Client Case Studies: China

European chemicals manufacturer sets up Tianjin facility

Background
Our Client is a small European fine chemicals manufacturer who operate a small manufacturing and research and development (R&D) facility in the Netherlands. As part of a strategic expansion, the company’s management decided to explore the possibility of setting up a manufacturing facility in China to produce chemicals for the Chinese coating, agriculture, plastics and cosmetics industries, for which there is currently high demand. Having found our website via a Google search, the Client contacted us by e-mail requesting further details about China company incorporation, and their investment options in China.

Engagement planning
Healy Consultants agreed to undertake initial market research in China on behalf of our Client, to identify the ideal province in which to locate a manufacturing facility and to then draw up a strategy for business setup logistics in that region. Our Client agreed to pay us a retainer fee of US$1,000 to complete this task.

Our initial market research was challenging because of language difficulties, as well as variations in legal and regulatory conditions in different provinces in China. Healy Consultants staff on the ground in Shanghai obtained specific market information about other provinces, and made many telephone calls to provincial government departments and chambers of commerce to obtain hard data for our Client. Our initial two-week market research did, however, identify the northern province of Tianjin as being a suitable location for a grassroots facility, because:

Accounting and tax support
We presented this information to our Client, and explained the many accounting, tax and legal issues related to setting up a business in Tianjin in particular, and China in general. In particular, we highlighted the likely delays we would encounter in getting WOFE approval, the lack of transparency over federal and provincial government approval and company registration costs, and other incidental fees such as legal fees and translations.

After considering their options for two months, the Amsterdam-based board members of our Client’s company decided to proceed to set up the manufacturing WOFE in Tianjin, and our Incorporation Teams in both Shanghai and Singapore started the engagement in September 2006. The first step was to reserve the intended company name with the Tianjin Municipal Administrative Bureau for Industry and Commerce, located in the city of Tianjin. Our Shanghai office submitted the name application on behalf of our Client, and received approval that the name was available within five working days.

Company Incorportaion
The next step was to prepare a Project Proposal for our Client. Healy Consultants’ Marketing and Media Department in Singapore prepared a detailed Proposal containing the following information:

Luckily, some of the preliminary market research had been done at the beginning of the engagement, so our Marketing Team were able to produce a draft report within three days. As with any WOFE application, it was important to emphasise the technologies which would be used in the manufacturing facility, since approval often hinges on this issue. At the same time, our Client expressed concern to us over potential intellectual property rights infringements in China, since the facility would be using proprietary technology. (To assist them with this matter, at a later stage of the engagement we introduced our Client to a lawyer who was experienced in WOFEs and who had represented multinationals operating in the country).

Healy Consultants Shanghai team arranged to have the proposal translated into Chinese, and at the same time they prepared the other documents as part of the approval process, including:

These documents, as well as the translated Proposal, were submitted to the Tianjin provincial government, which gave its approval approximately one month after submission.

The next step was to apply for a business registration license from the Tianjin Municipal Administrative Bureau for Industry and Commerce. Approval was granted 15 days later, and a 30-year Business License certificate was issued and collected by Healy Consultants Shanghai-based staff, who had traveled up to Tianjin to manage this part of the engagement. Over the next four weeks, our team registered the WOFE with the State Tax Bureau (which has an office in Tianjin), the Tianjin Tax Bureau, the Foreign Exchange Control Authority and Customs Authority in Tianjin.

Corporate Banking
Only once all the approvals had been obtained was it possible to approach Standard Chartered Bank in Beijing to apply for a corporate bank account for the WOFE. Our Shanghai team prepared an account application, and sent this, along with supporting corporate documents and approval certificates, to the bank. Four weeks later our Client had received bank account numbers, and this marked the end of this phase of the engagement.

Healy Consultants continues to provide post-incorporation services for our Client. We have been negotiating with the Tianjin Tax Bureau for tax breaks for our Client’s WOFE, and our Shanghai team has been helping our Client secure a suitable site for the manufacturing facility, construction on which is due to start in early 2008.

INNOVATIVE GLOBAL CONSULTING COMPANY SETS UP SHANGHAI WOFE

Background
Our Client is a successful, innovative global management consulting company with operations in Singapore, Hong Kong, India and Massachusetts (US). As part of the management’s continued global expansion ambitions, the Client wished to open an office in Shanghai, China to provide the full range of consulting services to customers in China.

