Moving a business to China or opening an entirely new enterprise is a dream that many investors would want to see come true. It is easy to see why: China is a global business hub. The country does not disappoint investors that have already ventured into China because it has a large market, and access to neighboring regions is equally easy. So, do not hesitate to go for a China trading company.
When opening a China trading company, one of the most important things is the type of business formation. Well, there are many options in China, including sole proprietorships, branch offices, joint ventures (JV), and wholly foreign-owned enterprises (WFOE). However, WFOEs and JVs are most common. Keep reading as we dig deeper to help you understand the two and make the big decision on the one to select.
Why China?
Before comparing JVs and WFOEs, let’s start by looking at the main benefits that come with expanding your company to China.
- The country provides your company with a very large market.
- China has signed many bilateral trade pacts with countries across the globe to help expand the market for local companies.
- A supportive administration.
- Low tax regime, especially for companies operating in Free Trade Areas, urban areas away from the coast, and focusing on software development.
- Highly developed infrastructure.
- Educated workforce.
- Social and economic stability of the country.
Comparing WFOEs to JVs
The benefits we have listed above are only a few: the list will be way longer. So, let’s check the main differences between WFOEs and JVs:
Wholly Foreign-Owned Enterprises (WFOE)
As the name wholly foreign-owned enterprise suggests, it is a business that has 100% foreign ownership. It takes the form of a limited liability company, which means that your personal assets will not be at risk of seizure in case something goes wrong. WFOEs are the commonest business vehicles in China because they provide greater autonomy compared to JVs. As said by Hawksford Other benefits of WFOEs include:
- There is no sharing of profits.
- They allow you to engage in profitable activities.
- There are no limitations for moving profits outside China.
- Comes with a lot of tax incentives if the company is based on the encouraged areas.
Joint Venture (JV)
Joint ventures (JV) are the direct opposite of the WFOEs. Here, the foreign investor is required to enter into a partnership with a local Chinese partner who should hold a majority shareholding in the company. This means that you will not have full control over the company like the case of WFOE. So, you must share profits with your partner. The only similarity that a JV has with WFOEs is that it is registered as a limited liability company. The main benefits that come with using JVs are:
- You can take advantage of your partner to make the China trading company grow faster.
- Because you are combining resources, it is possible to raise more capital together with your partner.
- It is possible to get tenders and business deals in restricted areas, such as government agencies’ tenders, courtesy of your Chinese partners.
Although both business vehicles come with key advantages, a JV is likely to be more challenging because you need to start by identifying the partner to work with. Again, it might be challenging to respond to issues on the market because a lot of consultations will be needed. This is why more investors coming to China are opting for WFOEs to JVs. You, too, should consider using a WFOE.
To start a WFOE as your China trading company, the first step is getting it incorporated correctly. This can be challenging because you are required to prepare a long list of documents and deal with multiple offices. The best way to register a WFOE is using an agency of experts. These professionals can help you to register the company, prepare the strategy for growth, and some of the post-registration procedures. They hold your hand to ensure the company becomes successful.
