Market Insights

Sourcing products in China can be a cost-effective strategy for companies looking to expand their supply chain. However, with the multitude of options available, selecting the right supplier can be a daunting task. In this article, we review the various strategies for identifying suppliers in China, and the importance of evaluating potential suppliers before committing to a partnership.

Supplier Identification – Options on Hand

There are a handful of options available when searching for suppliers in China. Below you can find some of the most common options that foreign companies choose.

Attending trade shows

Attending trade shows can be successful for manufacturers looking to source products or find new customers in China. They can help you connect with various potential suppliers and provide learning opportunities of industry trends. Additionally, these can help you in establishing personal relationships with suppliers, which can be crucial in business dealings. This is not the case when using online directories unless you visit them on-site.

On the other hand, attending trade shows in China can also have its disadvantages. These can be expensive to attend, with travel and exhibition costs adding up. Not to forget, the language and cultural barriers can make it challenging to navigate trade shows and communicate effectively with potential suppliers.

Some examples of trade shows for manufacturers in China include the Canton Fair, the China International Industry Fair, and the China International Machine Tool Show. These trade shows cover a wide range of industries, including electronics, machinery, and textiles. A recommendation is to carefully consider the costs and benefits of attending trade shows in China before deciding to participate.

Online directories

B2B online platforms like Alibaba, Made-in-China, and Global Sources have become popular options for companies looking to source products in China. These platforms offer a quick and efficient way to search for products, view supplier profiles, and even place orders online.

The benefits of using B2B online platforms for sourcing in China include a wide range of suppliers offering diverse products and services, time and cost savings compared to traditional sourcing methods, easy communication between companies and suppliers, and verification and certification of suppliers.

However, there are also disadvantages of using B2B online platforms for sourcing in China, including limited quality control, language and cultural barriers, competition, lack of personal relationships, and limited customization. You should weigh the pros and cons carefully before deciding to use B2B online platforms for sourcing in China and consider other sourcing strategies.

Working with sourcing agents

Companies can find sourcing agents in China through online directories, referrals, or by attending trade shows or networking events. If you decide to work with a sourcing agent, it’s important to conduct due diligence and select a partner that have sufficient experience in your specific industry and product categories offered.

The benefits of working with sourcing agents in China include their local knowledge and expertise, which can indeed help in navigating the local cultural and business landscape. Additionally, sourcing agents can provide cost savings and efficiencies by leveraging their relationships with suppliers and handling logistics and quality control.

With that said, there are also disadvantages such as additional costs, reduced control, and potential communication issues if the agent’s English language skills are not strong. You should carefully consider the benefits and disadvantages of working with sourcing agents in China and evaluate whether this approach aligns with their specific needs and requirements.

Word of mouth

Word of mouth referrals can also be an effective way to find suppliers in China. Companies can ask their industry contacts, trade associations, or even their competitors for recommendations. Referrals provide valuable insights into the supplier’s reputation, reliability, and quality of products. Companies can also leverage social media platforms, such as LinkedIn, to connect with professionals in the industry who may be able to provide referrals.

Consulting firms

Consulting firms can help you to identify suppliers in China by leveraging their experience and expertise locally. By offering end-to-end solutions, they can help with both the supplier identification and evaluation, including:

Market research: Extensive research on the Chinese market and identify potential suppliers based on their experience and knowledge. This research can include market trends, competitive analysis, supplier capabilities, and pricing information.

Supplier assessment: Evaluating potential suppliers in terms of their capabilities, quality standards, production capacity, CSR, and other factors that are important to the clients’ businesses. This assessment can help companies make non-biased and informed decisions about which suppliers to work with.

Supplier verification: Verification of the legitimacy of potential suppliers by conducting site visits, auditing their operations, and verifying their capabilities.

Negotiation support: Concerning contracts and pricing with suppliers. This can include providing insights into local business practices and cultural nuances that can impact negotiations.

Supply chain optimization: By identifying opportunities to reduce costs, improve quality, and increase efficiency. This can involve evaluating the entire supply chain from sourcing to delivery and recommending improvements.

Evaluating the Suppliers

It’s essential to evaluate the suppliers carefully before committing to a partnership. By conducting a thorough evaluation of potential suppliers, you can ensure that you select a reliable and qualified partner who meet your needs. When evaluating potential suppliers in China, you should consider a range of factors, for example, export experience, quality, corporate social responsibility (CSR), and also soft values.

