Doing Business in China For Dummies®

Financing Your Business

This section mostly discusses debt financing. We begin by talking about general commercial loans, both from offshore and onshore sources. We then discuss specialized types of financing, which include two non-debt types: venture capital and private equity.

Keep in mind when seeking loans that China sets upper limits on the amount of debt a business can have relative to its registered capital. The maximum ratio varies by investment size, and it gets higher as the investment gets larger.

Before reading further, you should know some terminology. Collateral for loans is often called security. When a borrower provides security, it’s called pledging — for example, a borrower can pledge its production equipment as security for a loan.

Borrowing from offshore

In theory, your company can borrow either from banks offshore or within China. Consider a number of factors when deciding where to borrow from. Here are the advantages of borrowing from offshore banks:

✓	If your offshore parent has good credit and this is its first time investing in China, getting financing from offshore will probably be easier. Banks in China are interested in your asset base (which won’t be big if you’re just established) and your track record in China.
✓	Sometimes the interest rates are lower offshore.
✓	If you expect the RMB to appreciate against your loan currency, and your foreign-invested ...