Paul Bischoff
Paul Bischoff
6:00 pm on Sep 25, 2013

Foreign entrepreneurs constantly face the risk of being forced out of China. Visas have never been a ‘sure thing’ here, and the uncertainty of losing permission to stay on Chinese soil at any given moment always weighs on the minds of startup founders. Investors aren’t immune to the anxiety either – a China-based startup with a competent, forward-thinking team and a promising product suddenly becomes a risky investment if its employees’ visas are in limbo.

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Getting a visa in China has never been a clear-cut procedure, but the newest rule changes that came into effect between July and now have further muddied the waters. China is trying to clamp down on people who work and reside illegally, and with good reason. China is a growing economy with career opportunities that are lacking in many other parts of the world due to the global recession, creating an influx of expatriates. But instead of a much-needed overhaul and reform of the current visa policy to suit the times, the government has instead further complicated an already hazy bureaucratic procedure.

The result is a large number of foreigners, many of whom are entrepreneurs, who would be glad to go through the process to obtain legal work permits but are barred from doing so for reasons that are vague at best and arbitrary at worst. As a result, they are forced to use costly, time-consuming, and pseudo-legal means to obtain visas. Instead of paying taxes to the Chinese government as registered businesses, they give thousands of dollars to quasi-legal visa agencies in order to receive tourist or false business visas.

Of course, this allows these agencies to engage in dubious practices, but the difficulties imposed by the government bureaucracy make them a necessary evil. Without a registered employer in China, obtaining a visa for anything besides short-term tourism or attending university is nearly impossible. As a workaround, these agencies often write fake invitation letters from nonexistent businesses to get their customers into the country.

Time and money

(1)CHINA-FRONTIER INSPECTION-NEW SIGN (CN)The effect of overly complicated visa regulations on the startup scene in Beijing is starting to show. Nils Pihl, cofounder of behavioral analytics company Mention LLC, now plans on moving his business from China to the US, where most European citizens need not apply for visas before arrival. He’ll be required to leave the US every 90 days in order to avoid overstaying his visa waiver (or what some countries alternatively call a “landing visa”), but Pihl says that the occasional trip to the airport seems like less of an inconvenience compared to staying in China.

“It was much better when I first came here in 2011,” says Pihl, who has Swedish citizenship. Back then, he received a renewable, one-year multiple-entry business visa, with unlimited stays per entry. The requirements for business visas have since changed. On his current visa, he must leave China every 60 days. Furthermore, due to policy changes in the last month, he can no longer apply for new visas in Hong Kong, which used to be the most popular pilgrimage for foreigners in China who want to renew or re-apply for visas. For his last application, he handed his passport over to one of the quasi-legal agencies, which then applied for him through the Chinese consulate in Macau.

So why doesn’t Pihl just legally register his startup and get a proper visa? Two reasons. First, Pihl says it’s “very prohibitive to set up an office here.” Companies are required to prove they possess an estimated RMB 500,000 ($82,000) in capital to their name, which many startups simply don’t have. Second, incorporation requires a Chinese citizen to hold part ownership of the company. Factoring out issues of prejudice and company culture, Pihl says, “many prudent entrepreneurs simply don’t want to give other people power over their business.” Mention LLC, for instance, only employs three people, including Pihl.

Pihl says that his company has reached a point where visa agent fees and bi-monthly travel costs are “not necessarily cheaper in Beijing” than they would be in the US. He estimates that the amount of money spent per-employee on all visa-related costs has gone up 50 percent since he came to China.

Hiring difficulties

cancelledVisa uncertainties in China don’t just affect entrepreneurs. In fact, perhaps even more so, they affect their employees. Whereas entrepreneurs are often adventurous, daredevil risk takers keen to evade bureaucratic law, the people they hire are often not. American Michael Michelini came to China in 2007 and started his work as an entrepreneur in 2009.

“As a startup, I have not been successful in hiring others as my company is too small,” says Michelini. Since he cannot afford to set up an official office, he cannot offer employees official work visas. One American he hired was sent home because he tried to use the address of the company’s serviced office when applying for a work permit approval, which apparently doesn’t count as a real office to the government. If a serviced office doesn’t qualify, then any startup based in a coworking space is also bound to be declined.