Export experience

Export experience is essential when evaluating suppliers and you should look for suppliers with a solid track record of exporting goods. This will help in demonstrating their knowledge of export procedures, compliance with international trade regulations, and ability to navigate potential language barriers.

Quality

Is another critical consideration when evaluating local suppliers. You should assess the supplier’s quality control measures, including their adherence to industry standards and certifications, such as ISO 9001. It is also essential to inspect the supplier’s facilities and processes to ensure that they meet the company’s quality requirements.

Corporate social responsibility

Becomes increasingly important for companies when selecting suppliers in China. Companies should evaluate a supplier’s CSR practices, including their labor conditions, environmental policies, and commitment to ethical sourcing. A supplier with a strong CSR track record is more likely to contribute to a sustainable and ethical supply chain. This becomes increasingly important for end users and governments alike.

Soft values

Communication, flexibility, professionalism, and responsiveness are also important to consider when evaluating suppliers. Effective communication is essential for successful collaboration, something that should be confirmed earliest possible.

Conclusion

In conclusion, sourcing products in China can be a cost-effective strategy for companies looking to expand their supply chain. However, selecting the right supplier can be a daunting task due to the multitude of options available.

You have several strategies available to identify suppliers in China, including attending trade shows, using online directories, working with sourcing agents, leveraging word of mouth referrals, and by hiring third parties such as consulting firms.

Once potential suppliers are identified, it’s important to evaluate them thoroughly before committing to a partnership, considering items such as export experience, quality control measures, and corporate social responsibility practices. Ultimately, careful evaluation and selection of suppliers can help companies establish long-term partnerships that contribute to success.

Overall, identifying and evaluating suppliers in China requires a comprehensive approach, including thorough research, due diligence, and effective communication to overcome the challenges posed by language barriers, cultural differences, and verification processes.

Read more about our sourcing & supply chain experience or other consulting capabilities.

With the impact of the epidemic, the differentiation of the global supply chain has accelerated. As a business owner, no doubt that you have the nonsystematic risk of delayed deliveries and delayed payments. In 2022, the Chinese government raised attention to encouraging enterprises to improve operational efficiency through supply chain financing.

In this article, we review supply chain financing and why it has become increasingly important in China. The topics covered are:

• What is supply chain financing?
• Improving Financial Liquidity with Supply Chain Financing
• Reducing Operational Costs in the Supply Chain
• Legal Service Providers in China for Foreign Companies

What is supply chain financing?

Supply chain financing, as an innovative financing option, has developed rapidly in China. It has become an important field for banks, financial information service agencies, and enterprises to expand their service offerings and enhance their competitiveness because of the unreplaceable benefits. Examples include more efficient financing process, lower operation costs, and more reliable cooperations between companies and institutions.

It provides liquidity for companies promptly and helps each company to conduct business smoothly in international trade. The participants include core enterprises (debtors), financial institutions (creditors), upstream suppliers, and downstream buyers of core enterprises. Sometimes, the creditors can also be core enterprises (non-financial institutions) only if it’s a funding provider in the supply chain.

Small-and-medium sized companies benefit greatly from supply chain financing as this helps them solve their financing difficulties, which is crucial for their survival. Supply chain financing also improves the competitiveness of small and medium-sized enterprises in terms of high capital liquidity, which attracts many long-term cooperation. For example, the Shandong Provincial Department of Finance encourages small, medium, and micro enterprises to improve the efficiency of accounts receivable financing, and rewards supply chain financing innovation projects with a maximum of 5 million yuan.

Core enterprises can also act as fund providers for other members in their supply chain members, to improve the overall efficiency.
This is particularly the case when providing funding for small and medium-sized companies, to support with bank credit and long-term accumulated industry expertise and resources. China’s supply chain finance market has benefited from the increase in the volume of accounts receivable and financing markets. Its scale has expanded by 85.3% in four years, from 11.97 trillion in 2015 to 22.18 trillion in 2019.

Looking at industries, supplier financing is most commonly used in automotive (59.29%), retail (45%), and steel (43.57%). Taking the automobile industry as an example, commercial banks were the main institutions providing supply chain financing services ten years ago, but now the main providers of financial services are gradually diversifying, including Sino-foreign joint ventures, auto finance companies, and other banks and non-bank financial institutions.

In addition, the upstream and downstream of the automotive industry are closely connected, and core companies often choose supply chain financing to help repay suppliers quicker and promote the long-term and stable development of supply chain relationships.

