Where do you see it in the next five or ten years when you look at your business? Would you want to know the market, sales, and profits multiply rapidly, making it a global brand? Of course, you do, and we have the best springboard to push you to that: opening a company in China.
Most companies that have gone to China are now multinationals. Indeed, it will be correct to say that every large multinational you know of, from Apple to Volkswagen, is likely to have a massive presence in China. So, you, too, should not be left behind. In this post, we take a closer look at the leading company structures you can use for your company in China. We will also demonstrate why working with an agency of experts is the best way to form a company in China.
Essential Facts about China that You Should Know
Before looking at the different types of companies, you can form as a foreigner when expanding to China, let’s start with some facts. The most notable thing about China is its large population. If your market back home has been shrinking, perhaps because of competition or consumer preferences, China is ready for you with a new market of more than 1.4 billion people. Other important facts that you need to know about include:
- China is the second wealthiest economy on the globe based on total wealth.
- China is the globe’s largest manufacturer and exporter.
- The population of China is 1.42 billion (2021 estimates).
- The nominal GDP per capita of China is US$17.96 trillion (2021 estimates).
- GDP growth for China over the last years has been 6.7% (2018), 6.0% (2019), 2.3% (2020), and 8.1% (2021).
- Services contribute 51% of the country’s GDP. Next is industry (40.5%) and finally, agriculture with 7.9%.
Company Registration Options for Your Business in China
When you look at the numbers about China from whichever angle, they point at one thing: the jurisdiction is ready for your offshore venture. To register a company in China, here are the main structures that you should consider:
WFOE, shortening for wholly foreign-owned enterprises, is one of the most common investment vehicles for foreigners targeting entering and doing business in China. As the name suggests, WFOEs allow investors to have 100% shareholding in the company. Here are the main advantages of using WFOE in China.
- You are in complete control over the decision-making processes because no partners require to be consulted.
- It provides excellent protection of patents, trademarks, and intellectual property.
- It takes the form of a limited liability company, which means that your liability is limited to the shareholding you have on the company.
- The termination of a WFOE, if it comes to that point, is way more accessible than a joint venture.
Joint Ventures (JV)
Unlike WFOEs, joint ventures (JVs) require you to partner with a local Chinese partner. This is not all. The law requires the Chinese partner to have a controlling shareholding. This means that decision-making in a joint venture is likely to be more complex and take longer than in a WFOE. Here are some of the benefits that come with using a JV.
- It is possible to raise more capital when you join hands with the Chinese partner.
- You can expand your company fast by taking advantage of the networks already developed by the Chinese partner.
Note: The Chinese administration is discouraging the current design of JVs and recommends adopting a limited liability company model, like that of the WFOEs.
Representative Office (RO)
A representative office (RO) is considered an extension of another company already registered back home or in a different jurisdiction. We must indicate that the parent company must be a limited liability company and in operation for not less than two years. An RO is restricted from engaging in profit-based operations. Therefore, you should only consider this for marketing, search for partners, and foreign market liaison operations.
As you can see, there are many types of companies that you can form, and it is essential to compare them before making a big decision. Once you have selected the preferred option, make sure to work with an agency of experts because company registration is lengthy and complex. Visit Hawksford now for all the assistance you need during incorporation and running your business in china.