Steps during the incorporation process (i.e. opening bank account):
- Do your homework…which bank did you choose?
- Obtain the document list upfront at point of starting the incorporation
- Inform bank once business license is issues – have your market entry advisor submit all originals
- Under COVID-19, banks require a zoom conference call to meet the Legal Representative, who shows their original passport. Video will be recorded or in places, like Shenzhen, bank will require you to still meet in person at the bank branch with your original passport.
- Bank is required by the PBOC to visit your REGISTERED OFFICE ADDRESS to prove that you are NOT virtual office location. (Since August 2020).Whole bank account opening process can take between 25-30 working days for the full capital account and RMB basic account to be opened.
- Then you need open your online banking operation which is separate from the account opening procedure. This may take additional 10 working days as key tokens need to be flown to the operative individuals of the account.
- Capital is remitted from SHAREHOLDER.
- In order to use the capital initially, you need to show proof of upcoming payments to the bank – such as office rent, salaries, additional expenses, before you can exchange the capital from the capital to the RMB basic account.
REMEMBER:
- The account opening process should NOT determine how you choose your banking partner!
- This partnership will last for the full validity of your organization (hopefully!).
How to choose your banking partner in China?
Foreign investors can establish accounts in China with:
- International banks with local presence, the major banks being Bank of East Asia, Citibank, DBS Bank, Hang Seng Bank, HSBC, and Standard Chartered; or through
- A Chinese bank, the largest being Industrial and Commercial Bank of China, Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of Communications.
Analyze what your banking needs are:
- You should always consider the nature of your business transactions.
- If your business is primarily focused on the Chinese domestic market, then a local Chinese bank would be the best choice for you.
- If the bulk of your business takes place within China, you are unlikely to have many international remittances.
- With a local Chinese Bank, you will find an established bank with a strong network, convenient services, and easy access for both your vendors and your customers.
- If your business in China is solely a cost center, then the international bank that services your international headquarters should be your first choice.
- An international bank is also a sound choice for businesses offering a production function and exporting products back to their overseas clients or an overseas subsidiary.
- An international bank that already does business with your company’s headquarters will generally allow your Chinese entity to share the same policy, reducing potential bank charges.
- If you expect that your business will require a significant loan, then your best choice is to choose a large, prominent, and well-established Chinese bank.
- If you do decide to use a smaller bank, be sure to convey the demands of your business to a banker before making the decision to open an account.
Location of the bank
- Choose a registered office address that is your operational office!
- Try to choose a bank that is close to your operational office (i.e. registered office address)
But recognize that the closest bank may not always be the most convenient for you.
- Trading companies in large office building will often find the banks in their immediate proximity to be overcrowded and subject to long waits.
- If this is the case, a bank not too far from you may be your choice.
- To avoid complications, be sure to ask if any employees at your local banking location can communicate in your native-tongue or at least in English.
- Having someone at your bank whom you can easily communicate with is the best interest of your business.
What is the tendency for Foreign Investors in China?
- Foreign investors in China often prefer to establish an account with an international bank because of an existing business relationship.
However, establishing accounts with a Chinese bank has many advantages, namely:
- The application process for opening a bank account with an international bank in China will be more document intensive and take longer compared to opening such an account at a Chinese bank;
- There are substantially more Chinese commercial banks than foreign bank branches, which allows for more convenient and faster RMB remittance;
- Most Chinese companies (ie your customers, your suppliers, your 3rd party providers, etc) have local bank accounts.
- Conducting transactions with them will be easier and faster if done from a Chinese bank instead of an international bank; and
- Chinese banks generally offer greater bank account security.
Understand the Chinese banking system
Local banking structure in China
In China, there is:
- One central bank (People’s Bank of China),
- Three policy banks (China Development Bank, The Export-Import Bank of China, Agricultural Development Bank of China),
- Five state-owned commercial banks (also called the ‘’big five’’ banks, which are Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, Industrial & Commercial Bank of China), and
- 12 joint stock commercial banks, city commercial banks, rural commercial banks, foreign banks, etc.
RMB account types
There are various types of accounts in China with which companies should be familiar. The common account types that companies utilize are:
- RMB Basic Account
- General Account
- Specialized Account
- Loan Account
- Capital Contribution Account
Capital Contribution Account and Loan Account
- Registered capital enters the capital contribution account ONLY
- Foreign debt loan enters the loan account ONLY
RMB Basic/ General Account
RMB Basic/ General Account and its transactions are related to imports and exports of goods and services and income from abroad, as well as current transfers (such as donations).
- Trade and Service transactions would be the classic example of a current account transaction.
- Dividend repatriation would also be considered a current account transaction.
Payment options
Domestic Renminbi (RMB) payments in China are generally remitted through the following methods:
- Online Banking – website of the bank
- Branch Banking – face-to-face at the bank
- Direct Connectivity – WePay, AliPay
Cross-Border Payments Considerations
Unlike domestic payments, cross-border payments in China generally require supporting documentation to demonstrate the authenticity of the government.
This requirement differs depending on the type of payment made, for example a capital transaction, trade transaction, dividend, etc.
Foreign exchange controls
China maintains a ‘’closed’’ capital account, meaning companies, banks, and individuals can’t move money in or out of the country except in accordance with strict rules.
The People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) regulate the flow of foreign exchange in and out of the country and set exchange rates through a ‘’managed float’’ system.
Banks and other financial institutions in China must report all domestic and overseas cash transactions of more than 50,000 RMB (approx. $7,350), compared with 200,000 RMB (approx. $29,400) previously.
Banks will also need to report any overseas transfers by individuals of $10,000 or more. In addition, all banks must report to central government on every single foreign exchange transaction of at least $5 million.
ACTION PLAN: Achieve open Communication with your bank
- Meet with various banks and compare service level and communication level
- The bank will want to understand your business plan and registered capital for your future investment. Be open and explain everything you are doing, planning on doing and need from them
- Discuss how many accounts are you going to be needed? What will be the function of each account.
- What services will you require from the bank? Do you need a loan?
Conclusion: Achieve open Communication with your bank
- What are the documents needed for opening the account? What documents are needed for operating the account in terms of service transactions and trade transactions?
- Original Legal Representative passport – needed or not needed and for what is it needed?
- Is there a Chinese and English online banking system? Are they synchronized?
- Can notifications be received? By email/ SMS/ WeChat?
- Bank signatories – what options do we have?
- Outbound payments – service fees or dividends – what is the document list and payment flow?
For any information on how to open your corporate bank account in China, please contact our team by email at info@opkofinance.com or by phone at +852 2654 8800/+86 187 177 31958
