Choosing the right banking partner for your China business - Part 1

The corporate banking system in China can be somehow complicated.

Before deciding which local or international institution your company

will be banking with, there are a few practical aspects to be considered

that will hopefully make the process easier.

The first step, if your company finds itself in the pre-investment stage, is to select a banking partner in China. Before any bank commits to working with your entity, they will have to go through an extremely thorough KYC process (Know Your Client process), which is basically a background check on you as an individual and as a corporate entity.

Prior to taking you as a client, the bank will want to know your history, what you're doing in China and who are the beneficiary owners of your structure, among other details. This information is mandatory and necessary to move forward in the banking process.

When choosing a bank, it is relevant to understand your company’s needs, such as a future loan, and the nature of your business in China.

Is your business more domestic or international?


What type of monetary transactions are you going to be handling?


Are they going to be domestic control transactions -money flow within the Chinese territory- or are they going to be international cross-border transactions -money flow going in and out of China-?


These are helpful questions you can think about before deciding.

The following step would be to visit several banks, meet with their representatives and compare fees. Every institution will offer you a variety of services, which you must evaluate closely. When meeting with managers and account officers, find out whether they can simplify the banking procedures as much as possible. Don’t make your decision based on an adviser or accountant, but rather on the institution. People come and go, but your business will remain with the bank.

If your business focuses on the domestic market, it would be best to use a local Chinese bank. If you are a cost center, meaning you are a representative office structure or a limited liability company, and you're not planning on having big revenue volumes in China, you can consider using an international bank.

However, many international banks will not take representative offices as clients, unless you have a pre-existing relationship with them. Most Chinese banks will accept you as a client if your business is lucrative enough.

An important question is if you will need a loan or if you have investors. If your investors are based in China, you might want to work with a Chinese bank in order to facilitate the transfer of money. If your investors are abroad and directly remitting the funds into China, you may want to work with an international bank.

In case you need a loan, you will have to talk to the banks. It may sound surprising, but you might have better luck getting a loan from a Chinese institution.

Since there will be a fair number of things that you must do in person, the physical location of the bank will make a difference. Look around the vicinity of your office and locate the closest branches walking distance. Also take into consideration the waiting times and lines of people in those branches. Your account manager will be located at the branch where you decide to base your business.

Choosing the correct manager is important as well. You may prefer to deal with a person who speaks English, unless you feel comfortable letting your in-house accountant maintain all communication with the bank in Chinese. This is a crucial point, since there might be sensitive transactions or confidential projects within your company that you don't necessarily want every member of the team to know. If you want to talk to the bank directly about the terms of these transactions, you can pick up the phone or send an email in English and get a response. 

In general, foreign professionals in China tend to favor working with international banks because they feel safer. However, sometimes it is better to avoid these institutions because they don't necessarily have all the approvals and rights to do business, and they don’t have many branches throughout the city.

Some of the major international banks with a local presence are Bank of East Asia, Citibank, DBS Bank, Hang Seng Bank, HSBC, and Standard Chartered.

What are the advantages of going with a Chinese bank?


The first one is the application process. In general, Chinese institutions have a much more fluid and faster approval process to open accounts than international banks. They also have substantially more branches, making it a more convenient and faster for any type of remittance or transaction locally.

If you are working domestically with companies that are registered in China, you will probably find that a lot of them use local banks. This means that remittances between banks are much faster, and that you will receive and send payments quicker.

One issue to take into consideration is that some local banks are not used to dealing with foreign invested entities and may not be familiar with the account opening procedures. In this case, simply look for another branch nearby.

Generally, Chinese banks offer greater security because they are backed up by the People’s Bank of China (PBC), which ultimately approves your capital account application.

In China there is one Central Bank -People’s Bank of China- and three policy banks, the China Development Bank, Import Bank, and Agricultural Development Bank. There are also five state-owned commercial banks, called the big five: Industrial & Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of China (BOC), Bank of Communications (BoCom), and Agricultural Bank of China (ABC).

There are many more that fall under joint-stock commercial banks, city and rural commercial banks, and of course, foreign banks. Local banks in China are structured in branches and sub-branches at the city and province levels. If you find yourself talking to a sub-branch, you may realize that they lack the necessary experience to deal with a customer like you.

Once you decide with which institution to do your banking, generally, you will open three accounts. The first will be an RMB basic account, which allows for cash deposits, withdrawals, and payments, including salary payments by PBC regular stations. You can have only one RMB basic account.

If the bank you choose doesn’t want to have you as a client anymore, you have 30 days to close down your RMB basic account and open a new one, which may affect your business. For this reason, it’s important to pick your bank wisely.

Many business professionals decide to open a general account as well, which is multi-currency and can have an RMB section. This account allows payments and cash deposits. The only limitation is that you cannot withdraw cash; this can only be done through an RMB basic account. You can open a general account in as many banks as you like.

Another one can be a sight account. These are highly specialized and have a designated purpose for them, such as project funding capital, expenditures overseas, borrowing or paying intercompany lending, among others.

According to PBC regulations, you must have a capital contribution account, which will hold the money you need as your working capital. These funds come from the investors in the currency designated into the account and will be at your disposal to start up your operations and run your business.

There are a few differences between the capital account, the RMB basic and the general account. The capital account transactions affect the capital base of the company and are part of the registered capital, when the company is established in China. These funds come from investors overseas and are injected directly into this account.

The difficulty with the capital contribution account is the fact that although it seems an open account, in reality it is a very controlled one. This means that you must prove to the bank why and how you are utilizing the funds. For example, if you want to pay a salary raise, you need to bring the employment contracts, show salary levels, specify the monthly salary you will pay, and request the transfer of funds into the RMB basic, sight or general account.

All documents to be presented to the bank in order to release the funds from your capital contribution account, have to be taken to the branch in person. Nothing can be sent by email; the papers must be delivered by hand to the rank officer. The bank evaluates the documents and lets you know if the funds will be released.

The RMB basic and general accounts are utilized for all other transactions. The main difference is that you can have only one RMB basic account for daily business operations, and it is the only account from which the company can withdraw cash. The RMB basic account often acts as a designated account for tax payments.

Should you have questions about choosing the right bank for your China business, complete the below inquiry form with your questions and comments. 

DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.


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