10 steps to starting a business in China
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E-mail Agencies, August 31, 2012
3. Choose an entity status
Before you register with the government, you need to decide what type of business entity to register. The most common for foreign businesses are joint ventures, representative offices, and wholly foreign owned enterprises. Each, of course, has its pros and cons.
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Chongqing [file photo] |
A joint venture requires a partnership between a foreign business owner and a Chinese citizen. Though joint ventures may sound like the safest route, experts warn against them. Critics say the most common problem with joint ventures is no more than a classic case of "same bed, different dreams" syndrome.
"They fail nine out of 10 times. You're working with someone who's familiar with the territory on their turf, and they will end up with the business," Harris says.
Representative offices are an easy, low-cost way to go, but it drastically limits the scope of what you're allowed to do in China. As Yang says, "A representative office is just there to represent your offshore entity." In other words, you cannot deliver any services or products, which means you also cannot generate revenue. A representative office affords you little more than the ability to show your face and build your brand name.
The most common type of entity, therefore, is a wholly foreign owned enterprise, known as a WFOE. According to Frisbie, "75 percent of American investment in China these days is 100 percent American-owned facilities," because it gives business owners maximum quality control.
Not surprisingly, though, a WFOE is much more complicated to set up. It takes more time to get approval from the government, and it requires a minimal capital investment that you must put in a Chinese bank. Harris says. And, he notes: "That amount can vary greatly depending on the nature of your business and where you're setting it up."
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