Improving Financial Liquidity with Supply Chain Financing

In recent years, most international payments and settlements are not pay-as-you-go but adopt a transaction model that separates money from goods such as payment in advance or goods in advance. One settlement way called prepayment or sales on credit becomes popular as of its liquidity benefits.

According to the statistics of SWIFT (Society for Worldwide Interbank Financial Telecommunications), 80% of international payments and settlements are sales on credit that means after the buyer and the seller sign a goods agreement, the buyer can take the goods without payment, but pays on the specified date according to the agreement or pays in installments. Sales on credit start to stimulate the single order quantity of downstream companies, reduce inventory, and enhance seller competitiveness.

However, with the continuous development of supply chains, in addition to stimulating sales, sales on credit are also widely used by core companies to optimize their own cash flow. In contrast, traditional bank international trade finance focuses on financing products under traditional settlement methods such as telegraphic transfer (T/T), letters of credit (L/C), and bills, and lacks products based on sales on credit, making supply chain SMEs face increasing financing pressure. Supply chain finance compared to traditional finance is better in terms of liquidity.

Let’s take accounts receivable financing as an example, suppliers of core enterprises can transfer their accounts receivable to commercial banks, which can generally be divided into those with recourse and those without recourse. Since the commercial bank has already conducted a complete credit rating on the core enterprise, the commercial bank can provide timely payment for the supplier based on the credit facility of the core enterprise, to alleviate the shortage of funds in the entire supply chain and improve company’s financial liquidity.

Reducing Operational Costs in the Supply Chain

Supply chain financing saves electronic transaction details in the supply chain IT system within enterprises and uses AI technology and cloud computing automation to complete real-time data collection, analysis, and evaluation.

It improves the capital turnover rate of enterprises, reduces operating costs, builds a developed, interactive, and information-sharing platform for banks, core enterprises, and upstream and downstream, and promotes the improvement of supply chain operation methods.

Suppliers

In supply chain finance, the level of information sharing among small and medium-sized suppliers has increased, thereby reducing the workload of banks in related credit review processes such as due diligence. Therefore, each bank will appropriately lower loan interest rates in the process of quoting customers, which will reduce supplier’s financing costs. On the other hand, increased liquidity and continuous production of suppliers have prompted manufacturers to increase orders and revenue.

Core enterprise (manufacturer)

Compared with the traditional financing model, the supply chain operating under the supply chain finance model is stable, and the manufacturer can increase additional benefits, such as: reducing out-of-stock costs, increasing customer loyalty, and increasing market share, etc.

Financial Institutions

For banks, the qualification review tasks for SME suppliers in supply chain finance are mainly completed by core enterprises, and banks only play the role of review. Therefore, the reduction of review costs and the increase in the number of loans make the overall earnings improve.

Legal Service Providers in China for Foreign Companies

Due to China’s strong financial regulatory system, foreign banks are mainly able to provide supply chain financing services for foreign companies in China. The reason is that foreign banks can complete due diligence for foreign companies more efficiently than Chinese local banks.

We find that in the above ranking list, many service providers implemented 5G and blockchain technology. For example, DBS is helping companies in the Asia-Pacific region access more affordable working capital globally, using its suite of technologies such as APIs, blockchain, and partnerships with Fintech and e-procurement platforms. Its digital solutions have helped companies of all sizes move to paperless transactions, revealing greater efficiencies and cost savings in their supply chains. Bank of America leverages blockchain technology to bring greater efficiency and transparency to previously opaque paper transactions, which in turn gives the bank the confidence to offer a wider range of financing solutions to customers.

Summary

Supply chain financing has grown rapidly in China for the past few years and as an innovative financing option. It offers advantages such as efficient financing process, lower operation cost, and has since become a crucially important financing option for international banks. While the automobile and steel sector dominated the landscape, sectors around logistics and consumer goods have begun to catch up on the supply chain finance trend.

Core enterprises can promote the transformation of their internal organizational structure and corporate governance through the development of supply chain financial services, and thus promote the improvement of supply chain management. In addition, companies can look forwards to greatly capitalize on benefits such as improving financial liquidity through sales on credit and using supply chain finance’s real-time data collection methodologies for operational cost reduction.

Lastly, the management of core enterprises should carefully and carefully analyze the risk characteristics of each link in the supply chain, so that the supply chain management and financial management of the enterprise can promote each other and improve the overall operation ability of the enterprise.

