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China law. Do not try this at home. Please.

By Dan Harris in 'China Law Blog'

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 both 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 is founder of the Harris & Moure law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes as a source of China legal and business information.

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