For his current venture, SocialAgent.me, Michelini tried to hire three foreigners: a Canadian PHP developer, a Dutch programmer, and a Greek UX designer. He says all three were nervous about not having proper documentation. They initially stayed on business or tourist visas, “but in the end of August, it got very difficult. The Dutch programmer got very stressed with his girlfriend about the situation and moved back to Holland. The Greek was only issued a 15-day single entry tourist visa, so he relocated to Hong Kong.” The Canadian eventually left, too.

You might be asking, “Why not just hire Chinese staff?” Michelini does hire locals – both technical and non-technical – but he says Chinese developers often prefer more secure jobs at big companies. Aside from language and culture barriers, much of the talent needed for a fast-paced startup is hard to come by easily, at least in the eyes of some foreign entrepreneurs.

Believe it or not, there is a special, local government office in Beijing that is dedicated to recruiting foreign companies into the city – the Chaoyang Department of Foreign and Overseas Talent. This might seem like an obvious starting point for startups looking for some security and stability visa-wise, but most entrepreneurs I spoke with had never heard of it. Even if they had, most startups still don’t meet the $82,000 in capital requirement to incorporate. Meanwhile, the few that do only receive two to three visa slots for their employees. That’s almost a paradox – companies with that much capital probably have more than just three employees (especially if they intend to expand), making incorporation an undesirable option even for those that can afford it. The only other option is to incorporate as a wholly foreign-owned enterprise, which costs $20,000 to $30,000.

One entrepreneur who asked to remain anonymous says he went from company to company knocking on doors, begging them to “hire” his employees with any leftover visa slots they could provide. In one case it worked, but the company had recently changed its location. When the addresses didn’t match, the visa was not accepted despite the company’s legitimate incorporation.

That same entrepreneur ran into serious difficulties with his own visa when working with a visa agent. The agent was arrested by police, and the entrepreneur’s passport ended up at the Ministry of Foreign Affairs. He refused to comment further, only saying it took some “shady dealings” to get it back.

Despite all his troubles, the entrepreneur says the regulations mean well, but the individual ministries, consulates, and embassies don’t know how to deal with them because they are new. That results in a lot of confusion, miscommunication, and disparity on both ends. While these are all true stories of entrepreneurs experiencing problems with their visas, I talked to a few who did not have any problems at all.

Constructive criticism

Beijing_airportIt’s become a fact of life in China for many expats: every few months, your career and way of life is threatened. Leave the country, hand your passport and a wad of cash to an agent, and hope for the best. Rinse and repeat. But it shouldn’t be like this, especially for entrepreneurs who bring in foreign money and offer local jobs. Here’s my list of simple suggestions:

  • Update all websites with consistent information: many embassy and consulate websites have not been updated in accordance with new visa rules and regulations. As a result, many foreigners operate on word-of-mouth anecdotal information from friends’ experiences and online forums, much of which is also outdated. If rules differ based on country or citizenship, this should also be clear.
  • Make it easier to incorporate: Get rid of, or at least drastically lower, the capitalization requirement for businesses to incorporate in China. Create a bracketed, marginal fee based on the size and/or income of companies who want to be wholly foreign-owned enterprises. This will increase government revenue from taxes and save foreigners money on shady visa agents.
  • Allow for expansion: offer more work visa slots for companies who can prove they need them.
  • Remove stay durations on business visas and allow for in-country renewal: while visa agent fees can be hefty, almost equally costly are the travel expenses to leave the country every 60 days to get an exit stamp or visa renewal. On a tourist visa, this is understandable, but this is not more than an obstruction on other types.

It’s worth noting that this is a one-sided article from a foreigner’s perspective. For a Chinese citizen, obtaining a visa to start a business in the United States or Europe is also very difficult. Founder of SoftTech VC Jeff Clavier has advocated for a special entrepreneur-only visa in the US for some time. If you are an Asian entrepreneur in a Western country or know someone who is, please email me at paul(at)techinasia.com. Tech In Asia would be happy to learn more about the other side of the coin.

(Editing by Josh Horwitz, Steven Millward, and Willis Wee)


Replies
  • http://www.east-west-connect.com Tait

    Here are some somewhat related bits of info…

    1) The startup capital requirement varies by location.

