinar recording (2017) – How to resolve commercial disputes in China: introducing Chinese arbitration and litigation systems: https://www.youtube.com/watch?v=0priu92F-nc

Cosmetics: is animal testing required for exporting cosmetics to China?

China has long been associated with strict animal testing requirements for cosmetics, aimed at ensuring the quality and security of cosmetic products produced in and exported to China. The situation changed substantially in May 2021, when the National Medical Products Administration released the Provisions for Management of Cosmetic Registration and Notification Dossiers. The Provisions allow all general use cosmetics to be exempted from mandatory animal testing requirements during the notification process with NMPA, taking into account that:

-        The product does not claim to be used by infants and children;

-        The product does not contain new cosmetic ingredients;

-        The product’s notifier/intermediary/manufacturer is not listed as a key supervision target according to the results of the quantitative rating system established by NMPA.

However, the animal testing exemption is not an automatic process. It is granted only when the manufacturer submits, as part of the notification process with NMPA: (i) a good manufacturing practice (GMP) certificate issued by an official government agency where the manufacturer is located; (ii) a safety assessment report fully confirming the safety of the product. Finally, it must also be noted that the above applies only to general use cosmetics, and not to special cosmetics.

More details on the classification, the content of the safety assessment report, as well as a list of EU Member States agencies issuing GMP certificate for this purpose, are provided in an ad hoc report completed by the EU SME Centre in early 2022 (see below).

Useful resources:

-        Webinar recording – Update on new regulations and animal testing exemption for cosmetics (2022): https://www.eusmecentre.org.cn/event/2022-04-12/update-new-regulations-and-animal-testing-exemption-cosmetics

-        Webinar recording – The organic and natural cosmetics market in China (2021): https://www.eusmecentre.org.cn/event/2021-11-11/organic-natural-cosmetics-sector-china

-        Cosmetics policy updates, landscape & non-compliance case study in China (2021): https://www.eusmecentre.org.cn/event/2021-06-03/cosmetics-policy-updates-landscape-non-compliance-case-study-china

Report – Exporting cosmetics to China (Regulations update 2022): https://www.eusmecentre.org.cn/report/exporting-cosmetics-china-regulations-update-2022

What to do if I am scammed?

The EU SME centre frequently receives emails from EU SMEs which encounter significant issues with purchases from China, ranging from pure fraud to miscommunications leading to commercial disputes that could have been avoided. The most frequent cases relate to:

§  Payment done to the Chinese supplier, but shipment not received and supplier suddenly disappeared.

§  Payment done to the Chinese supplier, goods were received but with lower quality.

In most cases, scammers are extremely experienced in doing so and therefore have set very complex and opaque structures to avoid being traced back, often involving changing names and key people.

If an EU SME has already paid in advance the Chinese supplier, the only possibility they have is to collect as much evidence as possible and engage with a law firm based in China to file a lawsuit in China. Going to the police in the EU SME’s home country, or engaging with a law firm there, will be completely useless as they will have significant barriers in accessing details on the scammer; even if they manage to do so, the decisions of foreign courts will not be automatically enforced in China.

EU SMEs are advised to contact their national representations in China which might be able to assist. The EU SME Centre has also established a database of reliable service providers which include law firms operating in China: https://www.eusmecentre.org.cn/service-providers.

Finally, it must be kept firmly in mind that, the risk of fraud and of quality issues when purchasing from Chinese suppliers can be reduced by taking very simple steps to conduct due diligence on the company (see specific FAQ in this section). Other relevant resources include:

§  Webinar recording (2019) – Commercial FIE litigation practice in China: https://www.youtube.com/watch?v=4G0ilCXLzn8

§  Webinar recording (2017) – How to resolve commercial disputes in China: introducing Chinese arbitration and litigation systems: https://www.youtube.com/watch?v=0priu92F-nc

Why is it mandatory for F&B producers to register with Chinese customs?

