Foreign companies that want to be present on the Chinese market can establish a representative office. While this establishment cannot engage in commercial activities, it has an important role in developing the business relations in China and it is a low-risk investment option.The Chinese representative office is not a separate legal entity in China, therefore it cannot conduct business activities or engage in trade. However, the main scope of the office is to facilitate the business relations between the foreign company abroad and the Chinese business partners, government agencies and prospective customers.
Representative office set-up in China
The representative office can serve the following functions:
-allow companies to get accustomed to the Chinese market;
-form new business relations;
-maintain existing business relations;
-perform market research;
-introduce the company’s products to the Chinese market.
The Chineserepresentative office cannot enter into any other business activities, apart from the ones permitted for in the Chinese law. The representative office may also engage in negotiations on behalf of the company and, to a certain extent, sign contracts in the name of the company. Because the scope of business is limited, the representative office does not have the same demands for registration as other types of companies in China. However, the foreign investor will need to observe the current legislation for employment when hiring personnel at the representative office.
Other options for foreign investors in China
A foreign company that opens a representative office in China is taking the first step towards entering a large domestic market with important potential for future development. This is often the first step for many foreign companies and it is followed by opening a company in China. Foreign corporations will usually prefer to open a wholly foreign owned enterprise (WFOE) while others will enter into a joint venture with an existing Chinese company. The best option depends on the type of business and the plans for future expansion on the Chinese market.
Please watch the video below which contains details about how to set up a representative office in China and the purposes of such establishment:
The experts at our law firm in China can give you complete details about the existing business forms and their characteristics. You can contact us for more details about the representative office and other issues concerning company formation.