Article by Dario Acconci, Managing Director–Business Development, Asia, Hawksford
East Asia’s booming economic growth is becoming increasingly attractive to companies looking to expand outside their home markets. In particular, both China and Hong Kong have the potential to be highly prosperous bases for businesses, including those involved in manufacturing.
Determining the right location is a complex decision and knowing the opportunities and risks of doing business in each region should form the basis of decision-making.
So, what is it that’s luring so many businesses to China and Hong Kong? And what do manufacturing leaders need to consider to successfully do business here?
Considerations for China
China is a unique country, historically, politically and culturally, and there’s a lot to understand if you are a new entrant. One of the most appealing aspects of doing business in China is its burgeoning middle-class population – a vast 300 million people, which is far greater than any other Asian jurisdiction.
China from a market potential perspective should be regarded as a continent and it’s estimated that 70% of China’s population will become middle class by 2030.
What’s more, with the explicit aim of attracting specialised experts, high-technology, advanced services and outstanding talent, the Chinese government is actively widening the potential for foreign inward investment. One example of this is the Foreign Investment Law which gives more flexibility to Foreign Invested Enterprises (FIEs) looking to set up companies.
However, bureaucracy is the primary concern for many foreign investors. There are many licenses and permits needed when it comes to running a business in China and the process can become a laborious task for businesses to navigate. However, the Chinese government continues to demonstrate proactive approaches to changes in legislation to ease foreign investment. Despite this, it remains imperative to clearly define the business scope of your FIE to avoid any unintended limitations.
China company registration
If you’re a manufacturing leader looking to expand your business into China, it’s important to know your options on how to do this. Corporate registration in China for foreign enterprises is usually possible via three main company types; wholly foreign-owned enterprises (WFOEs), Limited and General Partnership, and representative offices (ROs).
WFOEs are investment vehicles entirely owned by foreign natural and legal persons, and are widely accepted as the most popular entity for doing business in China. They represent the most viable way for foreign investors whenever revenues and profit-making activities have to be undertaken directly and without local partners involved at the shareholding level.
Limited and General Partnerships are agreements that enable foreign companies to partner with a local Chinese company in order to establish a formal presence. The main advantage of choosing such entities is that investors can rapidly access the Chinese market by making use of an already established firm to tap into their know-how, distribution networks and sales channels.
A RO is a local branch office established by a foreign company to represent its activities, such as market research, PR and supplier visits. Since it is not an independent legal entity, it cannot participate in any direct commercial activity.
What about Hong Kong?
Hong Kong is also an ideal location for an expanding manufacturing business. As well as having one of the most efficient airports in the world and very little time differences with major APAC hubs, Hong Kong provides the expertise and facilities needed to penetrate the China market.
Cross-border transactions are easy and supported by the regulatory framework. These include the Arrangement for the Avoidance of Double Taxation between Hong Kong and China, as well as the Closer Economic Partnership Arrangement.
Not only this, but it has a strategic position and ease of access to neighbouring countries, access to technological innovation and an immense international pool of talent on the ground.
Hong Kong company registration
If you’re considering setting up a manufacturing business in Hong Kong, you’ll need to know the most common types of business entities. These are companies, sole proprietorships and partnerships.
A limited liability company can be incorporated in Hong Kong by registering with the Companies Registry under the Companies Ordinance. These can be private companies or public companies, but the preferred choice for most investors in Hong Kong is to set up a private limited company, where the liabilities of the owners are limited to the assets within the company.
A sole proprietorship is considered the easiest and simplest form of business. As the name suggests, the business is owned and operated by a sole person and, since the business is not a separate legal entity, the owner and the business are considered one. Although simple, it is often considered the highest risk as there is no protection of personal assets.
Partnerships are defined as businesses established and co-owned by two or more people, with a view of sharing profits. Partnerships in Hong Kong are governed by the Partnership Ordinance and are of two types: general partnership and limited partnership.
How can we help?
At Hawksford, we have a proven track record of helping manufacturing companies expand into the East Asian market. Luce5, a lighting design and production company that has been collaborating with leading companies for more than 20 years, was looking for a professional services provider that could help it expand its business activities into Hong Kong and China.
We were successfully able to set up a Hong Kong company for Luce5 and then establish a trading wholly foreign-owned enterprise (WFOE) in Shenzhen. This enabled the business to operate across the border and process intercompany transactions with ease.
We understand and can navigate the regulatory and tax environment, guiding you through the steps of starting and managing a business. Whether it’s business establishment, tax, accounting and HR solutions, or immigration advice and applications, our team of experts are here to help.
To find out more about doing business in Asia and our range of services, please download our Asia Guide here.
