How much do you know about a foreign company in China?

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Introduction

Can you own a foreign company in China? Yes, there are a lot of foreign companies in China.

According to a report by Springer, 136,997 foreign-invested companies had registered in China by the end of 2017.

Furthermore, by the end of the year 2019. The number has reached 1,001,377 according to Chinanews.com. It reported the data by the Ministry of the Commerce People’s Republic of China.

That is to say, more than a million enterprises in China involve foreign investment. And 84,000 of them are doing import and export. The amount of import and export business by foreign enterprises in China has reached 12,600 billion CNY. (About 1,777.55 billion USD)

A lucrative number.

And you can open a foreign company in China, too. We’re going to talk about the company types, benefits, challenges, how to open a foreign company in China and more. Find the details below.

Why open a company in China?

As the choice of millions of foreign businessmen, the reason is easy and clear.

You can make more money by opening a company in China.

As you know, China is a big country with great development potential. In the past 50 years, China went through an economic miracle. From a least developed country to the world’s second-largest economy.

Since the start of economic reforms, China has become one of the most popular countries for foreign direct investment (FDI).

A 2019 report on Visual Capitalist has revealed the fact with data.

They have a list of top 15 countries and jurisdictions ranking by FDI (foreign direct investment) inflows.

Rank Jurisdiction FDI Inflows
#1 United States $275.4 billion
#2 China $136.3 billion
#3 Hong Kong (SAR) $104.3 billion
#4 Brazil $62.7 billion
#5 Singapore $62.0 billion
#6 Netherlands $58.0 billion
#7 France $49.8 billion
#8 Australia $46.4 billion
#9 Switzerland $41.0 billion
#10 India $39.9 billion
#11 British Virgin Islands $38.4 billion
#12 Cayman Islands $37.4 billion
#13 Germany $34.7 billion
#14 Mexico $29.7 billion
#15 Ireland $29.0 billion

(source: https://www.visualcapitalist.com/)

At the top of the list are the United States ($275.4 billion) as well as China and Hong Kong ($240.6 billion), which is not surprising to see.

(source: https://www.visualcapitalist.com/)

Feeling more interested in opening a company in China now?

The setup process itself is not hard when you meet the requirements. Especially when you have GEI with you along the way.

But before the setup process, we need to know the types of the foreign company in China. So that you can have a comprehensive understanding of the topic. Hence a better choice on which type to start with.

Types of the foreign company in China

Currently, 2 types of foreign companies are the most popular in China. They are Wholly foreign owned enterprises (WFOEs) and Sino foreign joint ventures (JVs).

Wholly foreign owned enterprises (WFOEs)

A WFOE in China stands for an enterprise with full foreign investors. For example, a limited liability company. It’s the choice by many foreign businessmen.

In other words, the shareholders in a WFOE are all foreigners from outside mainland China. The shareholders can be individual persons or enterprises though.

Find more about WFOEs in China on A Comprehensive Guide about Wholly Foreign Owned Enterprise.

Sino foreign joint ventures (JVs)

A Sino foreign joint venture refers to a business with 2 parties from different countries as shareholders.

And at least one of them is Chinese, either an individual or a company.

In fact, a Sino foreign joint venture is the name for the joint ventures in China. And that includes equity joint ventures (EJVs) and cooperative joint ventures (CJVs).

If you feel interested to know more about Sino foreign joint ventures. Also read Sino Foreign Joint Venture in China

A WFOE or a JV/joint venture? Which one is better?

Wondering whether a WFOE or a JV/joint venture to start your business in China?

We’ve prepared a whole article for you about the differences between WFOE and Joint Venture.

You will find your answers there.

Benefits of setting up a foreign company in China

A steady environment for growth and development

China’s economic growth is a result of the country’s stability. In terms of the society, and politics.

Thanks to that, China’s development continues since the past decades.

And a stable society remains critical for economic growth. It’s a very basic but important guarantee for business activities.

The story of COVID-19 just well witnesses that. The epidemic outburst in January 2020. But it got controlled in several months. And the economy continued to pick up and grow after that. Compared with the circumstances in other places as you can tell.

Of course, the improved result owes to the contribution of the people. Especially those who sacrificed during the fight.

But it is still a miracle you probably won’t find in any other countries in the world.

All in all, it’s pretty safe to have your company set up in China rather than other places.

Liability up to the registered capital

Simply, how much you claim for the registered capital, how much you are responsible for that.

As well as the other shareholders as a whole.

Unlike the businesses without the form as a company. Their liability is subject to the actual loss without the specific registered amount. In other words, if the loss is 20 million, they will have to pay 20 million to cover that.

But for a company, the payment is up to the registered capital. For example, you claim 100,000 as the registered capital for your company. And your company have a debt of 20 million. You are responsible for the 100,000 but no more than that.

For the amount beyond the ability of your company to pay. You’ll have to claim for bankruptcy of the company though.

Better protection by the law

A company in China is a legal entity.

That means, from the established date of your company, it gets protection from the Chinese government.

