Are there foreign ownership restrictions for small businesses in China?

[anonymoose]

Are there any ownership requirements relating to nationality to own a small business in China? I am thinking of opening an English school, and was wondering whether I could have 100% ownership being a foreigner.

Does anyone have any useful tips about starting a business, eg. how to register and get it all legal, etc.? Also, what kind of visa would one go on? I assume a Z visa would be inappropriate since that requires an invitation from an existing company to obtain.

[stephanhodges]

I know on MrToga's website, that he talks about his experiences in starting up a wholely owned foreign business in China. http://www.hyccchina.com/english/hycc/aboutcompany.htm talks a little bit about this.

[roddy]

If I remember correctly though, education is not yet one of the fields where you can open a WOFE, and you would still need a Chinese partner.

[ocpaul20]

Is there a list somewhere of the kind of businesss that foreigners can own on their own?

I heard somewhere that you need to show you have 100K yuan in the bank to show you have some dosh.

Is there anything like a small trader or sole trader allowed? For Chinese, there must be something of this sort but whether a westerner can do this kind of thing or not.... anyone know?

[gato]

The limitations on foreign-owned businesses were more severe before China entered the WTO in 2001. This regulation on foreign-capital enterprises from 1990 has the following list of restrictions.

http://www.00615.net/waizi/wf/w_13.htm

《中华人民共和国外资企业法实施细则》

　　第四条　下列行业，禁止设立外资企业：

　　（一）新闻、出版、广播、电视、电影；

　　（二）国内商业、对外贸易、保险；

　　（三）邮电通信；

　　（四）中国政府规定禁止设立外资企业的其他行业。

　　第五条　下列行业，限制设立外资企业：

　　（一）公用事业；

　　（二）交通运输；

　　（三）房地产；

　　（四）信托投资；

　　（五）租赁。

Today these restrictions have been relaxed. The foreign-capital enterprise regulations were updated in 2001 to eliminate the reference to the outright bans in article 4 and restrictions in article 5.

http://www.fdi.gov.cn/ltlaw/lawinfodisp.jsp?id=ABC00000000000003896

关于修改《中华人民共和国外资企业法实施细则》的决定

The new regulations incorporate by reference the follow government foreign investment policy directive, which list the types of foreign investments are allowed. These restrictions will also be gradually relaxed as China makes good on its WTO commitments.

http://www.china-anhui.com/gb/tzah/tzzn/zcfl/zsf37_12.htm

《外商投资产业指导目录》

The WTO scorecard from the US-China Business Council gives a nice summary of the current state of the law.

http://www.uschina.org/public/wto/

[anonymoose]

Thanks for your replies.

Gato, that first link you provided looks especially informative. I haven't read it completely yet (my Chinese reading speed isn't that fast), but I can't see anything obviously stating that a school couldn't be wholly-owned by a foreigner.

[gato]

Actually, the first link refers to a 1990 regulation that's now obsolete (I included it for comparison purposes). The currently effective limitations on investments are listed in 《外商投资产业指导目录》, effective as of 2002 (there might be a newer version out; I haven't searched).

http://www.china-anhui.com/gb/tzah/tzzn/zcfl/zsf37_12.htm

From what I can tell, educational businesses are not on the restricted list. They arguably were restricted under the 1990 regulation as a type of "公用事业" (publicly-oriented business).

[mr.stinky]

saw some flyers in the laowai section in kunming - someone is selling out their

english school. claims to have up and running for over five years.

[niubi]

as far as i know, a wholly owned biz does require a 100k investment. the cheapest alternative is setting up an offshore HK-registered company. some of the partners of salvador's cafe in kunming run a consulting biz that will register your company for you for 5k usd.

[roddy]

Bear in mind that there's a pretty significant difference between 'education' as in K12 teaching kids, and 'education' as in say, business English training - the latter you may be able to call management training or consulting.

[anonymoose]

I heard somewhere that you need to show you have 100K yuan in the bank to show you have some dosh.

as far as i know, a wholly owned biz does require a 100k investment. the cheapest alternative is setting up an offshore HK-registered company. some of the partners of salvador's cafe in kunming run a consulting biz that will register your company for you for 5k usd.

So this 100K we're talking about, is this yuan or US$? I think yuan wouldn't be a problem, but 100K$ might be. Also, I assume this is capital used for setting up the business - it's not a payable fee, right? If so, then I don't see what the advantage of paying someone 5k US$ to register a company is, when setting it up is likely to cost 100K yuan anyway...

[gato]

The minimum registered capital required should be 100K Yuan.

See this page that was cited in an earlier thread.

http://www.by-cpa.com/english/china/wfoe.asp

WHOLLY OWNED FOREIGN ENTERPRISE IN CHINA

One of the most important issues covered in the project documentation is the business scope of the WOFE. Business scope is narrowly defined for all businesses in China and the WOFE can only conduct business within its approved business scope, which ultimately appears on the business license. Any amendments to the business scope require further application and approval. Inevitably, there is a negotiation with the approval authorities to approve as broad a business scope as is permitted.

General business scope usually includes, investment consulting, international economic consulting, trade information consulting, marketing and promotion consulting, corporate management consulting, technology consulting, manufacturing, etc.

Registered and Paid up Capital

For the WOFE, the minimum amount of registered capital required starting from RMB100,000 (about USD12,000), Under the Company Laws, the paid-up capital is equal to registered capital, Investors or shareholders must pay for the shares subscribed and deposit the money into a specified bank account. The amount of share capital so deposited should be audited by a firm of certified public

Here is the provision on registered capital for a single-shareholder limited liability company from the PRC Company Law.

http://www.china.org.cn/chinese/MATERIAL/1012596.htm

中华人民共和国公司法 （2005）

第五十九条

一人有限责任公司的注册资本最低限额为人民币十万元。股东应当一次足额缴纳公司章程规定的出资额。

[walkinrain]

Have a look at below website, you might find related regulations about investing in China,

http://www.china.org.cn/chinese/PI-c/1231708.htm

[mr.stinky]

100k investment to start up a wholly owned foreign enterprise....but what if you have a (or

several) chinese partners. is there a minimum/maximum investment or percentage of the

business for the foreigner(s)?

and what about the visa requirement? for my situation, i'm on a student visa, and have

been made an "offer i can't refuse." before i refuse, what do i need to know?

can i do this on a student visa? does it matter if i'm a 'silent partner' or an active manager?

do i need to convert to a business visa? if so, i'll search more postings before asking

more stupid questions.

[[欧阳江]]

The Chinese government requires a amount of start-up capital to be placed on the company's [Chinese] bank account in order to establish a WOFE in China. However, you may after the registration is complete, withdrawal it and invest it. The required registered capital will vary depending on your business scope – at present, the required registered capital can be as low as 30 000CNY. Your business scope describes what kind of business you wish to conduct in China. For instance, if you want to open a company that deals with international trade you will have a different business scope thus being required to pay a different amount of registered capital than if your business scope were just marketing and promotion.

Any foreign investor who want to register any kind of business in China (RO, JV or WOFE) are obliged to go trough a certified agent, they usually charge $1000–$4400 for their "services" (stamping some papers and handing them in to right department) depending on your business scope and if you want to open a RO, JV or WOFE.

Even if you start a JV you will still have to go trough the same kind of procedures but you will have the risks and costs divided by another part.

I recommend that you register a company in your country and start doing business in China on the basis of that and then find a Chinese partner who would like to do cooperate with you, so you don't have to invoice your students from your [foreign] company.

Good luck!