A reader sent me an email today with a link to a discussion on a LinkedIn group regarding the cost of setting up and doing business in China. The discussion began with someone seeking information regarding the best way to set up a business in China and information about what that will cost. I am not going to link over to the discussion because I have seen these sorts of things a million times before and I do not want to single out this particular LinkedIn group.

The reader sent me the link and requested I make a comment to the discussion that would “set the record straight.” I kept my silence on the discussion itself but I am going to rant about it now. I have no interest in getting involved in a discussion with a bunch of non-lawyers talking about how to set up business entities in China who know nothing of whereof they speak.

The comments that really got to me were the following:

You also might want to consider setting up your office in Hong Kong which offers the name recognition you’re looking for and gives you good access to mainland China. There are lots of benefits to choosing HK from a [sic] ease of doing business aspect. You can have a branch office in China if you need to.

There is no good way to set up a small company in China considering rep. office vs. WOFE; neither gives you much legal authority to do very much. The rep. office is much less money though and you can conduct business utilizing Chinese IE agents to do the legal part.

WRONG. Really wrong.  Setting up a company in Hong Kong is not the same thing as setting up a company on the mainland. Legally, setting up a company in Hong Kong is much closer to setting up a company in Tokyo or New York (at least with respect to the PRC) than it is to setting up a company in the PRC. But probably the most ridiculous statement is that of how a WFOE does not “give you much legal authority to do very much.”  Actually, under Chinese law, once established, a WFOE is a Chinese company and it has the same authority to do what wholly domestic Chinese companies can do. 

Someone else said that 20,000 Yuan is enough for a small company. It is not. That’s around $3,000.  The minimum capital requirement is around $14,000 (it is way more in most places where foreigners want to go) and on top of that, the company must rent space that is appropriate for a WFOE and then it must pay an employee, including employee/employer taxes. It typically takes at least $50,000 to form and run a business in China for the first year.

What is most troublesome about the proliferation of amateur China lawyers is that there are actually people who follow their advice. I just hope you are not one of them.

What do you think?

Dan Harris

I am a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

I mostly represent companies doing business in emerging market countries. It has taken me many years to build my network and it takes constant communication and travel to maintain it. My work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

I was named as one of only three Washington State Amazing Lawyers in International Law, I am AV rated by Martindale-Hubbell Law Directory (its highest rating), I am rated 10.0 by AVVO.com (its highest rating), and I am a SuperLawyer.

I am a frequent writer and public speaker on doing business in Asia and I constantly travel between the United States and Asia. I most commonly speak on China law issues and I am the lead writer of the award winning China Law Blog (www.chinalawblog.com). Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed me regarding various aspects of my international law practice.

I am licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at my firm, I focus on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.