Frequently Asked Questions

Normally the main investor will act as the corporate representative for the foreign company in China. However, it is possible to appoint another person, regardless of nationality, to this function.

Normally, a RO must be registered in a Grade A (high end) office building or in a Public Security Bureau authorized or designated building. Restrictions for registering a office for a WFOE are not as strict, but must still be registered in a legal and approved location.

Two main POS available in Beijing are Corners and Boutique Stores.

- Corners:

Primarily located within large department stores (băihuò shāngdiàn / 百货商店), corners have been, until recently, the most popular outlet to sell luxury products. Foreign brands do not need to register to sell products in corners because, technically, the department store sells the products for them. The brand simply pays a commission of 20% to 30% of the profits. Some department stores also request that the brand pay an additional monthly rental and promotion fee (management fees, staff fees, etc.).

Foreign brands choose to either work through a distributor or create their own retail trading company. Corners will often be many brands located close to each other (a shop within a shop) to form an entire retail section (cosmetics, shoes, clothes, etc.). This makes it easy for customers to find what they’re looking for in a concentrated area. Location and taxes within department stores are often decided according to your brand awareness among Chinese consumers and department store strategy.

- Boutique Stores

Located either in a shopping mall (gòuwù zhōng xīn / 购物中心) or on the street, Boutique stores must be legally registered as a WFOE or JV. The parent company can open a single location; however, if the brand plans to open several stores, each store must be registered as a brand of the parent company.

Many international brands find setting up a location in a shopping mall complex. Malls will want a certain type of brand for the location, so it is important to prepare marketing materials presenting your concept and brand. The better you are at presenting your brand, the better the offer you will receive (price and location).

Locations on street-level are easier to negotiate (brand presentations are rarely asked for). Though the number of street-level locations in Beijing are not as numerous as in Shanghai or Shenzhen, these types of store locations are gaining in popularity since 2008. Some street-level locations entice brands with a fixed monthly rent without restrictions on minimum revenues, fees, etc.). Also, contract terms can last much longer than department store or shopping mall leases. It can take up to 3 months to obtain a business license for a boutique store.

Many businesses are rapidly franchising in China. This is partly due to the overwhelming domestic demand and partly due to the brands’ desire to expand business in the world’s largest potential franchising market.

Since 2004, the PRC government required franchisors to own and operate a minimum of 2 stores for a minimum of 1 year in China (the “2+1” rule). Since May 1, 2007, the government has modified the rule allowing a brand to franchise after owning and operating 2 stores for a minimum of 1 year anywhere in the world. This means that a brand does not need to open a company in Mainland China prior to franchising in China. A brand must still register with COFCOM or MOFCOM (depending on franchise location) within 15 days of signing a franchise contract. Any foreign company not complying with the above rules will be fined between CNY 10,000 and CNY 500,000.

In China, food regulations have been complex ever since the Beijing Olympics. They are often revised and edited without notice. The best way to learn about the basic rules is to buy a copy of the Interpretation and Application for Food Safety Law of People's Republic of China. (中华人民共和国食品安全法 - 解读与适用) Edition (人民出版社 / People's Press ); Editor-in-chief: 李援 Li Yuan.

Before signing any location, create a 2D design of the planned renovation of the kitchen and submit the layout to the Beijing Municipal Health Bureau (北京市卫生局) for pre-approval. Please keep in mind that the Beijing Municipal Health Bureau is very busy and you cannot expect to receive all the attention you need to answer questions on specific details. Before you make any final decisions, be sure that your location has been approved by the fire, environmental, and hygiene departments.

Can the cold and hot rooms be together? Do I need a disinfection room? How many sinks do I need for a restaurant kitchen? What size do they need to be? What is the minimum kitchen size? These are all valid questions a qualified retail agent can answer for you.

Because unregistered trademarks are unprotected in China, international brands entering the Chinese market prioritize registering trademarks and service marks with the China Trade Mark Office (CTMO).

Adopted in 1982 and revised in 1993 and 2001, China’s trademark laws operate on a first-come, first-served basis with the earliest trademark applicant taking priority over all other applicants.
There are two exceptions to this rule:

• If your trademark is registered in another country prior to your application in China, a 6 month priority will be allotted starting from the day the application was filed in the foreign country.
• If your trademark is recognized as “well-known” by Chinese courts and administrative bodies, Chinese law will protect your trademark from copies and will prioritize your registration.

