Manufacturing Export Goods in China

The established presence of a foreign company in China normally takes one of two forms that being either a Wholly Foreign Owned Enterprise (WFOE) or a representative office (Rep Office). A WFOE has a far wider scope of operation than a representative office, which by its very nature is restricted as to what it can do. For example, a WFOE can enter into product purchase agreements with other companies, import and export products without the help of other trading companies, and employ its local employees. A rep office, by contrast, is limited to liaison activities and cannot directly enter into contracts or provide services; a rep office may only employ local Chinese employees through local service companies.

In relation to investment requirements as an independent legal entity, a WFOE is required to have certain amount of investment from the parent company which can support its business operation. According to the PRC Company Law(中华人民共和国公司法), the minimum registered capital of a WFOE is RMB100,000. By contrast, there is no minimum requirement for the registered capital of a rep office as long as the operating expenses paid by the parent company are sufficient for its daily operations.

For approval and registration procedures the establishment of a WFOE must be approved by a local approval authority and registered at the relevant Administration for Industry and Commerce (AIC). Again by contrast, establishing a rep office requires only the latter, registration in the AIC and there is no requirement of governmental approval. Consequently, and in general, the legal paperwork for the establishment of a rep office will be simpler than that for WFOE incorporation. As an example, a rep office can undertake Quality Control (QC) and act as liaison with factories and other suppliers. A rep office can sign contracts on behalf of the parent company, but not on its own behalf, therefore the office cannot by itself enter into binding contracts or complete deals alone without authority from its parent company.