Last year around this time, co-blogger Steve Dickinson and I were in Yangon, Myanmar, assisting a company in figuring out whether to go into the country and, if so, how.  We were there with Bob Walsh who studied Burmese in the Army and has maintained a close interest in the country ever since and has done several projects there since 2001.  Last year a group of clients urged him to go to Myanmar and undertake projects on their behalf, and he hasn’t left yet, and it’s looking like it will be a long time before he does.

Since our last trip to Myanmar, we have been involved in a few Myanmar matters, but truth be told, Myanmar is a difficult place in which to do business and many of the companies going there are bigger companies mostly looking to get in now and make money later.  In the last year, Bob has spent more time in Myanmar than outside Myanmar and we were thinking that now would be a good time to update the situation there.  So after getting a few email updates from Bob, we asked him to provide us with his on the ground report on what it is like these days for foreign companies doing business in Myanmar or seeking to do so.  Here goes.


After a year of almost continuous residence, I’m starting to see improvements, but they are not everything that was expected.

Cars:  Cars have flooded in, mostly used (less than 7 years old) Japanese cars, but the odd Hyundai and Kia can be seen as well.  Ford is actually selling now, but I haven’t seen that many on the roads.  This has led to a few traffic bottlenecks in Yangon that would have been undreamed of a few years ago, but to its credit, the city government is putting in overpasses in most of the right places.  The outlawing of motorbikes keeps the place from looking like Jakarta or Bangkok.  The other good news is that the older rattletrap taxis are steadily disappearing; some of these actually harbored vermin like scabies and bedbugs and it is nice to “see” them disappearing.

Roads:  Nothing is happening immediately with roads, but that is to be expected.  Having made several pilgrimages to government offices in Naypyidaw, I can tell you that a lot of help is needed in designing and building high-speed roadways.  The highway to Naypyidaw is supposed to be the best in the country, but there’s something “off” about it, and driving at night is tricky.  Over the holiday weekend a group of us went to Chaungthar Beach, on the West coast of the Irrawaddy delta; roads headed that way were pretty poor as well, notwithstanding the additional degradation caused by the monsoons.  Although Chaungthar is a prime tourist destination, the last 25 miles of road is 1-lane blacktop winding through the southern Arrakan Yomas.  A few of the bridges crossing pretty wide rivers are actually scary as hell.  Various countries’ foreign aid plans are budgeting for highway improvements in Myanmar, and the Naypyidaw government is considering allowances for state and division-level private companies to build and toll roads.

Electricity:  When it comes to electricity supply, there is still much talk, but little real improvement.  The supply is at its most intermittent at the end of the early spring dry season, when hydroelectric dams are low, and demand for power is high due to the extreme heat.  Accordingly, most businesses and the better residential buildings will have their own generators, which is an additional expense (as much as $25K/mo for a medium-sized factory).  Still, power from the grid is pretty steep, about twice what one pays in the United States. As it seeks to fill the industrial parks and newly forming SEZ’s, electricity, then roads should be top priorities.  The sad numbers are that at most 14% of Myanmar people are even on the grid, and the per capita supply is something on the order of less than 120kwh per year; neighboring Bangladesh gets more than twice that.

Who’s coming in:  Aside from Coca-Cola, American companies don’t seem to be trying to claw their way into Myanmar.  But we are seeing waves of Thai companies, especially CP Group, coming in big, mostly to take advantage of agricultural land and low wage labor.  Japanese companies are flooding in as well, to do all sorts of stuff, bilateral trade, local manufacturing, and development of infrastructure.

That aside, we’re working with a couple of sizable Myanmar companies who are less interested in investment than they are in getting a solid project off the ground with a foreign partner.  Many of these companies are actually sitting on quite a bit of cash, or are holding thousands of acres of land, which at the moment is as good as cash.  Most of them are willing to be reasonable in pricing land leases, as long as the incoming foreign project is attractive and bankable.

Real estate/Hotels:  More and more renovated properties are opening, and what we were told to expect last summer, in terms of the market returning to equilibrium after an early boom, seems quite a likely scenario.  Still, it’s the low season for tourism.  The true benchmark for what it costs to stay here will be the US State Department’s per diem rate, which is currently $234/day for lodging.  Land for industrial use and development is still in stratospheric price ranges, but many of the owners are willing to enter into long-term lease arrangements for co-development under terms that are a bit more sane.  This report by Scipio (you will need to give them your email address to get it) very nicely addresses the real estate situation here.

