By: Peter N. Rasmussen
Uploaded January 2020
Asia Base Law & Projects (Suzhou) Co. Ltd.
A few years ago, I received an email from a German Business Development Manager who was lost in regards to establishing a company in China. Let’s call him Manfred Hölzenbein. Or, more correctly Dr. Hölzenbein. The company he works for, let's call it “Kronberg Mechanik GmbH” in Offenbach in Germany, is a manufacturer of machinery and conveyers for the logistics handling industry.
For several years Kronberg Mechanik had sourced steel and plastic components and also gears in China under the leadership of Dr. Hölzenbein. It had not been an easy task because the owner of Kronberg Mechanik, lets call him “Dr. Siegfried Schmidt”, had been against sourcing in China ever since Dr. Hölzenbein had proposed it for the first time many years ago. Dr. Schmidt had said that the Chinese could not produce quality and that they would cheat at every given opportunity.
Dr. Schmidt was in his late 60's and the cloud of cigar smoke that followed him around from his office to the meeting room as he puffed away added to the special ability he had to make people feel small, in the way that he had such a large ego and personality. It’s just the way that he was. But, as with any good story, there is a beautiful lady involved to balance things out. Her name is Constance and she was Dr. Hölzenbein’s young assistant. She had graduated from university with a degree in Chinese and spoke the language reasonably well. Somehow, she reminded me of Mozart’s wife from the movie “Amadeus” - her name was also Constance, and Mozart had called her “Stanzi”. And so that was what I called her when she didn’t know. Among all the staff of the company, that I know of, she was the only one who was addressed by her first name. I never even learned her last name. She is just Stanzi to me.
Dr. Hölzenbein had convinced Dr. Schmidt that the way to cope with suppliers in China and perhaps even begin to sell some finished products in China – would be to establish a trading company there.
Now back to my email from Dr. Hölzenbein. He had a long list of assumptions and hypotheses about establishing a company in China. Most of them were based on hear-say from different people, including both Dr. Schmidt and Stanzi. And most of them were wrong.
Dr. Hölzenbein was not ready to assign my company, Asia Base, on a project as such – but he was willing to pay for some advice. I suggested a SKYPE call where I together with a colleague would first spend a couple of hours on preparation and then go over all their worries in an “off the record” style. We had first received a list of questions from Stanzi, which gave us the chance to get prepared to give good sparring. Both her, Dr. Schmidt and Dr. Hölzenbein participated.
I don’t know why there is still something called SKYPE – but that is a whole different topic. We were struggling to get SKYPE to work with both sound and picture on both ends… Something that took 15 minutes. Used to German precision, Dr. Schmidt was pissed off. He had another meeting coming up and had to leave our meeting 15 minutes early. From there and onwards, every meeting in which Dr. Schmidt participated was held by good old-fashioned telephone.
Dr. Schmidt had told Dr. Hölzenbein that they would have to have a Chinese partner and he was not enthused about this... “Is it true?” he asked me. I immediately killed that myth. “Of course not! You can set up a wholly foreign-owned enterprise without a Chinese partner.” I said. “And you can do it wherever you want in China.” Dr. Hölzenbein had also heard that they would have to manufacture something in order to be able to have a company in China, this was some other hogwash that he had heard. So, I replied, “No that’s not true! It was true, many years ago, but nowadays it is easy to set up a trading company. All you need to do is find an office building and rent an office, then you have an address. You need to find a name, a Chinese name translation, and then you can apply for setting up a wholly-owned foreign Trading Company. Yet another myth obliterated.
One of the other things that Dr. Schmidt was worried about was how much money they had to bind in this company in China. He didn't want to place a big deposit of money and then not to be able to use it or get the money out again. To which I ensured him, “First of all, there are no real sharp demands as to how much money you have to put in and therefore you should, of course, just put in as little as possible.” The rule is that you need to commit 70% of the “total investment” as registered capital. “Total Investment” means all investment in fixed assets, plus start-up costs, plus working capital to keep the company afloat. Your registered capital is not a “deposit” that you can’t touch. It is simply just cash you can spend in your normal operations. That is the only money that you bind in China. The remaining 30% you can pay in as a loan, and the loan can be paid back anytime. Easily.
I could hear on this call, and even see on Skype, how they were all relieved to hear this. Although I heard Stanzi object a few times, both Dr. Schmidt and Dr. Hölzenbein had been under the impression that it was much more complicated.
Dr. Schmidt had another concern, “Sehr gut… Mister Rasmussen” (that they all called me all the time, although I go by “Peter” everywhere else) “… but what about when we start earning a profit in the Chinese company?” He had heard that foreign companies wouldn’t be able to get profits out once earned… Where he had gotten these impressions and completely bogus ideas from, I have no clue. I said, “Of course, you can certainly send your profits home to Germany in the form of a dividend. There are also other ways such as management and license fees and so on”.
Most of the questions were common myths and these were easy to kill. In the second half of the meeting we went on to talk about much more critical things such as the possibility of setting up a holding company in Hongkong, business scope, accounting, taxes, and getting Stanzi a working permit.
After the sparring meeting Dr. Hölzenbein convinced Dr. Schmidt about setting up a trading company in Shanghai. We had a couple more follow-up meetings and agreed that my company Asia Base would help Kronberg Mechanik find an Office in Shanghai, which we did. Then a day came when Dr. Hölzenbein and Stanzi came to China and visited these different offices. At the end of their visit, they had made a decision and chosen an office. After placing a little deposit in cash, they left and returned to Offenbach. Over the next three months we helped them to get the Trading Company up and running.
Dr. Hölzenbein asked Stanzi if she would like to be the Chief Representative of this Trading Company! I know this was what she had hoped for and she was thrilled. We helped her get her Working Permit and Residence Certificate. We also helped her finding an accounting firm and other practical stuff. There came a day when she wanted us to sit in on final interviews when recruiting her first team, and so we did even though that's normally not in our scope of business. It feels good to be able to make people feel safe, so we were happy to be there for her.
We got Kronberg Mechanik Shanghai up and running and handed it over to them. Business license and everything that was necessary to operate the company. Over the next year we talked with Stanzi on the phone a few times. She did really well with this business. Dr. Hölzenbein wrote once and had some minor questions about accounting and reporting but other than that he was very pleased and told me that everything was going well.
It must have been around the one-year mark when Dr. Hölzenbein visited in China and came to Suzhou to visit me. We went out for dinner and he told me that Dr. Schmidt had changed the way he spoke to him. Dr. Hölzenbein himself had been celebrated and promoted because of his efforts with the China office - which I must admit were not only smart and well carried out but also brave.
Over the entire course of working together to get the trading company started in Shanghai I had always addressed Dr. Hölzenbein by the name “Dr. Hölzenbein” and he had called me “Mr. Rasmussen” with a very sharp “R”… However, that evening, after a few nice German beers in the lobby bar of his hotel, Dr. Hölzenbein suddenly raised his bottle and said: "Mr. Rasmussen, we have known each other for over a year and there is something I would like to say to you”… I got both nervous and curious at the same time...
He passed a box of expensive cigars across the table and said “This is a gift from Dr. Schmidt”. Although I don't smoke I was happy for this token of appreciation. Then came the best compliment I could have ever wished for. Dr. Hölzenbein said: “Mr. Rasmussen, please call me Manfred!”