Investing in Starting a Manufacturing Business in China

Investing in a manufacturing project in China is no easy task.  Simply financing a domestic company carries the risk of the investment, as well as liability in some instances.  In China, however, there is the added problem of their regulations on businesses, which are myriad and in many cases arbitrary.

Of the vast array of rules and regulations established by Chinese government, there are some that American businessmen should pay particular interest to.  Before any joint venture can take place, one must go through the process of “…the examination and approval authorities” (http://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384083.htm) which “…shall decide to approve or disapprove the venture within three months” (http://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384083.htm).

Any investor who wishes to “…open factories or set up various economic undertakings… Guangdong Provincial Committee for the Administration of Special Economic Zones, which shall issue them registration certificates and land use certificates upon examination and approval” (http://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384060.htm).  Similar to the two above mentioned certificates and committees’ one must get approval from, there are more similar in nature that must approve of those who wish to do business in China, with relation to the specifics of the business.  For the entire list of all Chinese laws, visit (http://www.npc.gov.cn/englishnpc/Law/Frameset-index.html).

There are, however, some benefits to business in China.  The most obvious is their income tax rate which “…in the special zones is 15 percent” (http://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384060.htm).  For a point of comparison, the US corporate tax rate at its highest (net income $15M+) is 38%, over double the tax of China. There is also “Special preferential treatment… with an investment of U.S.$ 5 million or more, or those involving relatively high technology” (http://www.npc.gov.cn/englishnpc/Law/2007-12/13/content_1384060.htm).

While the tax situation is promising, the government will not offer any direct loans to investors.  In fact, according to the law “…the People’s Bank of China may not provide loans to … non-banking institutions, other units or individuals” (http://www.npc.gov.cn/englishnpc/Law/2007-12/12/content_1383712.htm).  The State Council can, of course, approve exceptions, though it does not state how.

While there is a good labor force, resource pool, and market to gain, it is not a simple task to enter into business in China as a foreign entity.

By – Domenic Gabriella for ChinaExports.com


Previous post:

Next post: