Recently updated on April 15th, 2021 at 03:00 am
Paul Krab (Supply Chain Manager at SENZ Umbrellas BV): I am currently analyzing possibilities of starting our purchasing office in China. I am especially mapping pro’s and con’s of staring an office in Hong Kong vs. mainland China.
Hopefully there are some experts here who would like to share their experience with me.
Peter Hu(Sales Manager at S & P International Express Co.,Ltd): Hi Paul, it depends on what products will you mainly purchase from China and where are your vendors locate at. You can register your company in HK but open your operation center in Mainland like Shenzhen, where is very near to HK. The cost of setting up a office in HK is very high, but in Shenzhen or do business in Guangzhou, it’s worth the rent. if you need any help, we can be any of assistance to, thanks.
Bruce Bernstein(Director of Licensing, Marketing & Sales at Ninety Nine Inc): Hi Paul, as peter said it “depends”…. China is a huge country, so you really need to analyze where you will be purchasing your products from; will you need to do QC on a daily, weekly, monthly basis; how often will you be having meetings in China and where will those meetings be; and how much is your budget? Hong Kong is very expensive, but has an “image factor”. If you locate in Hong Kong, the salaries you will pay will be much higher then China for both local and expat employees. Expat employees located in Hong Kong will still need to apply and pay for visa’s toChina on a regular basis. Hong Kong is a 2 + hour flight from Shanghai /Chongqing and a 3+ hour flight from the Beijing area. So conceder that when opening an office. For an expat… life in Hong Kong is better then being in a Chinese city… life of an expat in China varies from city to city… I hope this helps and if you have any questions, email me…
Cornelius Mueller(Director at Sinoland Worldwide Ltd China): If you set up your purchasing office in HKG the costs are very high, compared to China, and you will spend most of the time working in China anyway – you will have to have a very close connection to your suppliers. Consider opening the office in China, it’s not that difficulty. I did it in 2001 and never looked back.
Jerome Van Huigenbos(Senior Associate – South China China): Hi Paul,
The main short-term consideration would likely be the initial scale of your operations here. Medium to long-term, whether you need to invoice, hire staff, develop further capabilities in China, etc.
– Chinese WFOE is costly and time-consuming but can allow you the fullest scope of trading activities here, opens more doors for future development of China operations including quality control, sales commission activities, also domestic sales, service etc.
– Chinese RO may still be the simplest way into China, but is technically restricted to engaging in non-profitable activities. There is a trend away from this type of structure due to (i) increased tax burden, (ii) more scrutiny from authorities, (iii) necessity of annual compliance procedures ie. audit. Many companies are ditching the RO structure in favor of a legal entity WFOE these days.
– Hong Kong limited company, quickest/cheapest setup-wise, and for a smaller sourcing operation should be the most cost-effective way to establish in greater China, close to your suppliers. Main issue is that there are considerations related to time staff spends in China without potentially triggering Permanent Establishment, and additional tax implications for your company. As mentioned though, HK company can be the investor into a China WFOE and there are some potential advantages in structuring your entry this way.
James Foster(Chief International Affairs Officer at Sino United Global Investments): I agree with a lot of the comments here, particularly Bruce and Jerome. Visas are an important issue, and you should bear in mind that visas are required both ways. Chinese staff would need visas for HK and vice-versa…could get complicated and potentially expensive both in time and money.
Invoicing is the key to China, virtually ALL companies will need their ‘fapiao’ – Chinese Invoice and may not accept these from HK, and Rep Offices are not allowed to issue them, so WOFE would be the way to go.
My main advice would be to get some legal help, get all the information possible and then develop a plan for your short, mid and long term goals. Depending on the size of your organization, you can probably test the water by starting the company in HK and should the profits mount you can open the Rep Office and then hopefully NEED to setup a WOFE. Please also, have a look at Joint Ventures; there are some horror stories about this but also some good, positive ones too.
Veronica Lutalo(Procurement & Marketing Consultant China): My advice would be to start up in Hongkong because it takes only 7 working days to register a limited company for less than RMB 5000. With these fees you can have a company secretary and a Hongkong address downtown Central or Mongkok in Kowloon. You do not have to be located in Kowloon or Hongkong Island. You could be located in the New Territories of Yuen Long & Tuen Moon as they are great urban centres with everything you would need to get from downtown Hongkong yet the rent is much lower and at the same time, it takes 30min to go by metro for about HKD 20 to Shenzhen. Most factories are in Shenzhen & Guangzhou, from Shenzhen to Guangzhou by high speed train is 45min for RMB100.
Having mastered how things work in China, you can then register a company in China as well or a rep office, up to you to weigh options. But Hongkong is a good entry point to China.
wayne Pettitt ( 裴 韦 恩)( CEO at Ningbo Sun Metal Products China): Hi Paul, I set up a limited company in HK and then quickly followed with a joint venture manufacturing business in Ningbo. (2005) Best decision ever. If you are looking at purchasing only to start with there are easier and cheaper ways to do this, finding the right partner to assist with this in China is the most important aspect.
Luke Yang(Partner, The Berry Co. Cleveland/Akron, Ohio Area): Hi Paul,
I’m from the US but based in Shanghai. About a half year ago I had the same question you have now. After some research I have found that there are several advantages to setting up in hk that you should consider and would probably be important factors in your decision-making process. Namely, there are three main advantages: 1. Tax benefits (any profit made outside of hk is non-taxable), 2. Changing ownership, shareholders, and share options are much easier to navigate (not the case in china), and 3. Litigation (in the event that any legal issues arise, you will have much better litigation and enforcement opportunities than china). While others have said that setting up in hk is costly they have failed to mention that not only is it costly in china, due to the complexities of the china business infrastructure any major decisions cost both time and money. Of course, setting up directly in China had its advantages but for a foreign enterprise hk is probably the best bet. The initial setup in hk is quite low actually (3-4k hkd), the costs you must consider are the maintaining and compliance issues of your business. All told and because an hk company has more legitimacy in the western world, I have chosen this route.
That being said, my situation may differ from yours so I would suggest you keep on doing research as to your particular needs. I setup as an LLC. If you have any questions, feel free.
Leave a Reply