Read more about our sourcing & supply chain management experience or other consulting capabilities.

China’s economy has been growing at an impressive rate over the past few decades, and its fundraising landscape has gone through significant changes as a result.

While the government has historically been the major source of funding for companies in China, there has been a shift towards private investors and venture capital firms in recent years. The country’s venture capital market has grown exponentially over the past decade, with tech startups being the main beneficiaries.

With that said, fundraising in China can be a complex and challenging process due to the country’s strict regulatory environment and cultural differences, which make it more difficult to navigate compared to many other markets.

In this article, we review the equity fund raising in China, covering the following topics:

• The Fundraising Landscape in China
• Challenges with Equity Fundraising in China
• Opportunities of Equity Fundraising in China
• Strategies for Fundraising in China
• Success Stories of Fundraising in China

The Fundraising Landscape in China

China’s fundraising landscape has gone through significant changes in recent years, particularly as the government has been the major source of funding previously. In recent years, we’ve seen a shift towards private investors and venture capital firms.

The country’s VC market has grown exponentially over the past decade, reaching USD 131 Billion in 2021, with tech startups being the main beneficiaries.

One of the most significant factors shaping the fundraising landscape in China is the government’s policies and regulations. While the government has historically encouraged investment in high-growth sectors like technology and healthcare, recent regulatory changes have made it more challenging for companies to raise funds through equity financing.

Despite the challenges, there are still many opportunities for investors seeking to support companies in China with equity to expand. There’s been a surge in the number of startups and early-stage companies seeking investment, particularly in sectors such as fintech, e-commerce, and logistics.

In addition to traditional venture capital firms, we also see increasingly more angel investors, corporate venture capitalists, and government-backed investment funds that are engaging in the market. These investors bring a diverse range of expertise and resources to the table, making them valuable partners for companies looking to raise funds.

Worth highlighting is also the emergence of new financing models like crowdfunding and peer-to-peer lending, even if these have faced regulatory challenges in recent years. With that said, they remain attractive options for companies looking to raise funds from a broader range of investors.

Challenges with Equity Fundraising in China

Fundraising in China can be a complex and challenging process due to the great regulatory and cultural differences, making it more difficult to navigate compared to many other markets.

One of the biggest challenges is navigating the regulatory environment as China has strict rules and regulations governing foreign investment, IPOs, and fundraising activities. Companies looking to raise capital in China must therefore be prepared to comply with these regulations, which can be both time-consuming and costly.

Another notable challenge is the process of building relationships with Chinese investors and venture capitalists, many local investors have different expectations and investment criteria compared to Western countries.

Building trust and credibility indeed takes time and effort, and companies must be willing to invest in building relationships with local investors and partners, which can be a tedious task. Companies must be willing to invest time and resources in building relationships and communicating effectively with local partners.

Opportunities of Equity Fundraising in China

China has a range of promising sectors for investors to consider, primarily in technology, healthcare, consumer goods, renewable energy, and financial services. Let’s take a closer look at some of these sectors.

Technology

Technology is a particularly interesting sector in China, with the country becoming a global leader in areas such as e-commerce, fintech, and artificial intelligence. Companies such as Alibaba, Tencent, and Baidu have achieved impressive growth rates in recent years, and there are many other promising technology startups emerging in China’s innovation hubs.

As the Chinese government continues to invest in technology infrastructure and innovation, the opportunities for investors in this sector are likely to continue to grow.

Healthcare

Healthcare is another sector that is experiencing strong growth in China, driven by China’s aging population and rising demand for quality healthcare services. The Chinese government has identified healthcare as a priority area for investment and is implementing policies to encourage private sector participation in the industry. This has led to the emergence of a vibrant healthcare startup ecosystem, with companies focused on areas such as medical devices, digital health, and pharmaceuticals.

Consumer goods

The consumer goods sector is also interesting for equity fundraising in China, as the country’s middle class continues to expand and demand for high-quality consumer goods increases. This has led to growth in areas such as premium cosmetics, luxury goods, and high-end food and beverage products.

The growth of China’s equity fundraising market is being driven by a range of factors, including the country’s strong economic growth, its large and growing consumer market, and its increasingly supportive regulatory environment for private sector investment.

As China continues to innovate and expand, it is likely that the opportunities for investors will continue to grow as well.

Strategies for Fundraising in China

There are several strategies for equity fundraising which can be explored. Below you can find some of the most popular options.

