How to Select the Best Business Location in China

When the term “foreign investment” is mentioned today, one of the jurisdictions that crosses the mind is China. With a population of about 1.4 billion, a very stable social-political environment, and numerous bilateral agreements, China can only be described as the perfect launching pad for investors who want to succeed.

Despite the country’s high- potential, some businesses that are started there still fail. To ensure your company becomes successful, you should focus on two things: identifying the correct region for your business and avoiding the mistakes made by other companies.

Prominent Types of Companies in China

China is one of the most prominent democracies in the world. Not only that, but it is also one of the biggest democracies. This is why it is often seen as one of the best playgrounds for entrepreneurs.

The best part about starting a business in China is the general versatility. In fact, it is easily one of the most conducive places to work in. Here are some of the most prominent forms of business that you will encounter in China.

WFOE

WFOE, or Wholly Foreign Oened Enterprise or WFOE is primarily an LLC or Limited Liability Company. Such companies generally have 100% foreign investors but operate independently.

Around 60% of all the foreign-owned companies in China are WFOE.  Companies like Apple, Oracle, etc., are all WFOEs. They have their benefits, but they also share some significant risks, loss of investment, etc.

JV

Up next are the JVs. JVs or joint ventures are an amalgamation of single ownership and WFOE ownership. In other words, such businesses have one Chinese partner and one foreign partner. As a result, they are unique in so many aspects. This is why this form really made some fantastic headways in recent years.

JVs are very popular and are primarily seen in the automobile industry. Some of the notable JVs are the SAIC Volkswagen, SAIC General Motors, BMW, etc. These JVs have really changed the very shape of the business landscape of China. Therefore, making them perfect in so many aspects.

RO

An RO is a remote company or a liaison company that has headquarters outside China. However, they have their regional offices all across China. These offices are generally located in central provinces and work in hybrid settings.

ROs are generally market-entry businesses. In other words, these businesses transform into WFOEs. As a result, these businesses are more like stepping-off points. Therefore, they offer an excellent opportunity for starting a business in China as a foreigner.

FICE

Finally, you can open a FICE. FICE allows foreign brands to set up representative businesses in different sections. This ensures newer brands come in and build a better entrepreneurial landscape.

FICE-registered brands are given the license to operate e-commerce as well as retail businesses. They are genuinely multi-faceted and can really help you on your entrepreneurial journey.

How to Identify the Right Business Location in China

When you decide to incorporate a company in China, the location will have a significant bearing on the success that you can achieve. So, here are the main factors to consider when looking for a good business location in China:

1. Proximity to Suppliers and Clients

It only makes economic sense to open a manufacturing business in Shenzhen if the raw materials will be coming from Beijing. The best place to locate your enterprise should be as close as possible to both your raw materials and the market. If the two are very far, you will incur extra shipping costs, resulting in higher prices for your products.

Therefore, carefully review the different provinces of China and pick the one that will provide you with a competitive advantage. For example, Shanghai-Jiangsu-Zhejiang is best for automobile and biomedicine companies.

2. Availability of Incentives

One of the reasons why China has become so attractive to foreign investors is that it provides numerous incentives. For example, the Chinese administration offers tax incentives to companies that opt to operate in inland urban areas as opposed to coastal cities.

Because even these inland cities are also well connected with roads, rails, and airports, they are also suitable for business, and you can choose them to enjoy the tax incentives.

3. Locate Your Business in the Special Economic Zones

Since 1988, when the Zhongguancun National Demonstration Zone was started, China has created other economic trade zones for investors.

The good thing about these special economic zones is that they also come with tax incentives, and you might qualify for financial support. Furthermore, they have well-developed facilities and programs you can use to incubate startup ideas.

How to Avoid Common Mistakes when Opening a Company in China

While China is full of opportunities that you can exploit, it is also crucial to be extra careful because a significant number of companies fail. So, here is a demonstration of how to avoid common mistakes when starting a business in China.

• Even if your company has been very successful back home, going it alone in China is likely to result in failure. Instead, consider working with a professional agency to help you with both registration and drawing up good strategies.
• Do not think that you can start a company, and it catapults to success immediately. Like most markets, you need to appreciate that winning customers in China takes time. The best thing is to be prepared to meet the costs of your business for a period of about 12-18 months or more.
• One mistake that a lot of investors make is thinking that China is one homogenous market. China is a large country with different cultures and consumption patterns. Therefore, you should target understanding these individual cultures and markets to be able to deliver what customers want.

The End Note

China is one of the best jurisdictions for your offshore company, but you need to get it right on company registration location and use the right strategy. Make sure to work with experts and avoid the common mistakes that make others fail.

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