China Trading

Here, we lay out the fundamentals of establishing a legal entity for business purposes.
There are several ways to establish a presence in China; how to do so will depend on your level of commitment, the size of your planned investment and the particular industry in which your company operates.

When a foreign investor decides to launch a business venture in China they will need to decide whether to launch the business in the form of an actual capital investment or whether to look for local distributors or suppliers. The latter approach does not require sizable investment but you should ensure that your contractual arrangements are binding and enforceable.

The business registration process is prone to bureaucracy and over regulation. Using an authorized agent or legal representative can assist with the process. Even when using an agent for registration, you should bear in mind that certain locations in China and special economic zones are geared to attract different types of industries and offer tax incentives or financial inducements.

Foreign investors without a comprehensive understanding of the China market may wish to test the market strength first to see whether it is worthwhile to establish a full operation in China and invest a large sum of capital.

The investment required is dependent upon the scope of business, volume of sale and company size, and is judged on a case-by-case basis. Chinese authorities will consider what would be a reasonable capital injection for each specific project in question, and where the intended investment is in the field of manufacturing will look closely at whether there are environmental impacts or waste disposal requirements.

Those with more experience and understanding of the China market who intend to conduct a full range of business activities need to establish a legal entity. In that case, the form of the entity chosen is quite crucial. Aspects that have to be considered are the sector of business and amount of money invested; if a Chinese partner is desirable or even mandatory for the business; and other general commercial and strategic considerations. Foreign investment is classified into encouraged, restricted or prohibited categories, so it is important to determine which category your industry falls within.

In Summery, A clear understanding of the investment and business options available will be crucial to successfully establishing a business and operating in China. With China’s gradual compliance with its WTO membership obligations, the business registration process should also continue to become more streamlined and transparent.