One set of laws that are under consideration for draft are those intended to curb speculation by forcing landowners to actually develop what they are sitting on.  A good example are hundreds of plots in the Thilawa SEZ, which were snapped up by speculators and have yet to be developed.

Lands that have been seized/confiscated or acquired using coercion are being addressed, and in many cases the original landowners are successfully getting redress and remedy.  For foreign companies coming in to do anything land intensive, job #1 is to make sure that clear title exists and there is no historical baggage associated with what is being leased.

Law:  The national legislature is grinding its way through the making of laws.  I don’t follow it closely, but the latest thing circulating is the draft on the condominium law.  As you’ll remember, there were several drafts of the foreign investment law circulating last year in the spring.  With this bill, the main source of interest is whether or not expats will be permitted to buy apartments outright, versus leasing/renting.  A petition is being circulated to draft a law to restrict interfaith marriages.  This is intended to curb Muslim men from marrying Buddhist women.  As you and Steve have pointed out, what has to follow are implementing instructions.  As it happens, relatively few applications under the Foreign Investment Law are actually in process.

On the company registration front, we note that MIC, the watchdog over foreign companies in Burma, is already going around inspecting foreign companies in Myanmar to make sure that they are working within the scope of business they declared.  And of course they are finding piles of companies that never quite bothered to get any sort of registration at all.

More to come soon….

More from the Doing Business in China Seminar I co-moderated last week.

My law firm does a considerable business in forming China WFOEs.  Unlike forming a company in the United States, which costs very little in out of pocket costs (always less than USD$1000) and takes almost no time at all (a few days at most), forming a company in China can be a long and expensive process. We typically start the procedure by sending out an email with the following LONG list of questions and document requests

  • Legal Name and Structure. Full legal name, legal structure (corporation, LLC, partnership), state of formation, and registered legal address of the shareholder of the WFOE. I assume that your U.S. entity will be the shareholder. If this is not correct, please explain.
  • Company Registration Document. Most recent registration document (usually called an annual report) from the state of formation showing the name, address and officers and directors of the shareholder. Our office can obtain this document after we receive your response to item 1 above.
  • Proof of Shareholder Existence. For this we will need certified copies of a) a certificate of good standing and b) the most recent annual report for the shareholder. These documents must be authenticated by the secretary of state of the state of formation and also must be authenticated by the applicable Chinese consulate or embassy. This is a complex process. Our office will handle obtaining these documents and processing with the relevant Chinese consulate/embassy.
  • Name of WFOE in Chinese and English. We can assist in selecting the name if you wish. Chinese company names are complex. For now, what we need is the basic name that you want. We will then work with the local authorities to determine what should be the full legal name. Note that China is really only concerned with the Chinese version of the name. There is no real control on the English name that you use.
  • Lease of Space for the WFOE. The lease must be valid for at least one year beyond the eventual approval date for the WFOE. Since approval may take some time, it is best to have the initial term of the lease be at least one-and-a-half to two years. The lease must be in proper format and must be registered with the local real estate authority. We will also need proof that the landlord owns the property in question and has the authority to enter into the lease. This is usually proved by provision of a land rights certificate and proof of existence of the landlord (National ID for an individual, business license for a company). We will work with you during the leasing phase to ensure the lease is properly executed and that the landlord has proper authority. Prior to your entering into the lease, we will determine whether the proposed use is permitted for the premises and whether the proposed address is acceptable for a WFOE. Leases are often the biggest obstacle for WFOEs, so this is a matter to address right away. Note also that the specific details of the documentation requirements for a WFOE depend on the district where the WFOE will be formed. We therefore need to know the proposed address for the WFOE or at least the proposed district before we can make a final determination of the exact procedures that will be required for WFOE formation. Note also that we cannot even begin the registration process in China until we know the address of the proposed registered office for the WFOE, as well as the proposed use. This highlights the importance of the lease in the registration process.
  • Scope of Business.We must specify the scope of business of the WFOE. Please provide a statement of what services the WFOE will perform on a daily basis. We need reasonable detail for this, but no more than one page. The scope of business should address the following questions, among others.
    • How many employees will be working there? Are they full-time or part-time? Will they be working in the leased space or off-site.
    • Will the number of employees vary over time?
    • What is the nationality of these employees?
    • What will each of these employees be doing in this rented space – will they be programming? consulting? buying? selling? manufacturing? providing customer support? managing other employees? something else?
    • Who are the customers of the business? That is, who will be paying for the goods or services provided by the WFOE?
    • What is the projected cash flow of the business? Where will income go (i.e., to the WFOE, to the parent, to an affiliated entity)? How will expenses be paid (i.e., directly by the WFOE, by the parent, by an affiliated entity, etc.)? Where will the WFOE get its money to operate?

