Challenges of Opening a New Office in China
Chaowai Soho Property Management 物业and 差不多
This is not the usually article about the process of getting a business license in China and what issues you can face. I have read plenty of those articles. I instead wanted to touch on one other issue that can arise once you have secured your business license.
In 2012 I was in charge of opening a new office in Beijing. We already had an office in Shanghai but wanted to expand into the Beijing market. I spent 4 weeks looking for a location and settled on Chaowai Soho (朝外SOHO). One simple formula that agents will use to compare cost is:
(Total Monthly Rental Cost/Total Square meters)/30 days= Cost of each square meter/day
元／平／天
Make sure you understand if this cost includes the property management fee (物业费), as this is a monthly cost that will be passed onto you. I chose the Chaowai Soho location for two reasons. First, we didn’t have a license to operate at that time. Between the leasing agent and the owner we came to a work around for this issue. I don’t recommend this strategy but it is possible. Second, the renovation cost were going to be very low. This means the turn around time on the office would be quick and we could be up and running very quickly.
Although very little renovation was needed, I did need to make some small changes. I found a friend that was an interior designer and she helped me put together a new design for the place. After I completed this I went down to the Property Management office. Any changes that you make to your office has to be approved by this office. After I submitted the drawings for the changes I wanted to make, the Property Management company came back to me 24 hours later and informed me that the company I chose to do the design is not authorized. I then sought out a more official company to do the design. Once they finished, I submitted the new blueprints. The Property Management came back with the same answer as before.
At this point I knew something was up. They know they have you by the balls because you are already paying rent and are urgent to get started. You are just wasting money waiting for approvals. After rejecting my second company, the Property Management office called me and told me they had a company they could recommend for the job. I knew right away how this was going to play out. When the company came up to do an evaluation I was surprised that they gave me a quote that was comparable to the two previous companies. This company was also in charge of the construction. Once we agreed upon the design and cost the inevitable happened. The company informed me that to get approvals from the Property Management company, we needed to pay them. Read between the lines on what this payment is truly for. I had built this payment into my budget because I knew this was standard practice in China. That being said you still need to protect yourself.
If you want to fully protect yourself, I would advise that you plan ahead for issues like this. Have a Chinese partner/employee that can handle these issues. I decided to handle the issue myself. The company said that the Property Management wanted 2000RMB. They said as soon as we pay the 2000RMB they would approve the documents. After a variety of questions, they told me they were very close to the Property Management team and could “guarantee” that if we paid they would approve right away. Obviously if you give them 2000RMB what is to stop them from demanding more money the next day? After some arguing I told them since they have such a close relationship with the Property Management, that I would pay them only 500RMB and that they needed to pay the rest out of pocket. As soon as they approved the documents I would pay them the remaining 1500RMB. This strategy worked and work started.
There are different approvals needed for different parts of construction. First is the destruction and trash removal license. Second is a certificate for renovation. The license is usually only valid for a few days as well. If you go over that time it will be annoying tying to get another one. Each worker also needs to have an id and be approved to work on the site. For office buildings, work can only be carried out after hours. This means work usually starts around 9 or 10PM and you will finish between 5–6am. During those hours you must babysit your workers as they will try to cut corners, break things and work very slowly. I heard the phrase “good enough” (差不多) more in 4 days of construction than all of my 7 years combined in China. Some items required a highly skilled worker but there is nothing you can do about it because you have to use the workers that were approved.
In the middle of the night the Property Management guards will come around to your office to make sure you have a permit to work. They will also make sure that you have enough fire extinguishers and that they haven’t expired. In essence, they are there for your “safety”. I usually keep a carton of cigarettes in the office and will give them a pack if they give me too much trouble.
One night while our workers were taking a break, I went down to the first floor convenient store to buy a drink. While down there I noticed a lot of the Property Management security workers going into a office on the first floor. I walked over and noticed they were forcibly making workers stop renovating the office. The foreign owner was also in the office. Turns out he didnt get all the approvals and started working anyway. After talking with him he was complaining about Chinese logic. I realized from this comment he didnt understand what was really happening. He was told his office must have two exits and thus needed two exit signs. How the building was designed, there was only one. There was nothing he could do about this. After some arguing the property management said that he must have two and that he should just place the second one over the wall. He had to clarify, over THIS wall? Yes! but this is a wall, not an exit. Yes, there. See picture
Two exits is mandated by the fire department. Therefore, the property management has to protect itself. If there was a fire and someone got hurt or died, the Property Management would show the fire department that when they inspected the place there where two exits.
One last key item to remember. Moving furniture into your office doesnt need to be approved by Property Management. While you are moving furniture, you can use this opportunity to complete any items that didnt get completed during the construction phase. We ended up installing our carpet flooring during this phase which was suppose to be completed during the construction phase.
