3 ms·

"final caveat: none of this is relevant if you want to start a company that is technically registered in China and bills in RMB. If you need to do that find som

by ruslan 17y ago

"final caveat: none of this is relevant if you want to start a company that is technically registered in China and bills in RMB. If you need to do that find someone who has done it and buy them a drink. No-one posts about their pseudo-legal registration hacks on the Internet but the expat community in both Beijing and Shanghai is pretty supportive and the successful entrepreneurs I’ve met here have been incredibly grounded and very open to sharing their stories and trying to help out others." I find it totally ridiculous starting and investing your own money and life in business that is created on "pseudo-legal registration hacks". One day you may lose everything!

rms 17y ago
It does seem kind of crazy to those of us used to economies with fully developed institutions. However, China has large gaps in various institutions expected in the developed world. The ability to navigate institutional holes almost defines an entrepreneur in China. Keming Yang has written academically about the topic of institutional holes and double entrepreneurship. http://www3.interscience.wiley.com/journal/118763695/abstract?CRETRY=1&SRETRY=0 http://www3.interscience.wiley.com/journal/118763695/abstrac... That paper became part of his book Entrepreneurship in China. http://books.google.com/books?id=FNum2rdqCUkC&pg=PA53&lpg=PA53&dq=institutional+holes&source=bl&ots=7B-53ka3Yo&sig=Af41yM7AY-ewvlxpVNIKL4nIPPE&hl=en&ei=XeObSqaVJpmy8Qa6hPzFAQ&sa=X&oi=book_result&ct=result&resnum=2#v=onepage&q=institutional%20holes&f=false http://books.google.com/books?id=FNum2rdqCUkC&pg=PA53&#3... I wrote a paper on Chinese entrepreneurship last year -- it wasn't all that good, because it's basically 20 pages about Chinese entrepreneurship without much of a coherent point, but I could post it if anyone is interested.
- auston 17y ago
  I am. Please post it.
  - rms 17y ago
    OK, here it is on Google Docs with vanished references and mangled formatting: http://docs.google.com/View?id=ah7wnxgtp2dq_18cjcsgc27 http://docs.google.com/View?id=ah7wnxgtp2dq_18cjcsgc27 http://dl.getdropbox.com/u/101698/I_Economic_history_of_entrepreneurshi_.odt http://dl.getdropbox.com/u/101698/I_Economic_history_of_entr... should work much better. I wrote this in about 24 hours so it's quite possible there are typos or odd phrases that I missed. If you notice any, please let me know.
megaduck 17y ago
Indeed, you may. In fact, it's quite likely if you ever show real profitability. That's part of doing business in the PRC. There's a long list of foreign entrepreneurs who got robbed blind, often with government support. That's why the article strongly recommends doing business in Hong Kong. In HK you still have some measure of order and civility in the business world, and there's some legal protections for your business. On the mainland, it's the law of the jungle, where the person with the highest government connections takes everything. Hint: that's not you. One more thing. There are two types of laws in China. There's the "public" laws, that are published. There's also the private laws, that are not. You have no way of learning about these laws, and you're always in violation of something. "Quasi-legal" is usually as good as you're ever going to get.
- jhancock 17y ago
  those are some good points. Here are some examples that may or may not support this: 1 - We have a company formed in a Shanghai district. The company is categorized to be in the IT business. We have a favorable tax policy. Very favorable I'd say. Much better tax position than anything I've run in the U.S. 2 - We have an HK entity as well as our China entity. They actually are not legally connected except through individual owners/investors. For the most part, the HK entity gets used for money moving around outside China. The China entity gets used for all things within China. Oh yeah, we also have a U.S. LLC. Wouldn't want to dodge the U.S. for money moving around there. I agree that if you get big, you need to spend some amount of energy ensuring you have local government patronage. But you have to be very large or very naive to run afoul of these problems. I know people that have run afoul. They were mostly being naive and not taking care of certain clear signs that could have helped. I lost millions my first couple years in Shanghai. But it wasn't because the government swooped in. It was because I could not collect from my business partners. They got paid, and when I tried to collect my share, they made excuses, dragged their feet, until I was too weak to be a big bother to them. This is very typical Chinese behavior and had nothing to do with the government. I was naive. I paid my dues and moved on. Maybe Beijing is tougher, but Shanghai is pretty easy to run your company and handle employees correct. Sure, the rules "adjust" from time to time, but everyone is effected by rule changes so there are lots of examples for how to adjust. It does take an education and knowing whose advice to trust. I'm very fortunate that my wife is Chinese and has run several online media companies and was liaison to the gov years ago when they designed their Internet and telecom policies. So now, I do the tech work and she does the biz work and makes sure our contracts are written so we get paid and everything runs smooth. But you don't always have to marry into this. There are many solid local Chinese to partner with.