And it covers your business activity and the other rights of your business.

Learn more about the China Laws with our professional lawyers and safeguard your company in China.

Easier with money transfer

When you have a company in China. You can apply for your business bank account.

With that account, you can receive, exchange and transfer the money with various currencies.

And that gives more flexibility for you to make use of the profits you made in the country.

Challenges for foreign company in China

Along with the benefits, there are some challenges in the Chinese market for your consideration. Although the economic growth of China is quickly and steady.

In this part, we focus on four key challenges related to the business environment, regulatory and cultural challenges, and innovation and human resource management. The latter two are key management challenges.

Regulatory challenges

Foreign companies in China mainly need to face challenges from government, law and regulation.

Firstly, China is a rising market. Its institutional environment of law and regulation is pretty weak and fast. In addition, related government procedures are often not that open.

This means relatively standard day-to-day tasks can waste management resources in some ways.

Secondly, government actors at the local and central levels may be of greater importance because of their information imbalance. Also, they are likely to use the vulnerability of local institutions and regulation procedures.

So, they can support domestic companies more and earlier. Especially, China uses interventions in areas like new electric vehicle and battery technologies, semiconductors, solar panels/modules and wind power.

Thirdly, the relationship between China and the United States is close to industrial policies.

Cultural challenges

China has a 5000-year long history. Its culture influences Asia greatly. The Chinese culture has a rich and deep value system. In a foreign company, people from different countries and cultural backgrounds can communicate with each other. They may have conflicts, also, they may blend together.

Innovation management challenges

Both foreign companies and Chinese co-operators pay attention to innovation management.

Many joint companies are willing to provide knowledge, learning and experience, but some are not.

The concerns are pretty much for intellectual property. Meanwhile, you can find more and more measures by the Chinese government. For the purpose to protect the rights of intellectual property.

There are two ways for innovation management challenge.

One is Mergers and Acquisitions(M&A). It is to upgrade innovation and technologies. The other one is to encourage high-skilled talent to return to China.

In a word, collaboration and cooperation is the way we should carry on. China may lead innovation even do better, the breakthrough. And foreign companies need to adjust their innovation strategies to succeed.

Human resource management challenges

Most of the foreign firms in China have two challenges in human resource management.

The first one is how to attract and retain high-quality talent. Because high-quality talent may request a higher payment. Although much less than the those in developed countries.

The second one is the aging society issue. Not that many people are willing to raise more children than before.

But fortunately, the situation is improving thanks to the new policy. That is, the Chinese government is encouraging people to have a second baby in many developed areas.

As the saying goes, opportunities and challenges exist at the same time.

Indeed, it is not easy to do business in a foreign country. Still, the huge Chinese market provides an environment with many opportunities.

Despite all these challenges, many foreign companies in China find their ways to succeed.

And you are not alone, GEI is here with you. If you’re hesitating on the way, tell us your concerns and find a solution with us

How to open a foreign company in China?

The setup process of a foreign company is different based on the type of your company. And it depends on your business scopes as well.

But they share the common on the top. The laws and rules in China.

First of all, it is important to know the Negative List by the Chinese regulators. And make sure your business is not one of the items on it.

Honestly, the Chinese market is wide open for most business.

But on a safe side, study the Negative List together with GEI. To avoid any potential risk to hit the compliance.

Then, the setup of your foreign company in China according to your company type.

Open a WFOE in China

The general process to set up a WFOE in China involve works for application and post-application.

For the application part.

It is pretty much about writing the papers and filling out the forms.

With the information like your business name, company address, business scopes, the amount of registered capital, and etc.

When you have the application papers ready, submit to the regulators.

Then, you will have the approval in 30 days if the application passes.

For the works of post-application.

After the application of your WFOE. There are a few things to complete before the launch of your foreign company in China.

These include getting your business license, make the stamp of the company, register in tax departments, and etc.

Learn more about how to set up a WFOE in China step by step

Open a Sino foreign joint venture in China

The setup process of a Sino foreign joint venture in China also comprises several parts.

And that begins with finding a local Chinese partner you can trust.

Brainstorm with your partner and put the details on an agreement. Including your business plans, who is responsibility for which part, and how to share the profits and risks.

Don’t underestimate the importance of the agreement. It’s the proof of promises by you and your partners. And it serves as a protection for you in the case of business conflicts.

Seek help from our lawyers if you find it difficult to find the right partner.

After that, you will need to prepare a list of files and papers.

Such as filling out the Application for Company Registration. And other files like, the company’s articles of association, IDs of the investors, and etc.

Learn more about the details on setting up a Sino foreign joint venture in China

Conclusion

Today, we’ve talked discuss the following points of foreign companies in China.

  • The reason to open a company in China. For the purpose of making more money.

  • The 2 popular types of foreign companies in China. Wholly foreign owned enterprises (WFOEs) and Sino foreign joint ventures (JVs)

  • The benefits and challenges for foreign companies in China.

  • How to set up your foreign company in China.

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