    2) I haven’t ever found getting a visa to be a problem. Perhaps I’m lucky. I’ve heard it’s tougher for people of some other nationalities though. I’m Canadian.

    3) Canada has a startup visa already apparently: http://www.cic.gc.ca/english/immigrate/business/start-up/index.asp And it has tax breaks for R & D work too, which can be used by startups.

  • http://www.haikoufanyi.com Marian Rosenberg

    It’s nowhere near as hard to start a company in China as this article makes out. It’s difficult to start a company in Beijing but there is nothing stopping a potential investor from registering in the boonies and going to personally live and operate out of Beijing provided they are still doing all their paperwork in whatever town they registered in.

    In Haikou, my registered capital was ~$15,000 and if I’d been willing to register with a partner (or had a partner to register with) I could have registered for as low as $10,000 *SPLIT* between the two (or more) of us.

    If anyone reading this wants to register in Haikou, let me know. I can help you through the process.

  • N L Fix

    The rules have differently changed I believe as China wants to enforce immigration laws and
    wants to create more opportunities for domestic talent.

    I am sympathetic with the entrepreneurs that are finding more and more roadblocks in their paths.
    Ironically, Chinese entrepreneurs as well are beginning to establish their start-ups on foreign soil to avoid the uncertainties of Chinese law. For confirmation, just look at the startup environment in Silicon Valley.

  • Nils Pihl

    Marian, it’s also different for different industries. Being in tech, which is heavily restricted, we have to jump through more hurdles than people who do, say, import/export.

  • http://www.haikoufanyi.com Marian Rosenberg – Haikou #1 Translation Agency

    Sorry Nils, but no. It’s not that hard if one actually tries to follow the rules instead of giving money to people who aren’t following the rules so that you can get around the rules.

  • Nils Pihl

    I don’t know what to say, Marian. Our lawyers, advisors and several local VCs tell us otherwise, and I’m hesitant to take advice from strangers online. If you have a lawyer you can recommend, I’d be very happy to talk to her/him. Whatever deal you have, I’m happy for you, but being in an industry where you’re technically not allowed to compete as a foreigner is different. Following the rules means setting up an offshore holding company with a WFOE or a JV – The former is capital intensive, the latter is expensive. The idea that it’d be easier for me as a startup than it was for large companies in our field seems counter-intuitive.

  • Eric

    I am not sure if the article has considered the Foreign Investment Partnership Enterprise -FIPE- as and alternative, which you can establish with 2 foreigners and no minimum capital? At least here in Shanghai there aren’t any problems using it.

  • http://www.eigerlaw.com Nathan

    I agree with some of the comments that for most places outside of Beijing, setting up a WFOE has substantially lower capital requirements then the article says, is mostly CNY 100,000 only. Costs for incorporation can be as low as USD 2,000 without bells and whistles. The mm scope of the average consulting WFOE is often (yes, not always) sufficient for many tech ventures, as crucial assets like domain names, trademarks, etc. can be registered abroad and/or by the foreign individual founders directly. All of this legal with no shady dealings, while of course such setups are never a Rolls Royce of legal setups, but for startups that is the necessary and more expensive legal features can be added later with a first or second financing round.

  • Paul Bischoff

    Perhaps I should have been more clear in the article, but all numerical figures are for Beijing, where a significant portion of China’s foreign tech startups (some say up to half) are located. While incorporating can be cheaper in other provinces, you also make sacrifices such as access to a qualified talent pool, exposure to VCs/angels, and many Western comforts found in Beijing or Shanghai.

  • Randy Fields

    I agree with the author. The Chinese government reject you on a whim according to their attitude at the moment and where the wind blows. I’m black American so I am susceptible to even more discrimination.

    I recently had a great job working for Microsoft as a senior trainer, which involved proofreading for MSDN forums, and giving presentations on softskills. I loved my job…

    When it was time to get my residence permit my visa was rejected on the excuse that I did not have any IT training…eventhough the position required no IT know how…

    My company fought for me, the company and the employees said that I was was qualified for the position and I was doing a good job. They were happy with my work…The govt would not reverse the decision and kept asking Microsoft to hire a local. So now I have lost my job. I have a wife and kid here. Recently I got a 2 year visa till 2015 but I’m not allowed to work on it!….

