China law

Got an email yesterday with a link to an old discussion on a Reddit 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 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 both from an ease of doing business aspect and because it is so much cheaper to do so. 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. See A Hong Kong Company Is NOT a Mainland China Company and a Hong Kong Trademark is NOT a Mainland China Trademark.

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 pretty much whatever 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, and in many parts of China, the company must rent space 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.

The problem with listening to people on these forums is that they are often right and often wrong and there is usually no good way to tell the difference. I spent much of 2017 and 2018 living in Spain and working with our lawyers there. For that I needed a visa and I the more I read about the various visas (in both English and in Spanish!) the more confused I got. I had a strong sense that I understood 95% of what I needed to know, but I also had no idea what 5% I was wrong on.

So I hired a really good and relatively expensive Spanish immigration lawyer and my wife and I met with her and in two hours she explained it all to us. I had read that it takes months to get a visa after meeting with the Spain consul in the United States and that would be a huge problem for us because it would have meant we would need to park ourselves in the United States while waiting for the visa. This lawyer told me that it would almost certainly take less than a week and she also gave us a ton of tips that would all but ensure this. It took two days, largely thanks to her.

Much of what is online regarding legal matters has been wrong since the day it went up and much which was initially correct has changed. Also, some of what is online applies to some cities and some industries and not others. This is as true for Spain as it is for China.

Bottom Line: Reading about how to operate legally in China is a good thing but making real life decisions on that is not.

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Photo of Dan Harris Dan Harris

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

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

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

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His 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.

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

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. 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 Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses 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.