Securing banking facilities in China can be a complex process. Corporations need to be clear of the procedures and requirements to ensure smooth and successful applications.
China may have begun the long process of opening up to foreign markets, but it remains one of the most complex countries in the world. According to TMF Group's newly launched Compliance Complexity Index 2018, China is the most difficult country in Asia Pacific in terms of corporate compliance.
Still, China is the great economic success story of the past 30 years. Now the world's largest economy and a big trading partner for major economies, its fast-growing consumer market makes China a beacon to foreign investors.
But before you can get anywhere in China, you'll need to secure banking facilities - not necessarily an easy task for foreigners.
What used to be a simple procedure many years ago is now becoming a real challenge. We hear frequent complaints about the difficulties onshore companies face when setting up a bank account.
To avoid this uncertainty, many companies choose to partner with local specialists in China who can help you to get properly started, from establishing your entity to opening a bank account. Yes, you'll need to have a registered entity before you can even start to think about a bank account, and the type of entity could influence the type of banking facilities you can access.
Entity types include:
- local Chinese company: Incorporated only with domestic capital sources without any foreign equity
- wholly Foreign Owned Enterprise (WFOE): Incorporated only with foreign capital, a WFOE is permitted to trade locally and can receive RMB revenues
- joint venture (JV): Owned jointly by a foreign company and a local private or state-owned Chinese company
- representative Office: These are registered without any paid-up capital. They are mainly sales management offices and cannot trade domestically or receive RMB revenues. Representative offices can only have expense accounts in RMB.
Each bank's requirements differ, depending largely on the nature of the business, the frequency of banking, the location of transactions, and the background of the Ultimate Beneficial Owner (UBO). These requirements are getting even tighter as global transparency regulation hits China operations.
Choosing an account type
Foreign-invested entities (FIEs) in China need to set-up at least two bank accounts: one as an RMB basic account, and one as a foreign currency capital account. Non-Resident Account (NRA) can be opened for non-resident entity, either in RMB or foreign exchange currency. The limitation of NRA is cannot be used for settlement /purchasing of exchange or withdraw cash.
- RMB Basic Account: An FIE must have one (and only one) RMB basic account for daily business operations in China. This account is the only account from which the company can withdraw RMB cash. The RMB basic account often acts as a designated account for tax payments. However, in some tier-one cities, tax authority accept the RMB basic account opened in foreign bank as the tax payment account
- Foreign Currency Capital Account: An FIE must have, and obtain approval from the State Administration of Foreign Exchange (SAFE), a foreign currency capital contribution account to receive capital injections from foreign investors.
Additional foreign currency accounts may be needed, such as a settlement account for the collection of current items in a foreign currency, foreign debt special accounts, and temporary capital accounts.
Very few Chinese businesses accept payment by international cards such as Visa, MasterCard and American Express. Instead, it's Union Pay, the Chinese bank network is the most recognised symbol.
Applying for your Chinese business bank account
Opening a bank account requires you to attend in-person with all of the necessary documentation. If you'll find an in-person appearance difficult, it's best to work with a local agency.
These days, there are foreign banks with presence in China; major restrictions to foreign operators were removed in line with China's WTO commitments. Whereas once it was only local banks that could open RMB accounts, these foreign banks are increasingly able to open RMB accounts and deal with foreign exchange services.
When applying, you can expect to be asked for the following:
- proof your business is properly registered, such as a valid 5-in-1 Business License, Enterprise Code Certificate, or Tax Registration Certificates.
- proof of identification for legal representative , bank authorized signatories, online banking approver and operator, contact person for large transaction of the company(Original or legalized and certified true copy), directors (photocopy)
- details of the company structure and ownership
The largest native Chinese banks include Industrial and Commercial Bank of China, Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of Communications; the major foreign banks with a local presence include Bank of East Asia, DBS Bank, Citibank, HSBC and Standard Chartered. Note that the process for opening a bank account with an international bank will be more document-intensive and will take longer than working with a Chinese bank.
Get guidance from a local expert
Even if all of these requirements are met, and you have all the necessary documentation, it can still be quite difficult to get everything in place on time.
Given the complexity throughout China, especially when starting a business, it is best to work with a local expert partner who can help you to navigate these waters. TMF Group has eight offices across China, ready to help you start doing business in China.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.