Opening a manufacturing company in China

Opening a manufacturing company in China

China is an extremely attractive jurisdiction for our Clients looking to setup a manufacturing company. For these Clients, Healy Consultants will assist with i) securing low cost office spaces and industrial spaces ii) hiring qualified local labour iii) locating suppliers for raw materials iv) building local logistic networks and v) securing the necessary government permits. For information about the Chinese manufacturing sector, refer to the information below.

  • Advantages of setting up manufacturing operations in China

    1. China is the world’s largest manufacturing and distribution hub because:
    2. Our Clients will enjoy Chinese Government incentives to support manufacturing operations including:
      • More than 200 national development zones including SEZs and coastal development areas offering i) access to low cost Chinese labour, ii) ease in leasing land within the zone and iii) exemption from custom duties;
      • Availability of free trade zone programs in Shanghai, Tianjin, Guangdong and Fujian welcoming manufacturing businesses;
      • Eligibility for a 2-year corporate tax exemption for companies investing in i) underprivileged areas of Xinjiang province and ii) in high tech activities in Shenzhen, Hainan, Pudong and Shanghai;
      • A 3-year tax exemption and 50% tax exemption for the subsequent 3 years for companies investing in specific infrastructure projects and environment protection projects.
    3. Our Client setting up their manufacturing companies in the free trade zones will enjoy:
      • Benefit from faster company incorporation procedures;
      • Register a company without a minimum share capital and physical office requirement;
      • Borrow RMB funds from overseas banks as well as issue RMB denominated bonds in the zone;
      • Possibility of listing their companies on the Hong Kong stock exchange;
      • Easily make outward RMB payments without government approval through specialized forex bank accounts.
    4. Other advantages and tax incentives our Client stand to enjoy available include:
      • Eligibility for 50% or complete corporate tax exemption for companies engaging in agriculture, forestry, animal-husbandry and fishery projects;
      • Tax exemption on income of up to US$750,000 for companies engaged in technology transfers;
      • A 2-year complete tax exemption and 50% tax exemption for the subsequent 3 years for software development companies;
      • Other tax incentives include i) 15% corporate tax on high-tech companies, ii) 20% tax on start-ups and iii) 100% refund on wages for companies hiring handicapped employee;
      • A five-year tax holiday and 50% tax exemption over the subsequent 5 years for companies with investments exceeding US$1.2 billion.
  • Disadvantages of setting up manufacturing operations in China

    1. Despite all the success stories, it can still be difficult and expensive to operate a manufacturing enterprise in China because:
      • Foreign entrepreneurs will need to navigate through ridiculous levels of bureaucracy in China when setting up business;
      • Our Clients will need to spend money to hire a local translator right away to avoid any issues as all the company documents are published in Chinese;
      • Payment of higher tariffs for industrial electricity usage as compared to the United States. Additionally, it can be a time consuming process to secure electricity connection in China according to World Bank;
      • Our Clients established in the SEZs will suffer corporate tax rate of 25% and 10% withholding tax rate on dividend payments to foreign shareholders;
      • Requirements to seek government approval for repatriation of profits abroad due to the strict government exchange controls.
    2. Over the coming years, China is likely to lose its labor related advantages because:
      • While labour in China is cheaper than in the west, it is also less productive. Productivity adjusted costs in the United States are 14% lower than the costs in China;
      • The aggregate of labour strikes have increased in recent years according to Financial Times, with a 20% increase in the first 6months of 2016;
      • Due to the rising labour costs in China, some business consider setting up their manufacturing operations in other Asian countries like Philippines, Vietnam and Indonesia to take advantage of the low cost of labour;
      • With an extremely low English speaking population in China, Our clients will encounter communication barrier especially with the unskilled workers.
  • China Labour Considerations

    • The average weekly working hours in China are 44, with no more than 8 hours a day. Individuals working beyond the official work hours will be paid 150% of the normal wages. Individuals working on holidays will be paid 300% of the normal wages;
    • The hourly minimum wage in China ranges between US$1.3 and US$2.8 depending on city. Currently, Shanghai and Beijing mandate the highest minimum wages in the country;
    • It is mandatory for the employers to provide written contracts to their employees within 1 month from the date of hiring. Workers can be hired on fixed, open-term or seasonal contracts;
    • Employers are required to withhold income taxes on their employee’s monthly remuneration and remit to the state authorities by the 15th of the following month.
  • China Import/Export Considerations

