China Entry Strategies and Entity Establishment Solution

As Hong Kong enjoys the benefits of our country under "One Belt One Road", our company has a strong presence in Mainland China with a representative office that aims to help our clients to start their businesses in Hong Kong and Mainland China.

Doing Business in China
China officially joined the World Trade Organisation ("WTO") since 2001, and foreign investment and trade has grown rapidly as a result. Under the WTO, tariffs on agreed products have been reduced, and market access to various regulated industries has been phased in gradually. Industrial sectors opened up in the past years are trade and distribution, including franchising, advertising services, inspection services, freight forwarding agency services, for example. A more open market will attract know-how, technology, services and materials.
The challenge of China market entry has become an increasingly important of foreign companies to understand how to enter into China, a large and complex market today.
Before Entering to China Market
Because of the cultural difference between Eastern and Western countries, foreign investors should consider below with certain planning and necessary advice from Atrix:
  • Market Research and Assessment
  • Legal and Local Tax System
  • IP Protection
  • Entity Options in China
  • Business Operation Model
  • Internal and Administration Control
  • Business Exit Strategy
Entity Establishment Solution
There are numerous ways to invest in the China market. Nowadays the most popular option is to establish a Wholly Foreign-Owned Enterprise ("WFOE") in China through Hong Kong Holding Company (as a special purpose vehicle); over 75% of foreign investors choose this investment vehicle when entering the China market.
Wholly-owned Foreign Enterprise ("WFOE")
  • Default option for most foreign investors, particularly popular with small or medium-sized foreign companies
  • Registered Capital is varied depending on the industry and business scope, however no deadline on capital injection (Within 5 – 8 years is recommended)
  • Full control & management of the company’s direction in the long term and safety of certain intangible assets
  • Most of business activities can be conducted; pre/post-approval and licensing are required for specific industry e.g. construction, telecommunication, media and etc.
Representative Office ("RO")
  • Non-legal entity
  • Direct hiring is not allowed
  • Limitation of business scope
  • Intermediate step to monitor Chinese market before making substantial investments or commitments in the PRC
  • Focus on export activities or monitor quality control without establishing a legal entity
  • Operate in industries that are clearly regulated, restricted or prohibited in China but wish to establish a presence
Joint Venture ("JV")
  • Normally exists due to:
    1. Legal restrictions in China;
    2. Investment/participation into an existing company such that the current shareholder(s) remain in the business;
    3. Advantages or capabilities of the Chinese partner to a large extent, e.g. local brand awareness, distribution network;
  • Foreign invested JVs often face challenges in management styles, culture, expectations versus local standards
Setting up branch in China
Setting up a Wholly Foreign Owned Enterprise (WFOE), as the head-office (e.g. Holdings/Group Management WFOE) in China, can be a lengthy and complex process. Once a WFOE is set up, opening up branch offices is the easiest way to expand and much less bureaucratic and expensive than setting up a new WFOE. From our experience, this structuring strategy adopt to retail or F&B industry to expand to local markets in China.
Exit Strategy
Foreign investors can exit subsidiaries by selling their shares in the China company or transferring their shares in the parent company. A transfer of shares must be approved by the original approval authority, although this kind of approval generally is routine. If the share transfer is made from foreign investors to a Chinese investor, who then converts the foreign entity into a domestic company, the later-formed domestic company should satisfy the requirements for establishing a domestic company under Company Law, rather than under Foreign Investment Entities (FIE) law.

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