If you are new to doing business in China, you may find that opening a bank account is a little more complicated than you might expect. There are also a number of ways that banking practices differ from those in the United States and other countries. This article is designed to give you the basic information you need to move forward.

Prerequisites

A company can open a bank account only after it has obtained its business license.

It will take at least two weeks or longer to complete the account opening procedure for one bank account. The length of time depends on the bank.

The original passport for the company's legal representative and authorized signatories for the account must be submitted to the bank in order to open the account. If the legal representatve or authorized signatories are based overseas (e.g., the U.S.) and are unable to fly to China or send the original passport to the bank, some banks may accept:

• Notarization and legalization of the passport and signatories issued by a Chinese embassy overseas
• Video recording of legal representative/the authorized signatories with their passport

Please note the above is subject to each bank's own policy.

Prior to obtaining the license, some investors pay expenses directly from the parent company or from the investor's personal account. However, as China has strict regulations for cross-border payments, this creates barriers for the parent company or the individual to be reimbursed even after the subsidiary in China has opened its bank account and injected the registered capital.

A preliminary expense account ( 前 期 费 用 账 户 ) may be a better option. In this case:

• The account owner is the foreign investor (the parent company).
• The foreign investor needs to register at their bank for the preliminary expense disbursement. After registration, the amount injected intho this account is treated as part of the injected registered capital.
• The amount injected into this account should be less than $300,000 (or equivalent) in principal. Otherwise, the foreign investor needs to apply with the local State Administration of Foreign Exchange (SAFE) for approval.
• The balance in this account will be transferred to the capital account after the company obtains its business license and opens the capital account.
• It is valid for six months, but the foreign investor can apply with their bank to extend it to the maximum 12 months.

Types of Bank Accounts

The most commonly used bank accounts for doing business in China include:

Capital accounts in RMB and foreign currencies to accommodate registered capital injections.

Basic accounts in RMB only. These accounts have certain restrictions:

• They can be used for cash business (cash deposit and withdraw), payroll and settlement.
• Each company can open only one basic account; this is the only account from which the company can withdraw RMD cash.

Settlement accounts include two approaches:

• RMB settlement accounts are intended for cash deposits (withdrawal of cash is not allowed) and settlement business. Each company can open several settlement accounts at different banks.
• Foreign currency settlement accounts are used for settlement in foreign currency.

Differences Between Foreign and Chinese Banks

There are significant differences between capabilities and limitations of Chinese banks and those of foreign banks.

Foreign banks' capabilities and limitations:

• Some foreign banks can provide a global platform, credit and transaction services.
• Foreign Banks typically have a limited network in China.
• Pricing is relatively high.
• Many have minimum business volume or revenue requirements due to cost considerations.
• Resources are limited compared to Chinese banks.
• Some foreign banks have implemented de-risking strategies and declined to serve companies whose revenue contributions to the bank cannot cover the increasing compliance cost.
• Relative to the Chinese banks, most foreign banks are more conservative and stricter on regulation implementation and compliance management.
• Most foreign banks do not have an agreement with the tax bureau and cannot sign tripartite agreements among the bank, the company and the tax bureau to provide local tax payment. In this case, the company needs to open another RMB account (a basic account or settlement account) with the Chinese bank for the local tax payment.
• Most foreign banks do not provide cash services; thus, the company needs to open an RMB basic account with a Chinese bank for cash business.

Chinese banks typically offer:

• An extensive network in China.
• Competitive pricing.
• Fewer requirements for minimum business volume or revenue.
• Sufficient business resources, e.g., various kinds of quotas due to their size, including lending, foreign exchange and foreign debt quotas.
• Strong relationships with the regulators.
• An agreement with the tax bureau and can sign tripartite agreements among the bank, the company and the tax bureau for local tax payment.
• Cash Services.

Challenges in the Banking Industry in China

Regulation is one of the biggest challenges for foreign companies doing business in China. Therefore, it is important that the company has local resources to assist them.

Cross-border business is still under supervision. Once trade transactions have begun, the banks are still required to verify the supporting documents to verify the background of the trade transactions.

Heavy reliance on “window guidance.” Window guidance refers to verbal instructions from the regulators about a new policy or a temporary adjustment to an existing rule in lieu of a formal written notification. Though it is referred to as guidance, it is mandatory at a certain level.

Frequent regulatory changes. Banks receive hundreds of new rules and regulations updates every year from different regulators. 

Centralization vs. decentralization. Though central government has its rules and regulations, each local government may have its own implementation rules and interpretations. As a result, business practices may differ from city to city.

Similarly, different banks in different cities, and even the same bank’s different branches/sub-branches in the same city, may have different approaches to the same business.