The scope of business will also be used in the company name as noted in Question 4. above.

  • Feasability Study.  We must provide a feasibility study that states the basic business plan of the WFOE. Our staff will draft that document. In order to do this, in addition to the information requested in Question 6 above, we need the following information:
    • Statement of start up expenses in reasonable detail.
    • One year and five year proforma income statement and balance sheet.
    • Statement of what services/product the WFOE will provide (to the extent not addressed in Question 6).
    • Statement of the expected cash flow of the WFOE: what entities will pay and what will they pay for (to the extent not addressed in Question 6)
    • Initial staffing plan for the WFOE with a three year and five year projection. Of particular importance is the nationality of the staff (to the extent not addressed in Question 6).
    • Statement of the business opportunity this WFOE will exploit, the expected market for the service, how you propose to meet the needs of that market and the benefit to China from the project.
  • Registered Capital.  We must state the amount of the registered capital for the WFOE. This amount is the actual amount of capital that will be paid in by the shareholder as start-up capital for the WFOE. Registered capital is not a deposit: it is the actual operating capital used by the WFOE for payment of start up expenses such as rent, remodeling, equipment and salaries. There is no set number, since the amount required for each WFOE is different. As a rule of thumb, most Chinese regulatory authorities expect that registered capital will be equal to at least the first years expenses. Some districts have a minimum amount for registered capital. For example, districts in Shanghai generally require at least US $150,000 in registered capital. Note also that certain businesses will be required to have higher registered capital minimums. The rule is that all registered capital must be paid within two years after approval of formation of the WFOE. Fifteen percent of this amount, or the required minimum, whichever is greater, must be paid within 90 days after formation of the WFOE. The amount of registered capital must be considered carefully. Any amounts paid into the WFOE by the shareholder in excess of registered capital will be treated as income to the WFOE, and taxed as such. Accordingly, it is important not to set the registered capital number so low that you would encounter this problem. We will discuss this in more detail with you as we progress.
  • Management. WFOE can be managed through a) a board of directors or b) through a single managing director. For a board of directors, the number of directors is typically three. One director is selected as the representative director who has the right to enter into agreements on behalf of the WFOE. For the managing director, a single person is appointed as the managing director. This person is also the representative director. You will need to determine which management method you will use. For single shareholder WFOEs, the managing director approach is common. You will need to designate the following:
    • Directors.
    • If you will use a board, state how many directors. Provide the full name and address of each director.
    • If you will use a managing director, provide the full name and address of each director.
    • General manager.
    • The daily business of the WFOE will be managed by a general manager. This person can be a member of the board or an independent individual. The person can be a Chinese national or a foreign national. The person can be a resident of China or a non-resident. Typically, for a WFOE the general manager is a Chinese national who does not serve on the board and who is resident in China. However, there is no fixed pattern.
    • Supervisor.
    • The supervisor is responsible for supervising the conduct of the board in order to protect the rights of shareholders. In a one shareholder WFOE, the supervisor position is not necessary. However, Chinese law requires an appointment to this position. The person must be independent and cannot be a director or the general manager.
  • Documentation for each person.For each person above, provide the following:
    • Name and address.
    • ID: For non-Chinese citizens, we will need four color copies of their passport. For Chinese citizens, we will need four color copies of their national ID card.
    • Resume: one or two page, including birth information and address, signed, four originals.
    • Photos: four 2″ visa size photos.
  • Proof of financial status. Normally, this can be done through a letter from your bank stating the basics of your deposit relation with the bank. We will provide you with an approved form for this letter. In some cases, the Chinese authorities will require an audit of the investor company. We will determine as soon as possible whether such an audit will be required.

And the above is just for a typical WFOE.  There are going to be all sorts of variations, depending on the type of WFOE being formed and even on the city or district in which it is being formed.

Everyone always wants to know how long forming a China WFOE will take and we always tell our WFOE formation clients (before they retain us) that it typically takes from 3-6 months and that our primary goal is always to work as quickly as we can, but that whenever we are faced with a situation where we have to choose between doing something 100% right and doing it fast, we always choose accuracy and precision over speed. If your WFOE is rejected once, the odds of it ever being accepted go way down.

