The Blog:

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

Tags: , , , , , , , .
No Comments. Join the Discussion.

China’s New Bullet Train 10/29/2010

Traveling in China just got quicker. A new high speed rail opened for business this week, connecting Shanghai to Hangzhou. October 26  marked the first official trip by the train, recording speeds above 245 miles per hour. The new bullet train which set speed records during the previous trials runs allows citizens to travel the 200 km distance (almost 125 miles) in 45 minutes; twice as fast as the old train’s speed.

Video courtesy of Wall Street Journal and Reuters.

Wall Street Journal Article

Tags: , , , , .
No Comments. Join the Discussion.

China Map 10/27/2010

China Map

After many years of doing research on China, and finding a lack of quality maps out there, 1ChinaBlog and Understand-China.com decided to put together our own collection of maps. This map is of all of the Provinces in China (gray areas), the Autonomous Regions (yellow), Municipalities (green), and Special Administrative Regions (Red). For a larger map, please click here: China Map

Tags: , , , .
No Comments. Join the Discussion.

Outsourcing Creates American Jobs Too 10/27/2010

outsourcing globeAn article published on October 12 in the Wall Street Journal reports on the recent whirlwind of events surrounding outsourcing policy development in America. Author William Cohen believes that for every job America outsources, nearly two jobs are created on our own turf; jobs that are pay more and require a higher skill-set, like engineers, scientists and managers. Cohen references studies that have found that when a company expands overseas, they have a higher need to expand management at the American parent company to support their expansion.

The study, published by an economist out of Dartmouth’s Tuck School of Business studied the hiring practices of 2,500 U.S. based multinational companies. He found that when U.S. companies hired lower-cost labor at their foreign subsidiary companies, the U.S. parent companies expanded their teams as well. Meaning that the 2.6 million outsourced jobs helped to create 5.5 million jobs here. And, the jobs created here were often that of management level, created to help support the overseas efforts. Sounds like good news for both countries.

To read the full article please visit:

Wall Street Journal
(sometimes it only gives you a summary, searching the name of the article “Obama and the Politics of Outsourcing” will also work)

Picture Source

Tags: , , , , .
No Comments. Join the Discussion.

Guangzhou and Guangdong: What is the difference? 10/21/2010

Guangzhou and Guangdong: What is the difference?

In today’s post I will demystify the difference between two similar-looking words, with two very different meanings. Guangdong (pronounced Gwong-dong) is Southern China’s economic center and one of the wealthiest provinces in China.  Guangzhou (pronounced Gwong-jhoe) is the largest city in the Guangdong province and has been China’s leading international commercial port for over 2,000 years. Guangzhou is the political, economic and cultural center of the province. (See map below)

Guangdong Guangzhou
Type Province City
Location Southeastern China Coast Guangdong Province
Population 95.44 Million USD (2008) 7.6072 Million (2006)
GDP 572.12 Billion USD(2009) 133.5 Billion USD (2009)
FDI 19.2 Billion USD (2009) 11.244 Billion USD (2009)


How did Guangzhou become so strong?

Guangzhou, also called Canton or Kwangchow, is one of the biggest economic zones in China (3rd to be exact), thanks to its proximity to the extremely successful regions of Hong Kong, Macau and its premier access to the Pearl River Delta. The success of these regions began spilling over into Guangdong when labor rates began to increase with the cost of living in Hong Kong. Guangdong’s labor wages are about half of the average monthly wage in Hong Kong.

Guangzhou has grown quickly by offering investment incentives that have helped to attract over 170 of the world’s top 500 multinational companies. The foreign enterprises contributed 11.244 Billion (USD) in foreign capital in 2009; which is over half of the entire province’s FDI. Guangzhou is now the main manufacturing core of the Pearl River Delta region.

Building strength over time, Guangzhou earned 133.5 Billion (USD) GDP in 2009. That is nearly 25% of the entire province’s gross domestic product! With this accomplishment, Guangzhou became the first city in Mainland China to have a per capita GDP of over 10,000 USD.

There is so much going on there!

Guangzhou is also home to the China Import and Export Fair (aka the Canton Fair) which takes place every October and April. The Canton Fair is by far China’s largest and oldest trade fair that been running for over 50 years. Each fair now stretches over three days in order to fit in all of the participants and exhibitors.

Some impressive stats about the Canton Fair:

>200,000 Buyers
>200 countries in attendance
>23,000 Exhibitors
>55,000 Booths
>200 Football Fields in Area (>1.1 Million Sq. Meters)

Some helpful resources I found:

Guangdong Manufacturing & Investment Guide

Guangzhou Government Resource

Invest Guangzhou

Canton Fair Resource

Another China Resource

Tags: , , , , , , , , .
No Comments. Join the Discussion.

When is the Chinese New Year in 2011? 10/11/2010

Based on the lunar calendar, the New Year is always the first day of the first lunar month (this coming year it is on February 3, 2011) and lasts two full weeks ending on the fifteenth day with the full moon. Most people get at least one week off of work to spend time eating lavish meals and welcoming the new year; which means factories are usually closed during the first week of the new year (from February 3-10). The Chinese New Year celebration is actually the single largest annual migration of human beings, when China’s nearly 150 million migrant workers return home from the big cities to see their families. Be sure to take this into consideration when setting up production schedules and shipments as the New Year will have an impact on your factories. In addition, if you happen to be traveling in China during this time, you will find extremely crowded airports, train stations and hotels.

