China Company Incorporation: What are the Options?
In 2021, China recorded an impressive economic growth of 8.1%, which marked a major turning point after a recessive 2020. For investors, taking a company to China is like giving it wings to fly and become multinational. Apart from impressive economic performance, China also has a large population and is strategically located to allow you to reach and exploit the neighboring markets. To take advantage of this high-potential jurisdiction, the first step is China company incorporation.
For offshore looking forward to venturing into China, it can feel like one is jumping into a large pool. So, what options do you have? Keep reading to learn more about China and the best choices for growth.
Why More Investors are Moving Their Businesses to China in 2022
Your thoughts of China company incorporation are timely, and we must indicate that others have seen this opportunity too. Since 1979 when China started economic reforms, the country has continued to open its market to foreigners, which explains why some of the largest brands we know of today have a huge presence in China. Other reasons making China so attractive include:
- Facilitative entrepreneurial business environment.
- China has many opportunities for company growth.
- Social and economic stability.
- A large pool of skilled talents.
- Highly developed infrastructure.
- You can easily access the international market.
Company Incorporation in China: The Main Options for Investors
To make China more attractive as an investment destination, there are several types of companies to select from. As we are going to highlight, the type of company you select depends on your objectives for going offshore to China. So, here are the main options:
Wholly Foreign-Owned Enterprises (WFOE)
This is the most accepted and popular business entity for foreigners. WFOEs take the form of limited liability companies, which means you can have 100% shareholding in the business. So, you are sure of enjoying greater autonomy in decision-making.
As a limited liability company, the shareholders are only liable to the company’s debts up to the amount of the registered share capital in line with the new Foreign Investment Law. Other benefits of creating a WFOE in China include being allowed to employ staff directly, operate without a Chinese partner, and issue invoices in both local and foreign currencies.
Although WFOEs were initially designated for manufacturing sectors only, the legal landscape in China is different and you can use them as investment vehicles for other types of businesses. Here are the main types of WFOEs that you can form in China:
- Manufacturing WFOEs.
- Consulting WFOEs.
- Trading WFOES.
Joint Ventures (JVs)
Joint ventures (JVs) differ from WFOEs in that you are not allowed to have 100% shareholding. Instead, you have to enter into a partnership with a local Chinese person. Also, the local partner is required to hold majority shareholding, which implies that you lose autonomy in decision making.
The main advantage of using JVs is that you are able to take advantage of the already established business networks of the Chinese partner. Again, by combining the resources, you might have more capital to help with product development and marketing.
Representative Office (RO)
A representative office (RO) is a limited liability company, which is considered an extension of the parent company back home. It is the simplest type of company to form in China, but you need to be careful because of the long list of limitations. For example, it is not allowed to enter into profit-making deals.
A representative office (RO) is also unable to make independent decisions without the approval of the parent company. Furthermore, the parent company must be a limited liability company with demonstrable positive performance in the last two years.
As you can see, there are many options for China company formation. Remember that selecting the company vehicle is only the first step. Next, you need to register the company, which can be pretty complex. The best route for China company formation is to use an agency of experts, such as Primasia. The agency works with the best professionals and you can count on it for carrying out due diligence, crafting a good strategy for market entry, accounting and payroll management.