Sometimes potential (and even existing) WFOE formation clients tell us of “someone” out there claiming to be able to form a WFOE in “just a couple of months.”  To that, I always respond that every single reputable law firm (both Chinese and American and European) with whom I have spoken has told me that three months is their bottom line estimate for the time it takes to form a WFOE.  I am bringing all of this up now because at the Doing Business in China seminar, two lawyers from two different highly reputable law firms put on their PowerPoints how long it takes to form a China WFOE.  One put six months and the other put 4-6 months.  These are the figures from start to finish and include the 30-90 days it can take once all documentation has been submitted to the appropriate authorities.

If anyone is assuring you that they can do a WFOE formation in “record time,” run, don’t walk away.  Forming a WFOE in China takes time.  Months of it.

Believe it.

For more on forming a WFOE in China, check out the following:

What are you seeing out there on WFOE formations?

One of the things we as lawyers face in trying to register companies, trademarks, licensing agreements, etc., in China are what I call the “little rules.”  Does a document need to be notarized?  Does it need to be appostilled?  Does it need to be consularized?  And if so, how must that document be notarized, appostilled, or consularized? Must it show on every page that it was notarized, appostilled or consularized?  Where on the page?

There is no one answer to any of these questions beyond saying that it varies.  It can vary between locations and governmental bodies.  It can vary between what was required yesterday and what will be required tomorrow.  Heck, it can even vary between the Chinese bureaucrat who takes in your document at 9 am and another Chinese bureaucrat who takes in your document ten minutes later.

All this can be very frustrating. Even more so when the filing gets rejected for having failed to comply.  When a Chinese agency rejects a document they usually just say something like “we cannot take this document.”  Our job at that point is to find out why and to fix it as quickly as possible.  Sound easy? It’s not.

Oftentimes, the Chinese government will demand something be in a certain form and the U.S. state or local authority will tell us that they cannot do it that way.  We are then in a Catch-22 situation where we essentially have to negotiate between two governments to get a document accepted by China. Where we most often see this — believe it or not — is on something as “small-time” as whether a document must have a government seal on every page.  Sometimes the Chinese government requires this and sometimes they do not. So our standard procedure is to seek it every time from U.S. governmental bodies.  But oftentimes, they will refuse, insisting that is unnecessary and they just don’t do that.  Much of the time, they are right and everything is fine, but sometimes the Chinese governmental body rejects the document, at which point we have to go back to the U.S. governmental body and explain what just happened and pretty much just beg them to do what the Chinese governmental body is mandating. These sorts of problems are most common when registering companies in China simply because that tends to be the most locally dependent and involve so many documents.

Fun stuff….

UPDATE:  Someone I know who used to set up foreign companies in China sent me the following, obviously wanting to remain anonymous.  I have taken her email and revised it a bit to protect anonymity and here it is.  I am running it because I think it nicely conveys what dealing with the Chinese bureaucracy (any bureaucracy, really) can be like:

Agreed, Dan, it is locally dependent. Talking about entity registration, we would first go for “Shanghai? Where EXACTLY in Shanghai?”- List of requirements for documents can vary greatly sometimes just within the same city.

But it also a problem of agency, whether it is too small or less experienced. With so many districts and cities in China, it would be impossible for us to follow all the updates or changes in the bureaucrats’ and so it would be impossible to warn clients in advance.

As we can’t change the system, we just had to constantly adjust to it (with constant complaining, of course). For instance, I would participate in weekly meetings of our company’s project department on all the on document requirements they faced while applying to different district authorities. And with our life search for logic in China, we even sometimes dared to analyze what had caused such changes. Some would be reasonably caused by new notifications on some regulations (rarely). In other cases we would fail to find any logic (that’s when even my most experienced colleague who used to work in government, would go for “这是老师个人的问题”).

As our assistants would go meet with the authorities practically every day, they would know most of the bureaucrats and they would  sometimes discuss what they would need to do to secure approvals.  Whenever an agency would get someone new, we would immediately feel it, as some projects would start to enjoy unspent creativity in “little rules” making as new bureaucrats so often go for “No, we can’t accept it” so as not to “lose face” by saying “I’m not sure. Let me check it for you.”

All of this was definitely very frustrating and sometimes made it impossible for us to stick to our policy of making our clients sign the papers only once.  We had a private joke response to our clients who would ask us to tell them how much longer it will take to register their company: “If it isn’t raining in the Ministry of Commerce, it will take ….”

I found the above to be completely accurate and I note that our response to how long it will take for the local authorities to get back to us regarding a WFOE registration is usually something like “two to four weeks, except when it isn’t.”