Every year, trade with China grows increasingly profitable. Despite complex relations with the USA and stringent state regulations, China’s government has built an effective economy.
Running a business together with Chinese partners is a project of immense potential, not to be underestimated. However, to be successful, you will need an appropriate financial tool for yuan transactions.
For companies that aim to operate in the People’s Republic of China (PRC), opening a local bank account appears an appealing choice. While it may seem the simplest option initially, you should consider whether it is the best strategy in light of all factors and potential risks.
US-China power play
As a developed nation, China boasts significant economic, financial, and political capabilities. These attributes, however, have led to tensions with the USA. This arises from multiple factors, including disparities in trade, intellectual property disputes, and differing political tactics.
The average bilateral tariffs between the two countries have been around 17%, with the January 2020 Phase One Agreement marginally reducing them to 16%. This trade dispute has not only decreased trade between the two nations in 2019 but also redirected sales to other areas.
The US is wary of China’s ties with certain countries, especially those that are seen as strategic rivals or that have contrasting ideologies.
Although Washington doesn’t dictate who Beijing should partner with, it keeps a watchful eye and occasionally contests China’s foreign alliances. The US’s stance on China’s economic ascent and its partnerships is part of a larger strategy to preserve its global sway while dealing with the nuances of a globally connected economy.
The persistent economic competition and strategic jockeying between these two giants continue to influence global trade and international affairs.
Benefits of corporate accounts in China’s market
China’s rapid economic growth over the past few decades has transformed it into a global powerhouse. The nation’s development has been characterized by a significant expansion in manufacturing and exports, which makes it a vital player in the global supply chain.
If you want to do business in China, a corporate account is a must. It will be your main conduit for fund transfers, payments, and the management of financial transactions. The benefits of holding a corporate account in China are many:
- Ease of Transactions: A local corporate account allows for easier and faster transactions within the Chinese market. It facilitates payments to suppliers, receipt of funds from customers, and management of operational expenses.
- Currency Management: With a corporate account, businesses manage currency exchange more effectively. Since the Chinese yuan (CNY) is the primary currency used in the country, having an account that can handle CNY transactions is essential.
- Regulatory Compliance: A corporate account guarantees that businesses comply with Chinese financial regulations. It helps in maintaining proper records, which is necessary for tax purposes and regulatory reporting.
Setting up a corporate account in China
Establishing a corporate account in China is a multi-step process that necessitates compliance with certain regulations. Below, you will find a brief outline of the procedure:
- Choosing the Right Bank: Selecting a bank that has experience dealing with foreign businesses is important. International banks with branches in China or Chinese banks with international operations are often preferred.
- Documentation: To establish a corporate account in China, businesses need to provide various documents, e.g., a business license, company charter, and identification documents of the company’s legal representatives.
- Approval Process: The application for a corporate account goes through a review process. Banks will conduct due diligence to ensure compliance with anti-money laundering (AML) and know your customer (KYC) regulations.
- Account Activation: Once approved, the account is activated, and businesses can start using it for their financial operations.
Banking in China: regulatory and financial hurdles
While having a corporate account in China is beneficial, there are challenges and considerations that businesses must be aware of:
- Regulatory Environment: China’s regulatory environment is complex, and laws may change frequently. To be on the safe side and avoid complications, businesses must stay informed about the latest regulations that affect corporate accounts.
- Currency Controls: China has strict currency controls in place. With this in mind, companies need to understand the limitations on currency conversion and cross-border transfers.
- Tax Implications: The tax implications of operating a corporate account in China are something that you should never forget about. A wise strategy in this situation is to seek advice from tax professionals to ensure compliance.
The role of nominee services
Nominee services are a convenient solution for businesses aiming to reduce geopolitical risks and improve privacy. These services involve designating a third party to hold shares or serve as a director, thereby protecting the actual owners’ interests.
Such an arrangement not only strengthens security and maintains confidentiality but also comes with several other perks:
- Privacy and Anonymity: Shielding their identity from public records and providing a degree of privacy that is crucial in sensitive business dealings, nominee services guarantee the anonymity of the actual owners.
- Asset Protection: By separating the ownership and control of assets, nominee services offer extra protection against legal actions, creditors, or other financial claims.
- Simplified Management: With a nominee handling administrative tasks, the true owners can focus on core business activities without the burden of day-to-day management.
- Estate Planning: Nominee services facilitate estate planning and allow for a smoother transition of assets and business interests.
Nominee services make it possible to appoint directors or shareholders to represent the true owners legally, keeping personal details private. They are key in handling intricate financial dealings and adhering to local laws.
Nominee services help companies, especially foreign ones not well-acquainted with China’s laws, by navigating them through the complex rules of how businesses are run and kept in line with Chinese regulations.
Nominee directors protect stakeholder interests while performing their duties to the company.
This way, a balance between advocacy and the company’s health is ensured. Nominee shareholders ensure clear communication between the company and the real owners, promoting transparency and compliance with corporate declarations and financial disclosures.
Need a corporate account in China for your company? It’s no bother. To analyze your particular situation in detail, simply book a consultation with International Wealth experts. This way, you are sure to find the solution that will be the exact match for your business.