    I am returning to America to find a job. Never will return to China…China is a xenophobic country and by continuously making foolish decisions they will reap what they sow soon enough.

  • Randy Fields

    To add I did have my bachelors degree, a tesol dimploma and 8 years working experience..so I am qualified to work

  • John Paul D

    Honestly, I think I never had nay issue getting a visa to work in China. Most of these so called startups that don’t meet the requirements i.e. funding should not be here in the first place. I started a new company last year with a capital investment of 10,000,000RMB- it was not my money- I went around and pitched my ideas to local angel investors and investment companies and pooled all the investment. Sure I could not own shares out right but so what, it was my business and I created it for the sole purpose of selling it to a larger investment firm- which I did, not I am a VP at a Large investment firm running my program after being bought out after one year. Also in regards to the visa issues- as long as you have incorporated your company you should do fine in regards to hiring foreigners (although you are limited to how many you can hire). I hired 4 expats and 16 Chinese workers and set up offices in the US and UK. We work in a global environment , people who want to do a start up need to get with the times and stop complaining. If you don’t like the rules in China then you can leave, otherwise stop wining.

  • Kevin P

    @John Paul D, if you had 10 million in investment before you even founded the company, you’re not really the target audience. The article is talking about Silicon Valley style startups that start off with the founders and perhaps one or two initial employees rather than a company like yours with 20 employees and offices across 3 continents right out of the gate.

    I’m not sure the article’s focus on visas is quite right – China’s visa regulations aren’t any worse than most other countries (at least in this context; I could rant at length about China’s lack of a proper spouse visa). The rules themselves haven’t even changed recently in any meaningful way; they’ve just tightened up on enforcement of fraudulent “business trip” visas (to the author: you do realise that your 4th recommendation basically boils down to “committing visa fraud is too difficult now; please make it easy again”, right?). The real problem is in the company registration rules, which really do hurt foreign-owned startups as described in the article.

  • Tim

    Perhaps this displays my ignorance, but if you are a non-Chinese entrepreneur and you wish to hire only non-Chinese employees, then why on earth are you trying to do so in China? What value or benefit does China stand to gain from your incorporating (or illegally operating out of) the country in this case? Is it for immediate access to the Chinese market? Or are you just looking for an exotic experience in a Mandarin-speaking country? If it’s the latter, then come to Taiwan! Visas are easier to obtain, the government is quite efficient and as rule-abiding as that of any western developed country (which is not to say 100%), and we have a significant number of well trained, bilingual, tech-savvy Taiwanese ready for hire. In addition, access to the Chinese market would be easier from here than North America or Europe.

  • Arian Starfighter

    Tim, what you say is true, but at the same time, Chinese do this all over the world. Chinese open restaurants in Black communities here in America, and they won’t hire a Black person at all. They do the same in Indonesia and other SE Asian countries. It is only “fair” for foreigners to do the same in China. I have to give respect for the Chinese government for looking out for its own though.

    As far as Taiwan, you can forget that too if you are a Black man.

  • James

    This is wrong on so many levels. I’m talking about the article, not reality.
    This article in summation:
    Boohoo, it’s too hard to work illegally now
    And we don’t know what we’re doing
    And we’re too cheap to setup a proper company ;_;

    Those low-cost startup options are not intended for foreigners, they are intended for citizens.
    If you want to do an IT company, it’s a recommended amount of 50w, but you can get away with 10w. Offices, go SOHO for a startup, it works just fine, or rent a rathole in Shangdi for basically nothing. No, you cannot immediately sponsor visas, sorry, you have to actually hire locals. That’s what registered capital is for, it acts as a backstop to fund the business until it can fund itself. And that registered capital amount is not a single lump-sum, it can be paid in over time.

    The majority of these foreign “entrepreneurs” are just illegal english “teachers” who seem to think they are “special” and above the laws (which, are actually very fucking clear).

    Working on an F visa is ILLEGAL
    Working on an L visa is ILLEGAL
    Working on an X visa is ILLEGAL
    Working without a valid sponsor is ILLEGAL

    Now onto the absurd. There’s nothing that demands a local owns part of the company, nothing, nowhere does that exist. WFOE means WFOE.

    Begging other companies to use their visa slots? Sorry, but that’s 100% illegal. Working for a company other than the one sponsoring is ILLEGAL.

