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Representative Office or WFOE in China? 11/8/2010

Most of the links below are to the various resources available from Understand-China.com.

Setting up a Representative Office always sounds like the easiest way to establish a business in China.  Years ago it may very well have been, but these days, largely due to Chinese government crackdown, it may make more sense to set up a WFOE or Wholly Foreign Owned Enterprise – especially if China is part of your company’s long term strategy.  Let me tell you why….

Rep Office Restrictions

Rep Offices in China are intended for the sole purpose of promoting a business in China.  Thats it.  And while the initial investment may be more attractive compared to the registered capital requirements involved with setting up a WFOE, there are still a number of other costs and limitations to consider.

  • You cannot conduct any kind of profit generating activity of any kind.
  • You are not allowed to hire employees directly – the Chinese Government forces you to use approved HR firms.
  • You are required to have a Chief Representative that is responsible for managing the day-to-day operation.
  • An Office is REQUIRED.  (usually you will need to sign a 12 month lease in a Chinese government approved building)
  • You will be subjected to annual audits, which means you will either a) need a bookkeeper, or b) need to hire an accounting firm to reconcile your books.
  • Last but not least – You are required to pay taxes……10% on all expenses.  If your annual operating budget is $200,000 your annual tax bill will be $20,000.

Wholly Foreign Owned Enterprises (WFOE) a.k.a. Foreign Invested Commercial Enterprises (FICE)

WFOE’s allow for maximum flexibility.  When you set up a WFOE in China, you essentially have the same incorporation status as any Chinese domestically owned company.  In addition, as a legal entity, you are permitted to conduct business transactions (as long as it is within the scope of your business license of course), hire employees, etc.  You also have the flexibility to setup your office in the building of your choosing.

See also:  Incorporating a Business in China

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Warren Buffet Bullish on Investing in China; Not Worried About Currency 10/6/2010

Warren Buffet, on a recent trip to China noted he continues to seek additional investment opportunities in China.  When asked about his concerns over recent U.S. legislature regarding Chinese imports and the valuation of the Chinese RMB he noted that when they originally started eyeing investments in the region “the subject of currency never came up and that would continue to be the case today.”

I found a great video on You Tube courtesy of Bloomberg, but unfortunately they disabled the embed function.  Please click on this link, or click on the picture above.

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Industrial Parks in China 10/4/2010

China is home to literally thousands of industrial parks.  While mostly concentrated along China’s eastern coast from Dalian in the north to Shenzhen and Guangzhou in the south, Industrial Parks of all sizes can be found throughout the country.  As the Chinese government has been trying to attract more investment in China’s western and interior provinces, Industrial Parks are becoming increasingly more common in these areas as well.

As you consider various different locations within China, it is important to remember that not all industrial parks are created equal, and it’s important to make physical site visits to inspect infrastructure, access to logistics, etc., before making a commitment.  In China you will find that many Industrial Parks are better suited for (sometimes designed specifically for) certain types of industries.  This is also important to take into consideration – you don’t want to be the only electronics manufacturer surrounded by a bunch of folks in heavy industry.

China Industrial Park Resources

To help you with your search, I have compiled a list of resources to assist your China Site Selection Process:

  1. The Hong Kong Trade Development Council published an online list of Industrial Parks in China
  2. China Industrial Zone (ChinaIndZone.com)
  3. Right Site Asia
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China Continues to Attract More Foreign Investment 9/16/2010

An interesting article on the first page of the Business Section of the China Daily Newspaper today discussing foreign direct investment activity for the month of August in China.  The article states a 1.4% YOY growth for august, and forecasts a continued steady increase for the remainder of the year.  The service sector saw the highest increase in investment, and the government pledged a commitment to continue to deregulate this sector.

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