Initial Public Offering (IPO)

An IPO is the most common strategy for equity fundraising in China, involving sales of company shares, capital raising, and listing on stock exchanges. China’s stock exchanges, such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange, are among the world’s largest, making them attractive for companies looking to go public.

Private Equity (PE) and Venture Capital (VC)

PE and VC firms are a popular source of equity funding for local businesses. These firms provide funding to startups and early-stage companies in exchange for an ownership stake, and provide expertise and guidance to help the businesses grow.

Secondary Market Financing

This strategy involves selling shares in the secondary market, which includes exchanges like the National Equities Exchange and Quotations (NEEQ) and OTC Markets. The secondary market provides an alternative to the primary market for companies that may not meet the listing requirements of the stock exchanges.

Corporate Bonds

Corporate bonds are a debt financing option for companies seeking capital. In China, corporate bonds are regulated by the China Securities Regulatory Commission (CSRC). Companies can issue bonds on the Shanghai and Shenzhen stock exchanges, as well as on the NEEQ.

Crowd-funding

Crowdfunding is a relatively new method of equity fundraising in China. It involves raising capital from a large number of individuals, usually through online platforms. Crowdfunding is popular among startups and early-stage companies that may not have access to traditional sources of funding.

Success Stories of Fundraising in China

Many success stories have emerged from China’s fundraising market, including everything from large tech giants to startups. Below are some examples and you might have heard about some of the cases.

Alibaba Group

Alibaba Group, one of China’s largest e-commerce companies, went public on the New York Stock Exchange in 2014, raising a record-breaking USD 25 billion. This IPO was the largest in history at the time and set the stage for other Chinese companies to follow suit.

Tencent Holdings

Tencent Holdings, a Chinese tech conglomerate, has also enjoyed success in equity fundraising. The company raised USD 5 billion in a bond sale in 2017 and has also invested in many startups and early-stage companies through its venture capital arm.

Didi Chuxing

Didi Chuxing, a Chinese ride-hailing company, raised USD 4 billion in a funding round in 2017. The company has also secured investments from major players such as SoftBank and Apple.

Xiaomi Corporation

Xiaomi Corporation, a Chinese electronics company, went public on the Hong Kong Stock Exchange in 2018, raising USD 4.7 billion. The company has since expanded into other markets, including India and Europe.

Pinduoduo

Pinduoduo, a Chinese e-commerce platform, raised USD 1.6 billion in a funding round in 2018. The company has seen rapid growth in recent years, becoming one of the largest e-commerce platforms in China.

These success stories highlight the potential for companies to raise significant amounts of capital through equity fundraising in China. While some of these companies have gone public, others have opted for private equity or venture capital funding. Regardless of the strategy, these companies have been able to secure funding and grow their businesses.

Conclusion

China’s fundraising landscape has evolved considerably in recent years and government funding has largely been overtaken by private investors and venture capital firms. This has resulted in the VC market growing exponentially over the past decade, reaching USD 131 Billion in 2021.

The government has played a significant role in shaping the fundraising landscape, with regulatory changes making it more challenging for companies to raise funds through equity financing. However, opportunities remain, especially in sectors such as fintech, e-commerce, logistics, healthcare, consumer goods, and renewable energy.

The biggest challenge in fundraising in China is navigating the regulatory environment, which is complicated due to strict rules and regulations governing foreign investment, IPOs, and fundraising activities. Building relationships with local investors and venture capitalists can also be challenging, given different expectations and investment criteria compared to Western countries.

Various strategies exist for fundraising in China, including IPOs, private equity and venture capital, secondary market financing, corporate bonds, and crowdfunding. Many successful stories have emerged from China’s fundraising market, including tech giants and startups. As China continues to innovate and expand, opportunities for investors will continue to grow.

Read more about our market entry & market expansion experience or other consulting capabilities.

China has been active in lifting restrictions on foreign investments in the past years, with a goal to make the market more attractive.

One example is the Negative List, a list of industry sectors that prohibit foreign investments, which had 117 items in 2022, down from 151 items in 2018. The government also removed restrictions on foreign ownership in automotive manufacturing in 2022, as well as on foreign shareholding ratios of securities/investment fund companies in 2021.

Even if we’ve seen easing of restrictions, setting up or divesting a company in China is often challenging, considering red tape and local regulations. In this article, we review the company types available in China, the registration processes, and explain common pitfalls.

Company Types in China

Foreigners can set up three company types in China, including Wholly Foreign-Owned Enterprises (WFOE), Sino-Foreign Cooperative Joint Venture (JV), and Representative Offices (RO).

The following table summarizes the three options:

Let’s review the options in greater detail below.

Wholly Foreign Owned Enterprise (WFOE)

WFOE refers to a limited liability company that is 100% invested, owned by foreign investors, and independently operated. Almost 60% of foreign-owned companies are WFOEs, making it the most adopted business type. Famous multinational companies such as Apple, Amazon, Oracle, and General Electric are all examples of WFOEs.

Setting up a WFOE can bring more risks compared to the other company types due to the higher investment requirements, and if foreign companies lack knowledge of the Chinese market. With that said, there’s also a reason why this is the most popular option among foreigners.

Foreign companies can maintain complete ownership of the companies, convert RMB income into USD, and remit profits to parent companies overseas. As WFOEs give foreign enterprises total ownership, there are also no restrictions relating to the company’s internal operating structure.

Worth mentioning is also that WFOEs must have a board of directors with three to thirteen members.

Sino-Foreign Cooperative Joint Ventures (JV)

A JV refers to an enterprise in which a Chinese partner and a foreign partner jointly invest and share company stakes in proportion to the investment. JV is another common business type for foreign companies, with over 35% of the one million foreign enterprises in China operating as JVs.

SAIC Volkswagen, SAIC General Motors, and BMW Brilliance are household names that have local JVs in China.

JV, in common terms, would have no mandatory registered capital requirements for foreign investors. However, foreign investors’ general capital investment ratio should be at least 25% of the total investment.

This company formation type has many preferential treatments depending on the different regions in China. For example, foreign JVs headquartered in Shandong’s designated development zones can all have 15% reductions on corporate income taxes.

Other benefits can be gained with the help of your Chinese partner as they provide more marketing channels and utilize business connections, build a stronger brand image, and offer investment support.

Common pitfalls with JVs in China

Conflict of interests and imbalances of contribution are potential issues when foreign companies set up JVs with local Chinese partners. You should also fully evaluate the local laws as JVs are scrutinized harder and with more reporting obligations.

Additional reporting obligations can be related to annual capital contribution ratios, the structure of the board of directors, and methods of hiring/firing the company’s top management. You must maintain a positive relationship with your Chinese partner to fulfill all the reporting obligations and have smooth business operations.

As a result, it’s crucial to carefully screen your potential Chinese partner before signing a full-on JV agreement.

When the JV is established, a board of directors must be set up to manage and oversee the operations. Representatives from both the foreign and Chinese parties can serve as the board’s chairperson, where the chairperson would then become the legal representative of the JV. The chairman is also responsible for selecting managing directors for the JV’s operation and management.

Representative Office (RO)

An RO is a liaison agency representing the parent company established by a foreign-invested enterprise in China. Since ROs are not recognized as independent legal entities, they cannot conduct standard business operations, generate profits, and send money abroad. Non-direct business activities, including liaison work, product promotion, market research, and setting up bank accounts, are all permitted.

You can consider RO as a market-entry option with fewer initial risks. Foreign enterprises commonly use ROs to study the Chinese market and build business connections, to “test the water” and before entering the market with full force. This is possible as enterprises have no capital limits when investing in and registering ROs in China.

Enterprises should beware that ROs can only recruit employees through government-recognized HR agencies and can only set up offices in a foreign-related office building (buildings designated by the government that can have foreign enterprises as tenants).

The current RO’s license period is three years, yet ROs can extend their license unlimited times.

Foreign Invested Commercial Enterprise (FICE)

FICE is also called trading WOFE which allows foreign companies to import and export franchise brands, sell products, open an E-commerce store, get export tax refunds, and deliver related consultation services in China. A FICE can also operate storage, warehousing, inventory management, repair maintenance, training, and delivery services.

Apart from the FICE (trading WOFE), you can also choose other types of WOFE according to your business scope, such as technology WFOE, food & beverage WFOE, and manufacturing WFOE that the company can manufacture industrial products in China, etc. There are some limitations that you should know about FICE. You can only do trading business, and VAT(Fapiao) issues can be complex. Also, you must apply for separate licenses before any import-export activities.

