How to establish your presence in China

You have three options when establishing your presence in China:

– Representative office

– Joint ventures

– Wholly foreign-owned enterprise, known as WFOE

Representative office

Representative offices are the easiest type of offices for foreign firms to set up in China. However, representative offices cannot sign sales contracts or directly bill customers or supply parts and after-sales services for a fee, although most representative offices perform these activities in the name of their parent companies.

Joint ventures

You may also set up a locally-incorporated business equity or cooperative joint venture with one or more Chinese partners. Your Chinese partners may be able to cover part of your initial capital or help you remove potential obstacles. However, you have to be very cautious choosing the right partners. The most common problems are conflict of interests (e.g., partners setting up competing business), intellectual property protection and bureaucracy.

Joint ventures companies will need constant and prudent monitoring of critical areas such as finance, personnel and day-to-day operations in order for them to be a success.

Wholly foreign-owned enterprise

The establishment of a WFOE in China has gained in popularity among foreign companies.

The WFOE will have direct control over its business activities, full range of operations under the Chinese Company Law and a better position of protecting its intellectual know-how.

Capital requirements

According to the Chinese Company Law, every business entity must deposit a certain amount of money into a specified bank account. The total amount of the deposit shall be equivalent to its registered capital reported to the registration authority with the registration application. This capital injection has to be audited by a certified public accountant and the money in this account can only be used for the company’s business activities.

The minimum amount of registered capital required for a JV or a WFOE starts from USD100, 000 while for companies in some specific industries, this minimum registered capital requirement can be much higher.