4 dangers foreign companies trading in China need to look out for here: http://www.hongdaservice.com/blog/5-dangers-foreign-companies-trading-in-china-need-to-look-out-for Access to 'the world's factory' and its latest products (at the best prices) is something that is very appealing to those looking at doing business in China, but navigating business on this side is rife with dangers that many who jump in head first fail to avoid until it is too late. In this blog we will help foreign companies trading in China stay on the side of the law and avoid huge monetary mishaps by pointing out 4 dangers they need to look out for!

1. 4 dangers foreign companies trading in China need to look
out for!
www.hongdaservice.com /blog/5-dangers-foreign-companies-trading-in-china-need-to-look-out-for
The dangers of doing business in China!
Access to 'the world's factory' and its latest products (at the best prices) is something that is very appealing to those
looking at doing business in China, but navigating business on this side is rife with dangers that many who jump in
head first fail to avoid until it is too late.
In this blog we will help foreign companies trading in China stay on the side of the law and avoid huge monetary
mishaps by pointing out 4 dangers they need to look out for!
1) China company formation (and the mishaps of choosing the wrong business entity)
One of the great things about doing business in China is the fact that there are a number of business vehicles one
can choose to register, each with there own strengths and weaknesses, set up requirements and so on. Things,
however, start to take a turn for the worst when businesses run into legal issues that arise from not registering the
appropriate business entity, or when they do not clearly define their business scope in the Articles of Association, or
if they do not fully comply with the specified registration requirements. We have written a fair amount of articles on
registering each of the various business vehicles one can set up in China, and it is crucial that one knows exactly
what they are getting themselves into before committing all their money and resources to it.
What can I do to avoid this danger?
Read the resources below:
WFOE (Wholly Foreign Owned Enterprise)

2. China WFOE registration: A brief overview
5 careless mistakes foreigners make when setting up a WFOE in China
China Representative Office
What is a representative office in China?
How to set up a WFOE in China from a China rep office
China Joint Venture
The pros and cons of embarking on a joint venture in China's PRD
Shenzhen Qianhai Company
Qianhai company set up: What is Shenzhen's Qianhai zone? Why go there?
Hong Kong Company
Why Hong Kong company formation could be the key to avoid China litigation
Hong Kong company formation: Why bother?
Want to see how all of these companies stack up against each other?
2) You are dealing with the factory directly! Or are you?
When it comes to sourcing products from China, it is of the utmost importance that traders establish with whom they
are dealing with! A lot of trading companies pose as the manufacturers themselves to ensure you that you are
getting the best deal available, when in fact they have added a healthy markup on top for themselves. Not only does
this stop one from getting a competitive deal, but if there is a breach of contract due to shoddy quality or not fulfilling
the order, it is a whole lot more difficult to get justice as many trading companies do not keep substantial assets on
hand.
What can I do to avoid this danger?
The important thing is to do your research in ensuring that the people you are dealing with are in fact a legal
business entity, and that they have the appropriate licenses to conduct business in China. Start your search online,
check to see where your potential partners have an online presence, ask to see their business licenses, set up
Skype calls to discuss finer details and make the effort to go and see their factory premises.

3. 3) Register your trademark before someone else beats you to it!
If you are working with a factory on this side that is helping you to manufacture your own products or components, it
is critical that you protect your brand's interests by registering your trademark. Registering a trademark in China is
based on a 'got there first' basis, and as such many foreign companies fall victim to trademark/IP theft. Many
foreign companies also incorrectly assume that simply registering their trademark in their own country means that
they are safe in China, but this can not be further from the truth. It is up to you to ensure that your trademark is
registered both in your own country and in China!
What can I do to avoid this danger?
Read the resource below:
How To Register Trademarks In China: Beat The Block!
4) The devils hiding in Chinese contracts
Drawing up a contract is certainly an important part of helping to protect one's interests in China, but as to how far
the contract will go to protect them is a whole different story. Many contracts that are drawn up lack enforcability due
to the fact that they are not specific enough. Whilst terms may imply certain things where you come from, or in your
language, the same may not hold up in a Chinese court of law.
What can I do to avoid this danger?
Do absolutely everything you can to ensure that you draw up an enforceable contract to help protect yourself! Make
sure that the contract is in Chinese and that is applies Chinese law. Don't generalize contract terms, be very specific
to ensure that the contract is as iron clad as possible.
Takeaways
Foreign companies trading in China absolutely need to:
Establish the appropriate business entity in China, comply with its registration requirements and clearly
define its business scope
Do thorough research on their potential partners online, ask them to provide a copy of their business license,
registration documents and tax statements for a period of one year to ensure that they are a legal entity,
make the trip out to their factory
Research their trademark in the SAIC database, register their trademark and re-register it before it expires
Draw up an enforceable contract that leaves no room for generalization, make sure that the contract is in
both English and Chinese and that is applies Chinese law
Want to know more about doing business in China?
Click below to download our 10 Step Guide to Chinese Business Culture & Etiquette for everything you need to
know about business in China!