    Registered capital is a wonderful thing, it honestly just is. It ensures that the employees will be paid. Essentially what the idiot in this article is crying for is:
    I want to be able to shift all risk to my employees, and I should be able to do whatever I want with zero regard to anyone but myself ;_;

    Cry me a fucking river. Welcome to China, a country with things like labor laws. And Chinese developers are more than happy to work for a startup, except that you actually have to pay them. Seeing as the MNCs are fighting for talent as are the major domestics. For a new, uncertain, foreign company… run by someone unwilling to put skin in the game? You bet your ass you’ll be paying them quite a lot to get them to take the gamble.

    Idiots. Go back to the hellhole you crawled out from, no one wants or needs your ilk here.

  • Justice

    I’m amazed to see how everyone is saying how everyone else is wrong. The new visa rules are even unclear on the Chinese consulate website, so even to the Chinese it is unclear.

    The government makes it extremely difficult to hire foreigners which is why so many were working on illegal visas in the first place.

    The government discriminates as well. My Filipino girlfriend with perfect English was denied a visa even when a job offered her 3k+ USD a month and she was overqualified for the job.

    And for the person who said it is easy to play by the rules… I have several friends who are employed by the Chinese government and even they were switched from tourist to business and finally to working visas.

    China is getting more unfriendly to foreigners, just ask apple, or the guy in prison that refuses to sell his company to the government for 20% of its value. Guangzhou is a horrible place

  • Stephen Barnes

    Excellent piece Paul. Hong Kong has a role to play. Please refer my response to your views http://www.hongkongvisageeza.com/foreign-national-entrepreneurs-starting-up-in-hong-kong-or-china-the-visa-question/

  • Allophone

    “Nils Pihl, cofounder of behavioral analytics company Mention LLC, now plans on moving his business from China to the US, where most European citizens need not apply for visas before arrival. He’ll be required to leave the US every 90 days in order to avoid overstaying his visa waiver (or what some countries alternatively call a “landing visa”), but Pihl says that the occasional trip to the airport seems like less of an inconvenience compared to staying in China.”

    So he’s been living & working illegally in China on visa runs, and he thinks he’s gonna have less trouble living and working illegally in the US on visa runs? WTF? Even people with legal work visas in the US have trouble starting their own companies (google Asaf Darash for a widely-publicised example).

  • Randy

    John D…
    You really are a heartless d–k…So you went around asked for investments and you got it. Now that you are rich you go and stomp on the little guys. How humble….does it make you feel good to put down other foreigners instead of lifting them up? Or are you one of the growing foreign Wumao army here working for the Chinese govt to try and change opinion, or both? Either way you should be taken outside and shot.

  • Randy

    James…great why don’t you give your citizenship up and become a Chinese citizen!
    Damn wumao are everywhere!

  • Randy

    @Justice

    Yeah i feel you man…I’m American and was qualified for my position, only to have some govt bureaucrat tell me I wasn’t …..even though the company said I was qualified.

  • JOE

    HELLO,,,,,,I AM STUDENT IN CHINA (2011-2015)
    THANK YOU FOR INFORM US ABOUT VISA INFORMATION

  • tim

    James, totally agree with you mate.

    This article is full of mistakes and mis-information, it quotes people running illegal businesses having a whinge.

    Yeah, it would be good if it was easier, but that’s going down the same track as thinking it would be good if the whole world was visa free and anyone could do anything anywhere.

    Setting up a legal company is actually quite easy and cheap. Do some research

  • Ex Ex-Pat

    God I’m glad I left China after 8 years. Foreigners backstabbing and arguing the toss on the internet over stupid things. We all know the visa situation got worse in July 2013, We were even all warned about it. We were warned, at our university, 6 months before July that the rules were changing.

    Some of you love China, some of you like to bitch about it, that’s all fine, its whatever gets you through the stress of living in another country. However I think its time better spent if people were actually clearing up mis-information and mis-understandings rather than trolling comment sections and making everyone look like d**ks.

    My wife and I left China for this reason; knowing it would get harder and harder for me to stay in the country. I was teaching legally on a work visa at Sichuan University and still couldn’t have stayed. Good luck to you all who decided to stay, but be ready to move on. As the Chinese government says “Foreigners are for cash, not for life”.

