A couple weeks back, I co-moderated a Doing Business in China seminar at which two lawyers speakers went through the steps for forming a China WFOE. My two cent contribution was on the need to make sure that what you are planning on doing in China is legal, and to do that before anything else. I then proceeded to tell (maybe for the hundreth time) of a company that called me many years ago to retain my law firm to handle their China WFOE formation bvi company setup.
The company calling me was (and probably still is) a high powered New York City firm and they proceeded to tell me right out of the gate of how they had spent $500,000 researching the market in China and it was clear there was a huge need for their services and that they would be the first foreign company in China to provide such services . As they were talking, I kept thinking of how there is indeed a huge need for foreigners to provide such services, but that the reason none had yet done so was because those services were on the prohibited list for foreigners work visa hong kong.
A short digression here. China has what it calls its Catalog for Guidance of Foreign Investment. This catalog divides businesses into three categories: encouraged, restricted, and prohibited. Generally, foreign companies are allowed to operate an encouraged business on their own, as a Wholly Foreign Owned Enterprise (WFOE). Restricted businesses typically must be done via a Joint Venture (JV) and foreign companies cannot operate a prohibited business at all hong kong company formation.
So instead of my offering to form this company’s WOFE, I instead asked if they had done any legal research regarding the legality of their proposed business in China. They told me they had not, and they then retained us to research it. Very quickly we got back to them confirming my suspicion. They business they had spent the last year and $500,000 researching was prohibited to foreigners (I believe it is now on the restricted list).
Many love to tell of how “thirty years ago such and such company went into China in XYZ industry even though XYZ industry was clearly forbidden to foreign companies and now such and such company has X billions of dollars in sales in China.” And though there are absolutely stories like that, they key to them is that they were thirty years ago and doing that today would almost certainly not end well china company formation.