Establishing a company in China – solutions for the development of production and commerce in China

When a company has reached a certain maturity, it is worth contemplating the next step in business development and open an office closer to suppliers, business partners or buyers.

Depending on the business model and demands, various ways of establishing a company are possible.

WOFE(Wholly Foreign-Owned Enterprise) is a company with limited liability and is one of the most popular solutions for investors in China.

 Main WOFE characteristics:

  • A Chinese partner is not required for creation;
  • The company owner is a foreign legal entity, and the company is financed with foreign financial resources;
  • Often used for export production;
  • More difficult to acquire contacts or “guanxi”, which is very important in the Chinese business environment;

WOFE main advantages:

  • Complete control over business processes;
  • Greater control over the company’s intellectual property and trademarks;
  • Can receive/transfer RMB to/from the parent company;
  • Founder’s liability is limited.

WOFE founding costs are dependent on type of WOFE operation. The following are available types of WOFE:

  • Consulting services WOFE;
  • Production WOFE;
  • Commercial WOFE – wholesale, distribution or franchise;
  • FICE (Foreign Invested Commercial Enterprise).

To determine precisely the WOFE founding expenses, the following information is necessary:

  • What is the specific planned direction of company operations?
  • Are additional licenses necessary?
  • Is there any mitigation dependent on location or sector, in which the company is founded?
  • What is the turnover forecast?
  • What is the company’s capitalization?
  • What are the tax rates, and can it be reduced?

JV (Joint Venture) or a joint company is a company with limited liability, whose founders are foreign and Chinese partners.

JV main advantages:

  • Same rights as a local capital company;
  • Relieves the establishing of business contacts in China;
  • Greater competence in the Chinese market.

RO (Representative Office)

RO or a company representative is a structure that:

  • Performs market research (supplier acquisition, partner acquisition);
  • Encourages business development in that specific country;
  • Performs product marketing;
  • Performs quality audits (QC).

Main RO characteristics are:

  • No right to issue bills and have income;
  • All RO expenses are covered by the parent company;
  • Is not considered a separate legal entity;
  • No minimum share capital;
  • Must be registered at a certified office block. 

Hong Kong company

Hong Kong is a special administrative region of China (SAR) and is considered to be the gateway to China. Thanks to mutual China and Hong Kong economic co-operation, 32% of Chinese imports, 28% of Chinese exports and 45% of investments in China go through Hong Kong.

A Hong Kong company can be used as a holding company, in order to create a company structure in China (RO, WFOE or JV), as well as a financial center for the transit of money, when participating in commercial ventures in China or other Asian countries.

Hong Kong holding company advantages, when creating RO, WFOE or JV in China:

  • Easily available financing;
  • Simpler division of company owner shares;
  • Simpler company sale;
  • China retains only 5% of Hong Kong daughter company dividends.

Advantages of the Hong Kong business environment:

  • The English language has official status;
  • No visa required with the EU and many other countries;
  • CEPA (Closer Economic Partnership Arrangement) – advantages for commerce and partnership with China.
  • The most competitive economy in the world – low taxes, „transparent” business legislation and its implementation, competitive work force.
  • Developed logistics – one of the world’s largest ports by TEU turnover, world’s largest air cargo turnover, 50% of the world’s inhabitants live within a 5-hour flight.