On 1 January 2022, a new regulation issued by GACC – commonly known as GACC Order 248 – came into force, requiring all companies producing, storing or transporting F&B products that are exported to China, to register on a dedicated system and obtain a code: https://cifer.singlewindow.cn/. Failure to do so will result in products being blocked at the Chinese customs and either returned to the country of origin or destroyed.

GACC Order 248 distinguishes between two categories of product categories, i.e. “high-risk categories” and “low-risk categories”, each with its own registration procedure. Production establishments in the former category cannot register individually – they must be officially recommended by their own country authorities to GACC, a process that might take several months; those in the low-risk category can apply individually and directly to GACC, which usually only takes up to a few days. Meat products belong to the former category.

All approved establishments and their information are included in a specific, publicly available register.The register is managed in a dynamic manner by GACC: individual establishments will be added in, removed or resumed based on different assessment and review results.

The EU SME Centre has received nearly 200 enquiries from EU F&B producers and business organisations on different aspects and problems encountered during the registration process. We are ready to support you, please submit your question through our Ask-the-expert function. Ad hoc guidelines on this topic are also expected to be published by the EU SME Centre in June/July 2022, which include dozens of much more detailed and specific FAQs.

Other useful resources:

-        Webinar recording: Update on customs and logistics requirements for imported F&B products (2022): https://www.eusmecentre.org.cn/event/2022-03-01/update-customs-and-logistics-requirements-imported-fb-products

 

-        Webinar recording: Mandatory GACC registration for all F&B exporters from 1 January 2022 (2021): https://www.eusmecentre.org.cn/event/2021-12-08/webinar-mandatory-gacc-registration-all-fb-exporters-1-jan-2022

Meat: EU producers authorised to export to China

Exporting meat products to China is a complicated and long process. According to Chinese laws and regulations, meat products can be exported to China only after a protocol is signed with the government of the exporting country. Therefore, before any planning, meat exporters should ensure that a protocol is in place between their country and China. The updated list can be found on the website of Chinese customs:http://www.customs.gov.cn/spj/zwgk75/2706880/jckrljgzyxx33/2812399/index.html.

If there is a protocol in place, each individual production establishment must also register on China’s GACC platform, following the procedure for “high-risk products”, i.e. through recommendation from competent authorities in the country/region where they are located (see corresponding FAQ above). In short, the production establishment contacts its national competent authority, which in turn verifies the establishment’s compliance with China’s food safety requirements, and release a username and password to login on GACC’s Single Window platform. The establishment will then complete the registration on the platform by submitting all the relevant documentation and information required. GACC will then conduct a substantive technical review, including document examination, video checking, on-site reviewing, or a combination of these. If the assessment and examination results are positive, GACC will issue the registration number and notify the competent authority in the country where the establishment is based. The whole registration process is relatively complicated and long.

The updated list of approved establishments for meat exports to China is provided (in Chinese) on the website of Chinese customs: http://jckspj.customs.gov.cn/spj/zwgk75/2706880/2811812/2812015/index.html, including for individual European countries authorised to export (Austria, Belgium, Denmark, Finland, France, Germany, Hungary, Latvia, Lithuania, Ireland, Italy, Netherlands, Poland, Portugal, Romania, Spain).

Other useful resources:

§  Report: Exporting pork products to China (2022): https://www.eusmecentre.org.cn/report/exporting-pork-products-china

§  Report: Exporting meat products to China (2016): https://www.eusmecentre.org.cn/guideline/exporting-meat-products-china

Can foreign workers work for short-term periods in mainland China?

Foreigners are allowed to work in China by means of secondment from overseas headquarters. However, the procedure is not very smooth, as the China-based subsidiary needs to submit a secondment letter – instead of a letter of intention of employment.

However, this policy only applies to very limited locations, including Beijing and Shanghai. This may be challenging for enterprises which have complex operational systems and internal mobility programmes. As a matter of fact, this remains a challenging issue for workers that come to China for short-term projects – very common especially for enterprises conducting R&D activities.

