Business Setup in China

Why Set Up a Business in China?

The People’s Republic of China has seen a magnanimous economic growth in the past decade taking its rightful place as the world’s 2nd largest economy. China is a key player in the world of manufacturing, electronics, semiconductors, automotive, construction, shipping and engineering. Chinese businesses are aggressively competing in the global market with the tremendous back-support of the massive Chinese manufacturing industry that makes up almost half of the economy.

• With its wide-range industries, developing economy, growing market, increasing spending power China is an obvious choice for entrepreneurs, businesses and companies that are looking forward to start a new venture, or expand their business.
• China ranks 46th in the ease of doing business in the World Bank report in 2018, by offering outstanding support to businesses by lowering barriers to import & export, formation of new Special Economic Zones (SEZ), new regional seaports, trade liberalization, specific incentives, superior high-speed connectivity within & outside China, enhanced shipping capabilities, and simplified customs procedure.
• The ambitious foreign policy and economic initiatives of China is reflected in implementation of world-class development projects like the Silk Road Economic Belt also known as One Belt One Road (OBOR) which effectively operates in connecting China with European markets through land as Silk Road Economic Belt with six economic corridors, and through sea as Maritime Silk Road connecting coastal China to Mediterranean sea, the Indian Ocean, the Arabian Sea, and the Strait of Hormuz mimicking the historical success of the Chinese Silk Road.

Types of Companies in China

1. Wholly Foreign Owned Enterprise (WFOE)

A WFOE (Wholly Foreign Owned Enterprise) is a Limited Liability Company wholly owned by a foreign investor. For doing business in China it is one of the best business setup structures available to foreign companies, the WFOE structure is designed in alignment with China’s path towards opening up the economy by granting access to businesses and industries. Predominantly the WFOE’s are preferred for setting up manufacturing operations, without partners in China.

Types of WFOE in China

• Manufacturing WFOE
• Trading WFOE
• Consulting WFOE

2. Foreign Invested Partnership Enterprise (FIPE)

The Foreign Invested Partnership Enterprise (FIPE) is an unlimited liability business entity which has been introduced in March 2010 allowing the investors, business partners and young entrepreneurs to directly invest & operate business entity in Mainland China with no minimum registered capital. FIPE is becoming more popular among young entrepreneurs as this scheme does not require a registered capital while allowing the FIPE entity to hire employees, issue invoices, collect payments, and apply for work & residence in Mainland China.

Different Types of Foreign Invested Partnership Enterprise (FIPE)

• General Partnership Enterprise (GPE)
• Limited Partnership Enterprise (LPE)
• Special General Partnership Enterprise (SGPE)

3. Foreign Representative Office (FRO)

The Representative Office (FRO) can be established by the foreign companies & businesses to engage as business liaisons in permitted activities in China. The FRO is allowed to operate according to the scope of business specified by State Administration of Industry and Commerce (SAIC) and allowed to carry out permitted activities. The FRO is not permitted to engage directly in business operations, cannot issue invoices nor receive payments, therefore, is it not considered a form of Foreign Direct Investment (FDI) in China.

Activities Permitted for a Foreign Representative Office

• Business liaisons
• Quality control
• Product promotion
• Market research
• Exchange of technology
• Foreign Legal Entity
• Non-profit & Aid organizations

4. Joint Venture (JV)

A Joint Venture is a business arrangement which allows the participants to create a new business entity or official contract relationships and share the investment, operational costs, management responsibilities, profits and losses. The Chinese authorities have encouraged foreign investors to make use of this company form to gain exposure to sophisticated technology, new business partners, and efficient management practices. In return mutually, foreign players can rejoice the low labour costs, low production costs and enjoy a potentially larger Chinese market share.

However joint ventures are the only way a foreign entity can operate in certain fields of business where the activity is controlled by the government, i.e., restaurants, bars, construction, vehicle production, cosmetics, etc.

Types of Joint Venture in China

• Equity Joint Venture (EJV)
• Cooperative Joint Venture (CJV)

Process of Setting Up a Business in China

 In recent years, China has been open to investment from foreign investments and businesses by allowing them to operate in the Mainland with a carefully curated set of rules and regulations. Before starting a business in China know the outline of the processes that are required for Chinese business licensing, business incorporation and company formation.

1. Choose your Scope of Business
2. Choose the right location for your Chinese entity
3. Choose the right entity status for your company
4. Devise a tailor-made business plan for operating in China
5. Submit your Company’s Chinese name for pre-registration (approved by SAIC)
6. Register and acquire the Letter of Approval from the Ministry of Commerce (MOFCOM)
7. Sort out your essential documents to obtain the Chinese Government Approval

• Pre-registered Chinese Brand/Entity with SAIC
• New company’s legal address
• Article of Association (Company’s Profit repatriation analysis & report)
• Registered Capital amount (No minimum value)
• Feasibility study (for manufacturing firms)

8. Register with the Public Safety Bureau (PSB)
9. Register with the State Administration of Foreign Exchange (SAFE)
10. Open your company’s basic bank account & foreign capital account and deposit your capital
11. Register at the tax bureau & set-up your company’s basic financial information
12. Hire an Accountant & Cashier or avail Accounting & Book-Keeping Services
13. Develop a comprehensive staff Handbook for your local employees (Legal documents including reporting, analysis, remuneration, career management, and staff training)
14. Trademark your Intellectual Property with the China Trademark Authorities

Special Economic Zones in China

Hong Kong Company

The Hong Kong Company (HKC) is the official name for the company set up in the Hong Kong Special Administration Region which lies on the eastern side of the Pearl River Delta. Starting a company in Hong Kong has wide-range of advantages as it follows corporate law strongly based on the British Legal System, by setting up a business in Hong Kong a company can benefit from the low-tax rates, streamlined setup processes, a transparent legal system, and efficient local regulations with special rules for foreign businesses.

As Hong Kong has lesser restrictions and lower taxes on businesses, it has become a favourite destination of companies that are seeking for a gateway to China Mainland along with its unparalleled role as the major trading centre and gateway to China.

Advantage of Setting up a Business in Hong Kong

• Lower taxes
• No storage costs and less financial risks
• Easy and relaxed constraints on restricting operations
• Faster company registration
• Transparent rules & regulations
• Excellent investment opportunities
• Freedom in operation as an offshore investment vehicle

The other special economic zones in China are:

• Shenzhen Special Economic Zone
• Xiamen Special Economic Zone
• Shantou Special Economic Zone
• Zhuhai Special Economic Zone

Free Trade Zones in China

Shanghai Free-Trade Zone Company (FTZ-Shanghai)

The Shanghai Free Trade Zone (FTZ-Shanghai) is China’s first official free zone established in 2013, it is the pilot project of the Chinese government to entice international investors and businesses to set up their operations in Mainland China. The Shanghai Free-Trade zone covers about 120 sq. kilometres offering one of the best in class infrastructure in China with office spaces, excellent connectivity to rest of China by a network of high-speed superhighways and railways, world-class port facilities at Port of Shanghai.

Registering your company in the Shanghai FTZ entitles you to several benefits from the government including tax exemptions. The Shanghai FTZ is complemented by Waigaoqiao Free Trade Logistics Park, Waigaoqiao Free Trade Zone, Pudong Airport Comprehensive Free Trade Zone, and the Yangshan Free Trade Port Area which jointly provides the logistics and trading partners operating for businesses operating in Shanghai Free Trade Zone.

• Chongqing Free-Trade Zone
• Fujian Free Trade Zone
• Guangdong Free Trade Zone
• Shaanxi Free Trade Zone
• Tianjin Free Trade Zone
• Liaoning Free-Trade Zone
• Zhejiang Free-Trade Zone
• Henan Free-Trade Zone
• Hubei Free-Trade Zone
• Sichuan Free-Trade Zone

High-Tech Zones in China

High-tech zones are zones that are approved by the State Council and the PRC National Government to accelerate the growth in the region by focusing on specialised industries and providing them with investments, & incentives. Currently there are 169 high-tech zones located in 31 provinces in China.

Before starting a business in China, Hong Kong, or Macaw it would be prudent to know that it will be an uncomplicated process if you have a good Chinese language proficiency and networks. However, forming a company in China can be very tedious if you are unfamiliar with the Chinese legislation and legal system as the requirements are unique for different kinds of Chinese businesses.

If you are keen on setting up business operations in China, we are happy to support you with the China business registration process based on the scope of business, background, project, market analysis, accounting & tax services, China business incorporation services. Contact us for any further information on starting a Chinese business and China company registration services.