Setting up your own office or factory in China

Currently there are three ways to establish an official business presence in China, each with its own pros and cons:

Representative Office (RO)

If you need to quickly set up a introductory presence at relatively low cost, this may offer an ideal solution. Consider setting up an RO if you just need an outpost from where to :-

1. Conduct market research and handle enquiries about your product or services.
2. More easily handle your orders of Chinese goods, local inspections and shipments.
3. Manage outsourcing of services to Chinese companies, where there is minimal risk to your intellectual property.

ROs cannot sell products or services into China or invoice Chinese customers.

They are are relatively easy to register with the Chinese Authorities and require the least amount of paperwork.

Although renewable, business permits can only be issued for 2 – 3 years at a time. RO’s are subject to a tax levied at approximately 10% of annual running costs. There is also a requirement to recruit approved Chinese staff.

Joint Venture (JV)

If you need fast access to local expertise, labour, Chinese customers and distribution channels, consider a joint venture with a local Chinese partner. A well chosen JV partner will give you everything you need to trade successfully in China. What’s more it will save you the considerable time and expense needed to start your own operation from scratch.

However, it’s vital to choose your partner carefully. Red China Business recommends that you follow a comprehensive due diligence process before entering into any kind of working agreement with a prospective partner. Mistakes can be time consuming and very costly.

Wholly Foreign Owned Enterprise (WFOE)

WFOEs were once the preserve of large multinationals, with substantial capital to commit to long term ventures. However, the Chinese government has recently lowered the capital requirements needed to set up an WFOE. These are now determined by provincial governments.

A Wholly Foreign Owned Enterprise enjoys complete independence from Chinese partners and is permitted to sell products manufactured outside China directly to the Chinese public. Moreover, local currency profits from WFOEs can be freely converted and taken offshore.

Companies wishing to maintain complete control over their operations and who need the highest level of protection for intellectual property rights (e.g. outsourcing of manufacturing) should consider an WFOE.

However, creating a successful WFOE will call for expertise in handling the Chinese market, work culture and the regulatory environment.

Setting up an WFOE is an involved procedure that can take six months or more and can call for considerable administrative resources.