Please note that, since the beginning of the COVID-19 pandemic, the issuance of new visas is suspended; entry into China is granted – under extremely tough quarantine measures – only to foreign citizens in possession of valid residence permits (for work or family reunion purposes). Only in exceptional cases may foreigners without a valid residence permit be allowed to enter China.

Is the “bonded import + offline pick up” model allowed in China?

The “bonded import + offline pick up” is not allowed in China. The only exception is the Hainan Free Trade Port – China’s largest duty free area – which allows consumers across China to purchase duty-free goods on official platforms and to collect them in person in duty-free shops within the territory of Hainan island.

“Bonded import + offline pick up” refers to a model through which certain e-commerce enterprises are allowed to open an experience store to exhibit and sell their products, usually within a customs special supervision area. Once consumers finish the whole series of online purchasing procedure, they are able to pick up the product on site or use domestic delivery services.

Previously, there used to be some experience stores outside customs special supervision areas, usually located downtown and specifically in Central Business Districts due to their vicinity to consumers. In these cases, however, the customs were experiencing difficulties in preventing relevant CBEC enterprises or platforms to use this model as a trick to evade taxes, by replacing CBEC retail imports with goods imported through general trade.

How can I export to China?

Basically, there are three ways to export goods or services to China:

-        Direct exporting: direct exportation of goods/services from the producer in one country to the final consumer in China.

-        Indirect exporting: selling of goods/services through an intermediary involved in the producer’s sector and market, who in turn sells to final consumers in China. Such intermediaries are agents, distributors, and franchisees.

-        Cross-border e-commerce: selling goods/services online, provided to the Chinese consumer directly from Europe, or through a bonded warehouse in China (more details in the “CBEC” section of FAQs).

While each model of market entry has strengths and weaknesses, most companies develop a gradual approach based on the time and resources available to them and the market responses they receive along the way. Considerations regarding the model of entry most suitable for an individual company’s business plan include: (i) size of the enterprise; (ii) nature of its products; (iii) previous export experience and expertise; (iv) business conditions and regulations in China (both exporting and investment requirements); (v) need for on-the-ground representation (such as marketing and after-sales services); (vi) need for control of the product and IP rights protection; (vii) time and resources available to the company.

It comes without saying that each model requires exporters to comply with different regulations, and that no matter the model chosen, EU SMEs should always ensure that all their IP rights are properly registered in China before exporting.

Useful resources:

-        Webinar recording – Ways to enter the Chinese market (2022): https://www.eusmecentre.org.cn/event/2022-03-08/capacity-building-webinar-series-session-3-ways-enter-chinese-market

-        Webinar recording – Entering the Chinese Market through the power of Social Networks in China. Cross-Border E-commerce and its opportunities (2020): https://www.eusmecentre.org.cn/event/2020-12-18/save-date-online-workshop-digital-export-china-cross-border-e-commerce

-        Report – Ways to enter the Chinese market: https://www.eusmecentre.org.cn/report/ways-enter-chinese-market

Can I register a company in co-working spaces / incubators?

In order to register a company in China, investors must provide an exclusive office address, which will be the company’s legal business address appearing on its business license. This means that investors must rent dedicated office spaces.

An exception may apply for new start-ups. Following the growth of entrepreneurs and start-ups in China, most co-working spaces, incubators and accelerators in China allow resident entrepreneurs to register a virtual company address within their facilities – for modest fees compared to other office buildings.

Taking as example The Lab, a landing platform for foreign start-ups and international entrepreneurs launched by Innoway in Zhongguancun, virtual company registration is one of the services provided (together with other services such as accounting, legal consulting, entrepreneur visa, matchmaking, etc.), for an annual fee of 10-15k RMB (around 1.5-2k EUR).

Useful resources:

-        Webinar recording – Start-up funding & entry in the Chinese market: https://www.eusmecentre.org.cn/event/2021-09-21/startup-funding-entry-chinese-market

How can I protect my IPR when selling on Chinese e-commerce platforms?

