HISTORY OF DEVELOPMENT OF THE DIFFERENT TYPES OF COMPANIES IN CHINA
Development stages of different types of companies being used by foreigners when wanting to enter the Chinese market and also trade in the China Market.
China market entry strategy - Joint Venture
Since China polices opened their market to the world in order to protect the internal parties of local or investor people. Foreign investors who want to invest in a specific project must join with local or Chinese investors. Most likely in this type in the early stages, foreign investors provide the know how knowledge, intelligent rights etc. as well as 80/100% finance to the specific project, while local or Chinese investors provide labour, land, and natural resources. These are the early stages when China attracts foreign investors to build up bulk infrastructures, tunnel, port, etc. Today, all infrastructures, train networks, etc. are invested by the Chinese Government. However, until now, Joint Ventures are also required for certain types of businesses, like auditing services, etc.
China market entry strategy – Setting up a WFOE in China
WFOE is a China market entry strategy that foreign factories can trade in the China Market. In order to attract foreign companies to setup foreign manufactories for China market entry, and enjoy low labour costs, most likely 100% tax free given in periods of up to 15 to 20 years (a great mode of entry into China). Land is also free for certain years. This is the early stage of tax planning that the profit margin will shift from manufactory profits in China to an offshore company established more likely in BVI, etc. Therefore, the investor of a local country will also avoid tax being paid.
Overseas materials were delivered to China factories for production processes, these final products were delivered back outside of China to sell. These final products were not allowed to be sold inside China. During these periods of early foreign factory, Chinese people learned make up skills, manufacturing skills, know-how, technical knowledge, etc. As time went by, Chinese people learned all the skills necessary, and saved money and so they established their own local small factories in China. This is why representative offices were established by small foreign investors for their New businesses in China.
China Market Entry Strategy - Representative Office
Representative office is a type of China company formation that is used for liaison function with china factories, instead of selling in China. It came to the point that as local Chinese goods were so cheap that overseas businessmen came to China, and ordered these local goods, and sold overseas. They would make orders in bulk, with different types of products, so they needed to establish a small office or set up a branch office, employed one to two local staff for the purpose of making sure that the quantities and quality of the goods would match the order.