As a global economic powerhouse, China still represents a very attractive investment proposition for foreign companies looking to expand their operations beyond their home markets.
Perhaps, you have recently decided to commit to an investment in China by establishing a company. Or it could be that you are still weighing your options. In either case, you should bear in mind that having a corporate bank account, which is usually set up after your business licence has been issued, is essential to running your future business operations and enabling you to conduct transactions in China.
Navigating the bank account opening procedure can, however, be complex and confusing if you lack knowledge of the various documentation and procedural requirements as well as the local banking landscape.
This guide provides some useful and practical tips on finding your perfect banking solution. In addition, it walks you through the different types of bank accounts which need to be set up so that you can run your company properly in China.
Table of Contents
Overview: Banking system in China
Since China’s opening-up in the 1980s, its banking scene has gradually taken on a different shape. Prior to that, the People’s Bank of China (“PBOC”) was the only institution that administered and governed the country’s banking operations.
Today, the PBOC assumes the functions of a central bank, responsible for devising and executing monetary policies, issuing the renminbi currency and regulating interbank lending. The largest national banks, namely Agricultural Bank of China, Bank of China, Bank of Communications, China Construction Bank, and the Industrial and Commercial Bank, form the mainstay of China’s banking edifice.
Falling under the supervisory remit of the PBOC, the State Administration of Foreign Exchange (“SAFE”) also has an integral part to play in managing foreign exchange reserves and controlling cross-border capital flows. Since the SAFE formulates and implements policies and regulations on foreign exchange transactions in China, including cross-border investments and capital movements, its regulatory activities will have very practical and direct implications for the operations of your foreign-invested enterprise in China.
Local bank vs foreign bank
You can choose to bank with either:
- A local Chinese bank, as listed in the above section; or
- A foreign bank with local presence, such as HSBC, Banco Santander – Bank of China, Citibank, Standard Chartered, Deutsche Bank, and BNP Paribas – Bank of Nanjing.
While opting for a bank in your home country with presence in China can understandably offer a sense of familiarity and assurance, there can be distinct advantages to banking with a local counterpart.
If international remittances are relatively infrequent, and the majority of your transactions take place with local Chinese entities, who have local bank accounts, it can be more efficient and convenient to conduct transactions through a local Chinese bank. As local banks have a broader network and stronger presence in China, their banking services are typically more accessible.
There may also be additional documentation requirements when opening a corporate bank account with a foreign bank based in China, which could take longer to process applications.
Moreover, it should be noted that the Basic Deposit Account, which is elaborated on further below, can only be opened with a local Chinese bank.
On the other hand, if you intend for your company in China to operate purely as a cost centre, that is, profits will not be accruing from its operations in China. Its primary role is to solely carry out, for example, manufacturing, research and development, quality assurance, logistics or procurement activities, then it may be more appropriate to set up a corporate bank account with a foreign bank based in China that caters to the specific banking needs of your headquarters located outside China.
What factors should you consider when choosing a bank?
Before shopping around for the right banking solution for your business, it is useful to establish what your banking needs are and draw up a set of criteria against which the suitability of banks can be assessed.
Such criteria may include the following:
- How much does it cost to open a bank account?
- What is the average processing time for applications?
- Are monthly service fees chargeable? Some banks may waive the account opening and service fees for SMEs meeting their prescribed criteria for certain accounts.
- What other bank fees are payable, and how high are they? For example, cross-border settlements, overseas inward and outward remittances usually incur extra charges.
- What kind of loan facilities does the bank offer? It may be easier to obtain a large loan from a sizeable local Chinese bank than from a foreign bank with local presence in China.
- What is the level of functionality of its online banking services?
- Is a limit placed on the number of transactions per day?
- Do any of their customer support staff speak English or other languages?
- Is the bank located in close proximity to your business premises?
What types of bank accounts do you need to set up in China?
As a foreign-invested enterprise operating in China, you will be required to open, at the very least, two types of corporate bank accounts, namely the Basic Deposit Account and Capital Account.
Mandatory bank accounts
Basic Deposit Account
As previously mentioned, you must open a Basic Deposit Account with a local Chinese bank, not with a foreign bank based in China. This type of account is earmarked for your daily business operations in China, including the daily transfer and settlement of funds as well as collection of payments. You are only allowed to open one single Basic Deposit Account.