* This FAQ was provided by the China IP SME Helpdesk, an EU-funded project which provides free technical assistance to EU SMEs on IPR-related issues in China: https://intellectual-property-helpdesk.ec.europa.eu/regional-helpdesks/china-ipr-sme-helpdesk/china-frequently-asked-questions_en

China’s specific IPR regulations related to the internet stipulate that if the IP-protected material is uploaded without the right holder’s consent, the right holder may request in writing that the internet service provider (ISP) removes the infringing work, or removes the relevant website from the ISP’s network and disables access to the copyrighted material. This kind of written warning is known as a ‘take-down notice'.

The general rule is that if the ISP removes the infringing content following a ‘take-down notice’, it will not be held liable for any further compensation. If, however, the ISP knew or should have known about the infringement, then it will be held liable jointly with the person who uploaded the infringing content. In order to avoid liability, Chinese ISPs have developed systems to aid take-down notices.

However, the prerequisite for issuing a take-down notice is that the right holder has registered his/her IPR in mainland China. Registration in your home country is not usually sufficient (although Alibaba does accept IP registered outside of China). For a successful takedown action, you will have to provide the ISP with the registration documents of your Chinese trademark, patents or copyright.

For further information on notice and take-down procedures, consult the China IP SME Helpdesk’s “How to Remove Counterfeit Goods from E-commerce Websites in China” guide – which also includes specific case studies for Alibaba and Taobao platforms: https://intellectual-property-helpdesk.ec.europa.eu/system/files/2020-10/v9_How_to_remove_counterfeits.pdf.

Can I choose foreign law as the governing law of business contracts?

According to China’s Law on the Laws Applicable to Foreign-related Civil Relations, the Law on International Economic Contracts, and an interpretation of the Supreme People’s Court, the two parties of a contract may choose in autonomy the laws applicable, provided that there is a clear foreign-related element in the relation between the two parties (which is always the case for contracts involving SMEs based in Europe); and that the application of foreign laws will not damage the social and public interests of China.

It is noteworthy that the Chinese judicial system has improved significantly in recent years for commercial and IP dispute resolution. EU SMEs therefore should not have any prejudices against the choice of Chinese law in their business contracts. In addition, choosing Chinese law might be more effective in enforcing one’s right in case of commercial disputes with Chinese companies, such as credit collection. Therefore:

§  If an EU SME sells to a Chinese company in China, it is recommended to use Chinese law and China as competent jurisdiction;

§  If an EU SME buys from a Chinese company in China, it is recommended to use the law and jurisdiction of the EU SME’s home country.

Finally, it must be noted that contracts between two domestic parties in China cannot choose foreign law as governing law. Affiliates of European companies based in mainland China are considered domestic entities and therefore cannot choose foreign law.

For more details, guidance and recommendation on how to draft sales contracts with Chinese companies, see:

§  Webinar recording (2021) – Drafting sales contract in China: https://www.youtube.com/watch?v=SZLNsBYi_fw

Webinar recording (2017) – How to resolve commercial disputes in China: introducing Chinese arbitration and litigation systems: https://www.youtube.com/watch?v=0priu92F-nc

Are there any exemptions for CCC?

The CCC mark is not required for products meeting one of the following conditions:

§  Personal belongings of diplomats working in foreign embassies, consulates or international organisations in China;

§  Personal belongings of officials from Hong Kong and Macao SARs offices in China;

§  Personal belongings carried by all citizens arriving in China;

§  Goods donated by foreign governments to China;

§  Samples for CCC testing.

In addition, an application for exemption of the CCC mark can be submitted by manufacturers, importers, sellers or other distributors, to local inspection and quarantine authorities, in case of:

§  Products needed for scientific research and testing;

§  Components needed for technology assessment;

§  Products needed directly by end users for maintenance purposes;

§  Equipment and components required for factories and production lines (not including office equipment);

§  Products to be displayed during exhibitions and fairs, but not to be sold;

§  Products imported temporarily, to be shipped out of China thereafter (including exhibitions or testing);

§  Parts imported as regular trading goods, for the purpose of exporting the whole system;

§  Parts imported to process materials supplied by clients, for the purpose of exporting the whole system.

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