Registering a company in China is still a relatively complicated procedure, despite the fact that the People’s Republic of China authorities try to make those procedures easier for foreign businessmen. There are four basic types of business presence in China. Opening a business in China may take a lot of time, so we present some basic models of operation with a short description.
Export to China – types of business presence in China
How to choose a type of investment vehicle?
We need to keep in mind that every province has its own distinctive features, which should be analyzed before choosing the place for our business. Every potential investor should evaluate his time and financial capabilities before making such decisions. While registering the company in China, we should seek the help of professional companies and institutions which already have experience in this field; they will help us to choose the most suitable type of business presence.
Representative Office, RO, 代表处
The main advantage of this type of business presence is the low cost. Moreover, the procedures are easy. Therefore, RO is the most popular among foreign entrepreneurs. It enables them to obtain residence permits. There are several disadvantages, though: ROs do not have independent legal personalities, they cannot issue invoices, and the personnel must be employed through governmental agencies. RO cannot earn revenue, but it is still subject to Chinese tax.
Representative Office is chosen mostly by companies that are performing market research or overseeing the Chinese contracting party (suppliers, distributors) while importing from China.
Joint Venture, JV, 合资企业
This type of business presence is well known among foreign investors, which should not be surprising because that was the first type of foreign business operation allowed by the government of China. In this case, the foreign investor holds part of the shares, but the majority of the shares are controlled by the Chinese company. From the long-term perspective, it may lead to losing control over the company. Why is this type of cooperation still very popular? Because in the many branches of the economy, for example, the construction industry, the Chinese government gives us no other choice. A joint venture is the only accepted form of cooperation.
The Joint Venture structure is mainly for foreign investors that want to invest in a restricted industry sector in China or make use of their Chinese partner’s resources.
Wholly Foreign-Owned Enterprise, WFOE, WOFE, 外商独资企业
This solution gives us full control of our company and the legal personality in China. It is usually chosen by companies that are willing to start production or offer services in China. WFOE can earn revenue, employ local staff and issue local invoices. The drawbacks are the requirement to pay the founding capital, often of a big amount, and complicated procedures to set up the company.
The Wholly Foreign-Owned Enterprise business vehicle is recommended for those who cooperate with a Chinese company.
Foreign Invested Commercial Enterprise, FICE, 外商投资商业企业
As in the case of WOFE, the company has a legal personality and limited responsibility. FICE is suitable for companies that want to engage in domestic and international trade. In this case, this is the best solution. There is a requirement to pay the initial capital as well.
FICE is a great option for foreign companies that want to source products in China and resell them.
Business vehicles in China for foreign investors – to sum up
The types of business presence, JV, RO, WFOE, and FICE, were shortly described above. Before we decide which type is the best for us, we should do the research and ask for professional help. We need to keep in mind that starting a business in China can be a complicated process but rewarding in the end.