Application Process

• Step 1 - Trademark Conflict Search
  Search whether there is a similar trademark already existing
  
• Step 2 - Application Forms
  All CTMO documents must be completed and submitted in Mandarin
  
• Step 3 - Trademark Classification of Commodities Application
  The trademark must be registered under a minimum of 1 of 42 classes. It is best to register in as many classes as possible
  
• Step 4 - Priority Registration Claim
  First-file policy exceptions: 6 month priority or well-known brand
  
• Step 5 - China Trademark Office Review
  Preliminary examination
  
• Step 6 - Gazette Mark Publishing
  If there are no other similar or identical trademarks already existing
  
• Step 7 - Public Opposition Period
  A period of 3 months
  
• Step 8 - Trademark Registration
  If there is no public opposition within 3 month, the trademark will be officially registered.

The registration process will normally take about 2 years to complete. If a trademark application is refused, the Trademark Review and Adjudication Board (TRAB) will re-examine your case.

Notes:

• Ensure your trademark adheres to Chinese laws and restrictions (cannot be an emblem of any country, common or similar to names e.g. the Red Cross, discriminating name or logo, exaggerating or misleading name or logo, etc.)
• Hong Kong and Macao are special administrative regions and are independent from China trademark registration and protection.
• “TM” means that the rights to a trademark have been claimed regardless of whether an application has been filed with the CTMO (e.g. pending application)
• “®” means that the rights to a trademark have been successfully registered with the CTMO
• Registered trademarks in PRC will be protect for 10 years. Registered trademarks must be renewed on time in order to ensure priority.

1. Demographic

Figuring out what the demographics are in the neighborhood will take you some time since it requires in-depth knowledge of the surrounding area. Aspects you should consider are:
• Traffic (e.g. foot traffic, parking situation, subway stations, nearby highways, neighborhood traffic generators such as hospitals, office buildings, schools, cinemas, etc.)
• Lifestyle (to determine likely consumer behavior)
• Potential customer profile (e.g. age, gender, average household income, etc.)
  
  
2. Competitors

Although competition for many entrepreneurs may seem bad, according to many retail experts, the closer you are to your competition, the more beneficial it can be for your business to grow. For example, you can indirectly profit from your competitor’s marketing expenses since it will generate more traffic in your area. Competition is good!
• How many competitors are located nearby? (Too much competition is, of course, too much)
• What are your comparative advantages? (e.g. price, product quality, service, etc.)
• Is the competition doing well? (Don’t hesitate to analyze their business model)



3. Contract Terms

The price of renting a location is a very important part of the decision-making process, but it should not be the only one. Though sticking to a budget for renting a location is smart, it is not smart to be inflexible with the figure. You should also consider the length of the lease, payment terms, location potential, marketing potential (if in a larger complex such as a shopping mall, etc.). Adopting a firm behavior towards rental price will slow down expansion and might cause you to miss out on other opportunities.


4. Site Requirements

Does this location meet your requirements? (e.g. size, utility needs, business registration, etc.)

Many investors know that there are two primary ways to profit from starting a retail business from scratch. Firstly, making a large profit margin out of the products or services sold, whether in the shop, online, or via delivery. Secondly, selling the business, profiting from the added market value of the time spent developing it.

Aside from great locations (which are still sold cheaply compared to many Western countries), it is not easy to sell a store location because of the many empty locations still available. Therefore, it is very important to think carefully about your business strategy in China. It’s advised that you find a great location with high traffic if you wish to eventually sell your business.

In China, contracts for retail locations do not normally follow any standard. Therefore, it’s very important to know exactly what should and should not be included in your contract. Shopping malls and private landlords normally have their own contracts, loopholes and all. It’s highly recommended to hire a local real estate advisor familiar with the retail contracts of the area. Below are a few aspects you should pay particular attention to:

1. Can I register my business in this location? Don’t hesitate to force the landlord to include in the contract business registration rights. If this is nonnegotiable, you should request appropriate compensation. Has the fire, environmental, and hygiene bureaus approved this location as a retail space? Has the landlord permitted me to rent this location for commercial use?
2. Is the building in danger of demolition in the future? If so, you should request that the contract stipulate the amount of compensation you receive in case of such an event.
3. What are the terms of lease renewal? It is wise to negotiate the conditions before signing for a location. This includes percentage of potential rent increase, priority to renew, etc.
4. What are the utilities fees during the contract? Try to be as detailed as possible.

The insurance industry in China is still developing, and retail store insurance is even newer. Owner and landlord awareness is therefore still developing. Shopping malls and department stores, however, will ask you to have a minimum amount of private insurance (depending on location size).

Store insurance should cover potential damage caused by your shop to the rest of the building in case of fire, leakage, or damage caused by employees, clients, or suppliers. Choosing the appropriate insurance policy is important, and every tenant and landlords in China addressing this issue seriously. Not having sufficient insurance could result in heavy fines or jail time.