1. Different bank accounts with different functions
Why does one need to open so many different bank accounts? Why can we not just use one banking institution to handle all business transactions? Unfortunately, SMEs in China are likely to use at least two to three different banks when it comes to running operations on the mainland.
SMEs will need to open a capital account to receive foreign investment capital from the holding company, a settlement account in foreign currency if the company has overseas business, and a basic RMB bank account to pay salaries and other expenses in local currency.
It is also a normal practice to have two additional, separate bank accounts to make payments to the state tax authorities. This bank is selected by the authorities themselves.
Additionally you may need to open a separate loan account to receive loans from the mother company. All these bank accounts have different functions, and the company concerned should clearly define them including arranging for the different signatory authorizations, security levels and related arrangements. From a practical point-of-view, you may also have to consider choosing a bank logistically closer to your operation base or office reducing the time to withdraw money or issue checks. Finally, as more and more foreign banks are allowed to operate on a much broader scope in China, the foreign investor will be faced with even more options to choose from.
2. Initial cash flow problems
International investors are likely to face cash flow problems in the initial investment period: unforeseen expenses in the budgeting phase (we hear this a lot), slow sales revenues, longer credit terms given to clients in order to open up new markets, deposits required at customs and immediate payment requirements by local suppliers before they get to know your company credit standing. All of these may put an unexpected dent on your wallet at the early stages of your investment.
If you are stretched and need some immediate cash please note that different cities in China may have different local policies on foreign currency control and lending.
For more information on China’s legal and tax issues or to ask for professional advices in related matters, please write to info@dezshira.com