The Basic Deposit Account is primarily used for transactions in renminbi. Although the receipt of funds in different currencies from outside China is permitted, such funds will need to be converted into renminbi prior to being deposited into your account.
It is also important to note that this is the only account from which renminbi in cash is withdrawn, and salary and tax payments are paid out. Given that cash withdrawal is handled exclusively through this account, it is advisable to open it in a bank branch that is geographically close to your office for convenience and efficiency, and to facilitate your daily business operations.
Housing provident fund payments and social security contributions, which are employees’ statutory entitlements to welfare benefits, are automatically debited from this account every month in accordance with the tripartite agreement between you, your bank, and the relevant government bodies overseeing the two funds.
Procedure for opening a Basic Deposit Account
Until 2019, it had been compulsory for prospective bank account holders to apply to their local branch of the PBOC for a special bank account opening permit. Upon the issuance of the permit, they could then proceed with the bank account opening application. The process for registration has since been streamlined and optimised, dispensing with the need to obtain formal approval from the PBOC.
Under the new policy, you can open a Basic Deposit Account at your desired bank directly. A simple record-filing procedure with the PBOC, requiring the submission of some basic information, has superseded the previous formalities.
Having said that, your application and the accompanying documentation will still, nonetheless, be meticulously scrutinised and subjected to stringent due diligence processes, which can oftentimes be time-consuming and protracted in nature. Not to mention that you will be required to furnish detailed information about your business, and, in most cases, your legal representative must physically present him/herself at the bank counter for verification and KYC purposes. Furthermore, it is not an uncommon practice for banks nowadays to request an onsite inspection of your premises to ascertain the legitimacy of your business. Your company logo and nameplate should be visible and clearly displayed at the location.
Capital Account
As a foreign-invested enterprise, you will also be required to open a Capital Account designated for receiving registered capital from overseas shareholders. In certain Free Trade Zones, however, this requirement may be waived. Generally, funds in the Capital Account are denominated in foreign currencies; only investors from the Special Administrative Regions of Hong Kong or Macao have the option to maintain funds in renminbi.
Pursuant to China’s policy on foreign exchange control, the total amount of funds held in the Capital Account shall not exceed the registered capital amount filed initially with the authorities.
Since the capital is denominated in a foreign currency, it will be converted into renminbi for local transactions. Settlement procedures relating to foreign exchange cannot be done with bank tokens (online banking security tools); therefore, you will need to go to a branch in person with the necessary documentation to provide proof of the transaction’s authenticity.
Procedure for opening a Capital Account
As restrictions are imposed on the movement of money into and out of China, you must first obtain formal approval from the SAFE prior to opening a Capital Account – by way of Foreign Direct Investment Registration. As the SAFE devolved its registration powers to banks in 2015, you can simply complete the registration with your chosen bank. Subject to approval, you will then be issued an official filing receipt granting you permission to go ahead with the opening of the Capital Account as well as to carry out the settlement of foreign exchange.
Other optional bank accounts
General Deposit Account
To meet your ever-growing business needs, you can set up a General Deposit Account at a different bank from the one where your Basic Deposit Account is held. Funds in this account can be in either renminbi or foreign currencies. You are prohibited from withdrawing cash and making salary payments from this account (except in Shanghai).
Foreign Exchange General Account
To facilitate transactions in foreign currencies, you may wish to set up a Foreign Exchange General Account. Limits are placed on the ability to transfer funds out of this account and use them in domestic transactions with local Chinese entities.
Temporary Deposit Account
Not commonly used, a Temporary Deposit Account holds deposits on a temporary and ad hoc basis, as the name suggests. It is usually used by institutions or entities that operate in localities other than where they are registered for a definite period and for a defined purpose.
Checklist of documents required
Here is a general checklist to guide you through the process. Keep in mind that this is not an exhaustive list, and you should consult with a local expert or the bank itself to ensure that you meet all requirements.
What can CW do for you?
At CW, we understand how crucial it is to have a fully operational corporate bank account to enable you to get down to business – as soon as your company in China is up and running.
Opening a business bank account in China is, however, not an easy and straightforward process. With our longstanding, well-established connections with various banks as well as our extensive knowledge of their different requirements, we can make this journey as smooth and effortless as possible for you.
To open a corporate bank account in China, contact us today.
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