Seeing as how I was already doing the research, I decided to include a little history on the background of the holiday and where you should go to celebrate just in case you do happen to find yourself in China that week.

While Americans celebrate winter with turkey, sleigh bells and mistletoe, the Chinese celebrate their most important holiday with dumplings, fireworks, lanterns and parades. The New Year, also called Spring Festival, is arguably China’s biggest, most important celebration that has been celebrated for centuries and is deeply rooted in myth, legends and traditions.

The main focus of the celebration? Family and prosperity. A few days prior to the first day of the New Year, it is customary to clean and prepare for the celebrations, in efforts to “sweep away” the bad luck of the previous year and make room for the New Year’s good luck.

New Year’s Eve in China is full of parties with family and friends, firecrackers and lots of food. It is customary to serve dumplings to symbolize the coming of wealth and a new year replacing the old. Children are often given gifts of money and fireworks are often set off all over the cities.

Over the next two weeks, people spend time visiting families and catching up with relatives. Spring Festival ends on a high note on the fifteenth day, with the Lantern Festival, or Yuanxiao. Lanterns are typically made by children who march through the streets beneath the full moon. Lantern shows, games and dancing take place all over China, but a few of the most notable celebration spots are in Hong Kong, Beijing ,and Shanghai, where the “lanterns” look more like huge, brightly lit floats.

Chinese New Year in Hong Kong

If you are going to be in China, Hong Kong has a spectacular parade and fireworks show on the second day of the Lunar New Year. Starting at around 8pm in Victoria Harbor, the streets are lit up with colorful costumes, music, performers and floats. Following the parade is a magnificent fireworks show that continues into the night throughout the cities.

Chinese New Year in Beijing

Beijing’s impressive Lantern Festival is held every year in Longtan Park. As China’s capital, Beijing has extensive experience with putting on world-class Lantern Festivals, including the many performances for the Olympics Games in 2008, so you are in for a good show.

Chinese New Year in Shanghai

If you are going to be near Shanghai, head out to the Yuyuan Garden for a festive atmosphere with traditional sticky rice balls (the round shape represents wholeness and unity) and lanterns of all shapes and sizes.

You don’t have to travel to China to celebrate though; Chinatowns all over the world have celebrations as well. Here is a list of Chinatowns all over the world.

Tags: , , , .
No Comments. Join the Discussion.

China's Canton Fair – October 2010 10/7/2010

Personally I’ve never been to the Canton Fair.  I’ve heard its quite an event and i have always wanted to attend.

Therefore, I’m excited that later this month I am going to attend the 108th Canton Fair  a.k.a. “China Import and Export Fair” in Guangzhou.    I’ll be there during Phase 2 for the Consumer Goods, Gifts, and Home Decorations show.

The Canton Fair takes place twice annually; once in the fall and once in the spring.  The first fair was held in April of 1957 and it has become a major international event over the last 50 years.  With 11 million square feet and more than 55,000 booths, it is China’s largest trade fair.  I’ve heard it’s quite impressive, attracting more than 200,000 overseas buyers every year.  I’ll be sure to provide a trade show review after attending…..stay tuned!

If you are headed to the fair, I thought it might be helpful to list out a few resources that might help with travel to Guangzhou, etc.:

Hope to see you there!

Tags: , , , .
No Comments. Join the Discussion.

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.

Tags: , , , .
No Comments. Join the Discussion.

Is Hong Kong really part of China? 10/5/2010

Hong Kong Map We hear about Hong Kong and China together in the news all the time and we know that they are intertwined, but are not exactly sure to what extent. To help shed some light on this, I did some research (and relied on testimony from a Hong Kong native on our staff), and below I present a concise and factual overview of Hong Kong and its relationship to China .

Hong Kong became a colony of the British Empire in the mid 1800’s and remained a colony until 1997. On the 1st of July of that year, Hong Kong’s sovereignty was transferred from the United Kingdom to the People’s Republic of China (PRC). As part of the rules of the transfer, Hong Kong was allowed to retain a large amount of autonomy, or self-governance, for fifty years (until July of 2047).

Hong Kong is now considered a Special Autonomous Region (SAR), which has a separate legal system, taxation policy, parliamentary system and business guidelines than that of mainland China. Hong Kong even has its own currency, the Hong Kong Dollar, which can’t be used as legal tender in mainland China. Perhaps the biggest distinction of all? It is a free-market economy and is now considered one of the freest economies in the world; In 2008 Hong Kong generated a GDP of USD 223 Billion and utilized USD 63 Billion in Foreign Direct Investment (FDI).

This paired with the sophistication of Hong Kong’s logistics and transportation industry, has made it a particularly enticing place to companies looking to invest in China. Extensive investment promotions are available to foreign companies looking to invest.

Hong Kong definitely operates as its own “mini-country”, but continues to remain part of China through its sovereign ties. What will happen in 2047?…I guess we will have to wait and see.

Tags: , , , , , .
No Comments. Join the Discussion.