Before setting up a FICE, you should confirm three things during document preparation: company name, business scope, and registered address. The company must have a lease agreement of at least 12 months for the registered address and cannot share with other companies. Online pre-approval application with the provincial bureau of the Ministry of Commerce (MOFCOM) and the Administrative Committee of Economic and Technological Developments Zones (for FICE set up in economic and technological development zones) is necessary for the license, and you should upload identification documents of the registered personnel.

Once approved, you can proceed with the procedures to obtain your Import-Export License Record with the Customs Bureau, State Administration of Foreign Exchange (SAFE), and the local MOFCOM and required Import-Export license depending on your business scopes, such as Foreign Trade Operator Filing Record, Customs Registration Certificate, China E-port IC Card Application, and Goods Trade Foreign Exchange Administration Service Activation. For business owners who think FICE is the most suitable legal entity type, the processing time is around six months, and there is no minimum capital requirement.

National Enterprise Credit Information Publicity System

The Chinese government has an online platform where you can find information related to business credit information, abnormal/illegal operations, and other company information.

The platform is handy for companies that want to know more about potential Chinese business partners. You can receive information regarding untrustworthy business activities, which often result from delayed or missing payments from previous business activities. Simply input the company name, company registration number, or the Unified Social Credit Code of the company.

Companies should carefully look for reporting deadlines required by the government. Late reporting on information such as company equity transfer, outbound investment activities, and change of company address have all resulted in serious consequences in the past.

Wrongful reporting activities may likely appear in the company’s information page under the National Enterprise System, which would seriously hurt the company image, particularly for new entrants in the Chinese market.

The Importance of Stamps and Business Licenses in China

Business licenses and stamps might have less importance in other countries, yet they have entirely different levels of power in China.

Business license and copies

The government issues the original business license, and enterprises can print copies of them. However, the original and copies of the business license have the same legal power. The original must be hung in a noticeable place in your office. In contrast, the copies are generally used for activities such as opening bank accounts and signing contracts requiring traveling.

Company stamp

The company stamp is the most important stamp of an enterprise, as it is the stamp used for internal and external business activities. The stamp is often controlled by the legal person and can be used to verify documents, contracts, certificates, and other materials.

Financial stamp

Used only for accounting and bank settlement purposes.

Contract stamp

Contract stamps are mainly used to sign contracts with clients, which can also be replaced by using the company stamp.

The importance of stamps and business licenses must be recognized as stamps are more important than signatures. It’s better to have a standardized process in case of any misconducted risks, including the dedicated person is responsible for the stamp custody and the strict approval process for using the stamps

Application documents notarization

Sometimes, the authenticity of the foreign applicants’ documents may not be identified by the Industry and Commerce Bureau, which can waste much time during the application process. In one previous case, we helped a client who encountered a problem as the Industry and Commerce Bureau could not identify his passport without China travel records.

The passport therefore had to be sent back, which resulted in the client losing weeks of time. Before you submit your documents, it’s therefore recommended to notarize them locally in advance.

Time coordination

Foreigners must often ship documents several times due to issues with failed identifications. For example, that you can not travel freely while the authorities use your passport during the application process.

As a result, it’s important to understand the process in advance and effectively coordinate the shipping of documents, including passports.

How Asia Perspective Helped a European Client in Setting Up a Company in China

A large Finnish company that specializes in the food industry needed help with a market entry in China, a project where Asia Perspective also helped with the legal entity setup.

During the project, we assisted the client with research on local regulatory requirements, preparation of application materials, materials translation, format alignment, and more. The client also benefitted much from our local presence, as we were able to visit related agencies on-site.

Asia Perspective ultimately helped the client to complete the establishment of a Chinese legal entity by developing a thorough company analysis, evaluating local regulatory requirements, and efficiently submitting required documentation.

Summary

Before setting up a company in China, it’s crucial to understand the regional and provincial benefits across China. You should also carefully review the Catalogue for the Guidance of Foreign Investment Industries. Chinese economic zones, preferential policies on foreign-owned entities from provincial and regional levels, and industry-specific incentives can be identified and leveraged through initial research.

In this article, we have reviewed the process of setting up a company in China in brief. However, it’s recommended to seek company formation consultancy services, to save time and costs. Without adequate knowledge of the company types and setup processes, the processing time can take months, with additional work such as visiting local registration offices, as well as document verifications.

With different regional benefits on provincial and district levels, as well as economic zones’, foreign companies can enjoy tax discounts, financial awards, and foreign employee benefits.

Read more about our market entry & market expansion experience or other consulting capabilities.