by ruslan 17y ago

rms 17y ago

It does seem kind of crazy to those of us used to economies with fully developed institutions. However, China has large gaps in various institutions expected in the developed world. The ability to navigate institutional holes almost defines an entrepreneur in China. Keming Yang has written academically about the topic of institutional holes and double entrepreneurship. http://www3.interscience.wiley.com/journal/118763695/abstract?CRETRY=1&SRETRY=0 http://www3.interscience.wiley.com/journal/118763695/abstrac... That paper became part of his book Entrepreneurship in China. http://books.google.com/books?id=FNum2rdqCUkC&pg=PA53&lpg=PA53&dq=institutional+holes&source=bl&ots=7B-53ka3Yo&sig=Af41yM7AY-ewvlxpVNIKL4nIPPE&hl=en&ei=XeObSqaVJpmy8Qa6hPzFAQ&sa=X&oi=book_result&ct=result&resnum=2#v=onepage&q=institutional%20holes&f=false http://books.google.com/books?id=FNum2rdqCUkC&pg=PA53&#3... I wrote a paper on Chinese entrepreneurship last year -- it wasn't all that good, because it's basically 20 pages about Chinese entrepreneurship without much of a coherent point, but I could post it if anyone is interested.

auston 17y ago
I am. Please post it.
- rms 17y ago
  OK, here it is on Google Docs with vanished references and mangled formatting: http://docs.google.com/View?id=ah7wnxgtp2dq_18cjcsgc27 http://docs.google.com/View?id=ah7wnxgtp2dq_18cjcsgc27 http://dl.getdropbox.com/u/101698/I_Economic_history_of_entrepreneurshi_.odt http://dl.getdropbox.com/u/101698/I_Economic_history_of_entr... should work much better. I wrote this in about 24 hours so it's quite possible there are typos or odd phrases that I missed. If you notice any, please let me know.

megaduck 17y ago

Indeed, you may. In fact, it's quite likely if you ever show real profitability. That's part of doing business in the PRC. There's a long list of foreign entrepreneurs who got robbed blind, often with government support. That's why the article strongly recommends doing business in Hong Kong. In HK you still have some measure of order and civility in the business world, and there's some legal protections for your business. On the mainland, it's the law of the jungle, where the person with the highest government connections takes everything. Hint: that's not you. One more thing. There are two types of laws in China. There's the "public" laws, that are published. There's also the private laws, that are not. You have no way of learning about these laws, and you're always in violation of something. "Quasi-legal" is usually as good as you're ever going to get.

jhancock 17y ago
those are some good points. Here are some examples that may or may not support this: 1 - We have a company formed in a Shanghai district. The company is categorized to be in the IT business. We have a favorable tax policy. Very favorable I'd say. Much better tax position than anything I've run in the U.S. 2 - We have an HK entity as well as our China entity. They actually are not legally connected except through individual owners/investors. For the most part, the HK entity gets used for money moving around outside China. The China entity gets used for all things within China. Oh yeah, we also have a U.S. LLC. Wouldn't want to dodge the U.S. for money moving around there. I agree that if you get big, you need to spend some amount of energy ensuring you have local government patronage. But you have to be very large or very naive to run afoul of these problems. I know people that have run afoul. They were mostly being naive and not taking care of certain clear signs that could have helped. I lost millions my first couple years in Shanghai. But it wasn't because the government swooped in. It was because I could not collect from my business partners. They got paid, and when I tried to collect my share, they made excuses, dragged their feet, until I was too weak to be a big bother to them. This is very typical Chinese behavior and had nothing to do with the government. I was naive. I paid my dues and moved on. Maybe Beijing is tougher, but Shanghai is pretty easy to run your company and handle employees correct. Sure, the rules "adjust" from time to time, but everyone is effected by rule changes so there are lots of examples for how to adjust. It does take an education and knowing whose advice to trust. I'm very fortunate that my wife is Chinese and has run several online media companies and was liaison to the gov years ago when they designed their Internet and telecom policies. So now, I do the tech work and she does the biz work and makes sure our contracts are written so we get paid and everything runs smooth. But you don't always have to marry into this. There are many solid local Chinese to partner with.