  • http://www.findurproducts.com Sam

    It is been 5 years i am in china and so far i believe that china visa system is the easiest because i used to live in europe and USA and believe me it is much more complicated.
    the only difference is in china you cannot get the nationality but in EU or USA you can get it after some years.
    this article cannot be a reference for entrepreneur…
    RG,

  • James

    @Sam, You can in fact get nationality. I know a handful of people who have for various reasons. It’s honestly not all that hard as long as you can show that you can support yourself, have a stable living situation, have some ties to the country, are not a criminal… oh, and get rid of all other citizenships. That last requirement is why it’s “impossible” to most. They are not in it for the long-term, they just want a citizenship of convenience that allows them to bail if anything goes sideways. Only really appealing to those who have a useless passport to begin with. I’m still satisfied with my permanent residency though. Also, not hard to get as long as you know what you’re doing.

    Please name one large economy that’s cool with illegal companies and people who just want to “hang out” for however long they feel like. There are “self-sponsored” options in places like Japan, but you’re still required to have a main employer, as well as documenting all your income, paying all your taxes. You also have to have long-term contracts and meet required income levels.

    If you have legitimate need for long-term multi-entry visas… say frequent business trips, then those visas are very easy to obtain. Businesses here are also very easy to setup, there’s some paperwork involved, taxes too, but it’s not hard as long as you are actually legit.

  • Мембранные фильтры

    >Please name one large economy that’s cool with illegal companies and people who just want to “hang out” for however long they feel like.

    Um, Russia?
    Oh, right, it’s freezing cold there, and the bears…
    Yet, full of opportunities for those who got the balls.

  • myx

    So much misinformation and rancor. The visa situation will vary from place to place within China as well as on what passport one is using (reciprocity and foreign policy issues). Company formation costs also vary significantly from place to place. The new law is not clear yet but it is not always the law that matters in China. If one does not know that or does know that but does not know hot to make things work here, then perhaps a more transparent country would suit you better.

  • Nils Pihl

    “So he’s been living & working illegally in China on visa runs, and he thinks he’s gonna have less trouble living and working illegally in the US on visa runs?”

    It’s not that simple. My company is American, and we did consulting for American (and other foreigh owned) companies while I was physically in China – which is perfectly allowed on the F visa. I am not here teaching English, and I am not working for any Chinese companies. In the rare case that we wanted to work with a purely Chinese entity to build our brand, we did it pro bono without any formal contracts. No Chinese business entity has been invoiced by us, nor do we have anyone on payroll here in China. Legally, we haven’t DONE any “work” in China. All team members are here with perfectly legal visas, and conducting perfectly legal not-business.

    At the moment we’re just enjoying the environment, using our American investor’s money to fund our American development team, while doing conferences and business meetings here – again, perfectly allowed on the F visa.

    In summary, I am not here working illegally.

    In the US I am not allowed to be on payroll because I don’t have a work visa yet, but as the owner of the business that’s not a very big concern to me personally. Basically, I can own the company but I can’t hire or pay myself. Minor inconvenience.

  • shenzhenren

    james…halleluyah, a voice of reason, everything you say is right and these wannabee “entrepreneurs” should go home to mommy if they dont have the money to set up a legitimate business here

  • shenzhenren

    nils…this is all ducking and diving. doing pro bono work for chinese companies? who are you trying to kid.

  • Nils Pihl

    Shenzhenren, it is CONSIDERABLY less ducking and diving than the typical Chinese company. Don’t throw rocks in glass houses. In a country where over 90% of officials are corrupt and close to 100% of companies cheat on taxes, we’re the good guys.

    I mean… Shenzhen…

  • http://www.haikoufanyi.com Marian Rosenberg

    Nils, even if you are working for someone else, and even if you aren’t really ‘doing’ anything in China other than spending your money while you live here… YOU ARE STILL WORKING HERE.

    Shut up and stop whining you.

  • Jeff Millie

    When facing difficulties finding Talent in the Chinese labor pool I know it’s tempting to hire a foreigner (especially to keep yourself sane in the office). But consider searching in Wuhan. They have more universities crammed into that city than anywhere else in China. Make friends with a few expat teachers and they’ll happily refer their best students to you. I’ve had a lot of luck finding both employees and interns this way.

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