Setting up a subsidiary in China is not always quick and easy. It takes significant time, money, and resources to incorporate and grow your company. You can streamline the process by understanding China’s various subsidiary laws and regulations.

How to set up a China subsidiary

China has various types of business structures for multinational companies; however, these are the 3 most common:

  • Joint venture (JV): A JV is generally a foreign-invested company formed by international investors and investors in China. Profit distribution, governance rights, and risk allocation are set by Chinese company law and the venture documents. Companies that need a local business partner to help with distribution, government relationships, or market knowledge often choose this option.
  • Representative office (RO): An RO generally has no minimum registered capital requirement, but it is limited to non-revenue-generating activities and cannot operate as a full commercial entity. However, it has a limited business scope and can generally only perform non-profit, liaison-type activities, such as market research, promotion, and coordination for the foreign parent company.
  • Wholly foreign-owned enterprise (WFOE): A WFOE is typically a limited liability company established in China and wholly owned by foreign investor(s). Businesses that want to produce a parent company’s product in China and export it to another country often choose this option.

The process to set up a subsidiary in China depends on which option you choose.

WFOEs are typically the most popular business structure for international companies looking to establish a subsidiary in China. To set up a WFOE, you’ll need to prepare all legal documents — including articles of incorporation, audit reports, and letters of authorization — open bank accounts in China, and you will probably need to find a local legal representative for your company.

China subsidiary laws

Although WFOEs generally do not have a statutory minimum registered capital requirement, certain regulated industries or licensing regimes may still require registered or paid-in capital. China subsidiary laws are mainly set nationally, and standard WFOEs or FIEs usually do not face a city-by-city statutory minimum registered capital requirement. However, regulated industries, local filing practice, free trade zones, development zones, and incentive programs may require or expect a reasonable capital amount for the proposed business scope and locality.

All international investors might need a China entity to act as a sponsor for the company. Foreign investors can generally apply directly for WFOE incorporation documents or appoint an authorized local representative. Many use a service provider, law firm, or corporate services agent for Chinese-language filings and local procedures. A FESCO may help with related services, but it is not generally required for incorporation.

Benefits of setting up a China subsidiary

WFOEs have numerous benefits due to their structure. This structure gives the parent company greater control over the entire business and helps the company avoid any sticky situations with domestic investors in China, including:

  • Profit that is not maximized
  • Intellectual property leaks
  • Theft of knowledge and expertise

The benefits of subsidiary setup extend to the parent company. As a subsidiary, the company in China can operate independently, which means that managers can choose their own business style to match China’s culture and differing needs. Subsidiaries generally carry their own liability as separate legal persons, so the parent company is typically not automatically liable for litigation, compliance issues, or other problems. Exceptions can apply if the parent fails to meet capital contribution obligations, commingles operations, gives guarantees, or abuses limited liability.

WFOEs also have greater flexibility than other corporate structures. These subsidiaries can use local currency and directly control all day-to-day operations. They often operate under a higher degree of efficiency than JVs or ROs.

Other important considerations

The China subsidiary setup process takes a significant amount of time and money when handled on your own. From start to finish, it can take months to incorporate your business and begin operations successfully. Because foreign companies generally need a China-registered employing entity before hiring employees directly, setup delays can cost them strong candidates. An employer of record or authorized local employment solution can often provide a faster compliant route.

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