Our Services.

Edited Time: October 21, 2021Edited by: adminCategory: Our Services

Brief Introduction to Foreign Investment in China

China has opened its doors to foreign investment for more than 40 years and many foreign investors have been benefiting from their investments in China. At the early-to-mid stage of the 40+ years period, China had been attracting foreign investments with, among others, its competitive labor costs, rapid economic growth and tremendous internal market size. Although labor costs in China become less competitive in recent years, foreign investment inflows continue to increase in China, mainly favored by liberation plans, the establishment of free trade zones, the rapid development of the high-tech sector, integrated supply chains and again tremendous internal market size.  

With the development of foreign investment in China, laws and regulations on foreign investment have undergone changes over the recent year, mainly for lifting step by step the restrictions on foreign investment in China, simplifying the procedures for foreign investment in China and better protecting the rights and interests of foreign investors in China. The Foreign Investment Law of the People’s Republic of China, effective since 1 January 2020, seeking to address common complaints from foreign businesses and governments, specifically prohibits governments and government officials from forcing transfer of technology and provides foreign investors with equal treatment compared to non-foreign-invested enterprises.  

Our Services in Setting up a Business in China

Pre-establishment

Before starting up in China, foreign investors shall take into consideration both legal and commercial factors to avoid wasting money and time in the establishment.  

Regarding legal considerations, we provide legal advice for our clients on the restriction / prohibition on foreign investment, foreign exchange, preferential policies of client’s target location etc., to help our clients better understand laws, regulations and practice in China.

As for commercial considerations, it is always good to start with a business plan which generally cover the business structure (WFOE, JV, RO or others, to be further introduced below), location, and business scope, total investment and size of the business (except for RO). 

Establishment

To help our clients get prepared for the set-up, after we collect initial information from clients, including the business plan (if available), we send our clients a questionnaire to collect further information and documents which are necessary for the set-up including, but not limited to, company name, business scope, address, registered capital, etc. Furthermore, we help our clients understand the words, expressions and concepts which are unique to China, thereby helping them make their business decisions on the same.

In addition, for each establishment, we prepare a schedule to help our clients understand the whole procedure and update the same from time to time during the whole set-up process to keep our clients posted of the progress.

After the collection of necessary information and documents, we start to prepare application documents, guide our client in notarizing and legalizing required documents in their countries and in signing and stamping the application documents by following local authorities’ requirements. After the receipt of the signed or certified documents, generally we help our clients file an application online and submit the hard copies on site.

Since China’s laws and regulations change from time to time and local authorities may also adjust the related procedures accordingly, despite our wide experience in foreign investment, we also keep in close touch with local authorities during the whole establishment procedure, to understand the most recent requirements of local authorities.

Preferred Business Structure in China

Choosing a right business structure is an important first step for entering the Chinese market. Below are brief introductions to the business structures preferred by foreign investors in China, to help you have an initial understanding of them.

Wholly Foreign Owned Enterprises (WFOEs)

Wholly Foreign Owned Enterprises (WFOEs) are business structures for companies exclusively owned by foreign investors, typically under a parent company and they are currently the most common and the preferred forms of entities for foreign investors in China.

The reasons that foreign investors prefer to set up WFOEs in China generally are:

• Full control and autonomy by foreign investors;
• Easier implementation of worldwide strategies and rules of the parent company (if any);
• Easier business decision making and fast implementation;
• Better protection of intellectual properties;
• Exclusive control of human resources and etc.;
• Efficient operation and rapid development; and
• Potential convenience in converting RMB profits and repatriating the same to the parent company (if any).

The WFOEs, compared with joint ventures, are at the disadvantages of being restricted or prohibited from more industries, and meanwhile, may have no or less support from Chinese partners, for example, in local market knowledge and in utilizing local resources.

Some key terms to know about entities in China: Business Scope, Registered Capital, Articles of Association.