The most direct way to penetrate the China market is to set up local presence. There are various forms of investment vehicles available to suit different business objectives and operations. Other than financial institutions, a foreign company still cannot set up a branch office in China at the moment. Setting up a representative office has been the simplest way to get into China and gain on-the-market experience. If your investment involves a Chinese partner, you should probably go for setting up either a Sino-foreign equity joint venture or a cooperative joint venture. Otherwise, a wholly foreign-owned enterprise will allow you greater management control and flexibility. The setting up of a foreign-invested shareholding company is another possible option.
Normally a foreign investment enterprise ("FIE") is set up for a specialized purpose with a specific business scope. Apart from the traditional production FIEs, foreign investors may now also set up trading FIEs, service FIEs, wholesale and retail FIEs, etc. If your group has already established a number of FIEs and is poised to make further investments in China, you may consider establishing a China holding company to centralize management, provide shared services, consolidate the distribution of goods produced by your FIEs in China and pre-market certain imported products. Upon having paid up its registered capital according to the approved schedule, your FIE may also expand its geographical coverage by setting up branches.
How should I go about the setting up?
Before setting up in China, you should review your current investments and future business plans to determine the optimal investment vehicle to set up in accordance with the current China investment regulations and specific industrial policies.
The steps of setting up in China must be carefully planned. The following are some points that you cannot afford to miss:
- In case of forming a joint venture, seek support in contract negotiation and due diligence review.
- Verify the feasibility and prerequisites for setting up because they could be subject to local differences in practices and interpretations of the law.
- Optimize the tax-effectiveness of your shareholding structure and funding arrangements.
- Formulate the business scope for the company to be set up and negotiate with the approval authorities where necessary.
- Ensure the application documents for submission are complete, accurate and in the right format.
- Find out the appropriate channel for approval and registration and go through them one by one.
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