  • China provinces comparison

    Chinese ProvincesShanghai (Municipality)Beijing (Municipality)GuangdongZhejiangTianjin (Municipality)Sichuan
    Preferred city for incorporation of the company?ShanghaiBeijingShenzhenHangzhouTianjinChengdu
    Business output market size? (in US$ billions)3813461,098467259456
    Local purchasing power (GDP per capita)?US$13,701US$14,252US$8,859US$10,360US$15,074US$4,911
    Most popular business sector?FinanceServicesManufacturingLight industriesLogisticAgriculture
    English Penetration (% of population)15%15%10%6%10%8%
    Specific attractive Government incentives available?YesYesYesYesYesYes
    Time zone? (ahead of GMT)+8 hours+8 hours+8 hours+8 hours+8 hours+8 hours
    Hub for the headquarters of multi-national firms?YesYesYesNoNoNo
    City airport with flights to Europe, Australia and America?YesYesYesNoNoNo
    Logistical considerations
    Attractive State for a manufacturing business?NoNoYesYesYesYes
    Attractive State for a e-business?YesYesYesNoYesNo
    Attractive State for an export-oriented service business?YesNoYesNoYesNo
    CBD monthly office rental per sq m?US$68US$84US$46US$22US$19US$24
    Average monthly warehouse rental per sq m?US$20US$22US$7US$5US$5US$6
    Average monthly electricity prices? (per Kwh)US$0.034US$0.04US$0.05US$0.04US$0.04US$0.04
    Proximity of sea port to the main city?25 km160 km27 km25 km55km1,333 km
    Proximity of airport in kilometres to the main city?33 km32 km32 km30 km24 km20 km
    Proximity of rail in kilometres to the main city?17 km32 km18 km39 km22km20 km
    Number of international tourists? (in million)11.637.9241.36.411.444.1
    Average annual inflation rate?2.2%3.6%1.6%1.4%2.5%2.4%
    Average unemployment rate?4.1%1.3%2.4%3.0%3.5%4.2%
    Quality of internet broadband and Wi-Fi?GoodGoodGoodSatisfactorySatisfactorySatisfactory
    Corporate Banking and Finance considerations
    Is the main city a financial services hub?YesYesYesNoNoNo
    How many global banks are based in the state?2725176714
    How many Chinese banks with local branches?232320212019
    Recommended Bank for corporate banking?HSBCSCBCitibankHSBCBank of ChinaCitibank
    Client must travel for account opening?NoNoNoNoNoNo
    Quality of bank customer services?GoodSatisfactorySatisfactoryGoodGoodSatisfactory
    Quality of online banking services?GoodGoodSatisfactoryGoodGoodSatisfactory
    English e-banking platform available?YesYesYesYesYesYes
    Does the State have a reputable financial district?YesYesYesNoYesNo
    Does the State have a local Stock Exchange?YesYesYesNoNoNo
    Are there Private Equity Funds/VCs in the State?YesYesYesYesYesYes
    Employment considerations
    Average monthly salary for local employees?US$1,250US$1,280US$746US$782US$913US$659
    Average skilled labour monthly salary?US$2,000US$2,000US$1,500US$1,630US$1,650US$1,250
    Average unskilled labour monthly salary?US$800US$875US$500US$520US$610US$460
    Minimum monthly wage for local employees?US$330US$260US$285US$280US$278US$226
    Is there a large expatriate community in the main city?YesYesYesNoNoNo
    International schools for children of expatriate employees?YesYesYesYesYesYes
    General availability of bars and restaurants?YesYesYesYesYesYes
    Will I find European F&B products in the supermarkets?YesYesYesYesYesYes
    Mercer Survey Ranking for global cities?101118119Not rankedNot ranked136
    Is the main city of the State safe for expatriates?YesYesYesYesYesYes
    Literacy rate? (% of population)97%98%97%94%98%93%
    Computer literacy rate? (% of population)60%65%40%35%45%30%
    Accounting and tax considerations
    Monthly and quarterly tax filing required?YesYesYesYesYesYes
    Business incentives offered by the state government?YesYesYesYesYesYes
    Deed tax payable on transfer of property rights?3%4%3%3%3%4%
    How many FTZs and EPZs available?105210
    Average customs duty of export products?10%10%10%10%10%10%
    Average customs duty for imported products?15%15%15%15%15%15%
    Local VAT rate?17%17%17%17%17%17%
    Corporation tax rate?25%25%25%25%25%25%
    Withholding tax on dividends to overseas shareholders?10%10%10%10%10%10%
    Average pension and insurance benefits (% of salary)?20%20%20%20%20%20%
    Mandatory labour unions?NoNoNoNoNoNo
    Minimum notice to dismiss employees?1 month1 month1 month1 month1 month1 month
    Minimum redundancy indemnity? (for tenure of 1 year)1 month1 month1 month1 month1 month1 month

Contact us

For additional information on our manufacturing company registration services in China, please email us at email@healyconsultants.com. Alternatively please contact our in-house country expert, Ms. Chrissi Zamora, directly:
client relationship officer - Chrissi