Engagement Planning
Healy Consultants has worked closely with our Client through 2006 and 2007 to engineer a global structure which fulfills their international business requirements. Following the successful and efficient incorporation of the Singapore, Hong Kong, India and Massachusetts entities on behalf of our Client, we were engaged to set up a company in Shanghai with 100% foreign ownership.

From the outset of this project, Healy Consultants’ Shanghai office advised our Client on the many statutory and licensing requirements of setting up a wholly-owned foreign entity (WOFE) in China, as well as any seemingly minor (yet important) details which could create delays (for example, all documentation must be signed in black fountain pen, no other colour is permitted).  Another key challenge for any engagement of this type is communication. The directors of the WOFE are busy businessmen, based in Singapore but who travel regularly throughout Asia. Arranging signatures on important corporate documents is an important time factor in any engagement. However, thanks to the cooperation of our Client, and the fact that the directors visited Shanghai during the process, we were able to overcome some of these potential difficulties.

Our Client was grateful for our experience on the ground in China, because although he was anxious to start conducting business through the WOFE as quickly as possible, he did not want any unwanted surprises during the course of the engagement. One of the first steps in the engagement was for our Client to agree on the corporate structure of the WOFE. A WOFE legally requires a minimum of one director, a minimum of one shareholder, a chairman/legal representative, and a supervisor. In our Client’s case, three international directors were appointed (one Canadian citizen, one French citizen and a Singaporean citizen). The French citizen was also appointed as the chairman/legal representative. One of our Client’s Chinese business associates was appointed as the supervisor. The sole shareholder of the WOFE was to be our Client’s Hong Kong-incorporated company.

Company Incorporation
With the corporate structure agreed, Healy Consultants completed an application form from the Shanghai Administrative Bureau for Industry and Commerce, requesting name approval for the WOFE. Name approval was obtained within two weeks. Both Tina and Hazel in our Shanghai office then began to prepare all documentation required for the multi-stage application to obtain a WOFE business license. A key challenge in this process was that all documents to be submitted to the Shanghai authorities must be in Chinese, meaning that some documents may require translation, and other documents would have to be signed by our Client in a language he did not understand. The following documents were prepared:

1. A feasibility study/business plan for the Shanghai WOFE – our Shanghai office drafted a document in Chinese outlining the proposed activities of the WOFE, an analysis of the market conditions, financial projections and credentials of the directors (to support this, the directors were required to submit resumes, translated into Chinese);

2. An application form from the Shanghai Administrative Bureau for Industry and Commerce and Xuhui District Foreign Investment Commission for the establishment of the WOFE;

3. Appointment letters (in Chinese) for the proposed chairperson and the members of the WOFE board of directors, signed by our Client;

4. A bank reference letter relating to the sole shareholder - since this was a Hong Kong company, it was necessary to obtain a bank reference letter (also in Chinese) for the company from its bank (Standard Chartered) in Hong Kong. The bank reference letter had to show that the Hong Kong company had a minimum balance of HK$100,000 (approximately $12,800);

5. It was also necessary to get the Hong Kong company’s Certificate of Incorporation and Business Registration Certificate to be notarised by a Hong Kong notary public – Healy Consultants’ Hong Kong officer Tammy assisted with this process, sending the notarised corporate documents to Shanghai, where Tina was required to have them further certified by a local institution authorised by the Chinese Ministry of Justice. Fortunately, the Hong Kong Certificate of Incorporation and Business Registration Certificates are bilingual (English and Chinese), so did not require translation.

6. A tenancy agreement for an office in Shanghai – since our Client planned to use our Shanghai office in the initial stages of its operation in the city, Healy Consultants’ Shanghai tenancy agreement sufficed;

7. Articles of association for the proposed WOFE – these were prepared by Tina and Hazel in our Shanghai office.

The above documents were submitted to both the Shanghai Administrative Bureau for Industry and Commerce and Xuhui District Foreign Investment Commission, at which point she advised our Client that it would take approximately one month to obtain Certificates of Approval. Within two weeks, an officer at the Xuhui Foreign Investment Commission had given Tina verbal confirmation that this phase of the application had been successful. One week later, she again visited the Xuhui Foreign Investment Commission, and was able to collect the Certificate, a scanned copy of which was e-mailed to our Client on the same day.

Having obtained the Certificate of Approval, our Shanghai Incorporation Team were in a position to apply for the Business License on behalf of the WOFE, which would allow it to legally conduct business. Another application form was completed by our Shanghai office, and, accompanied by the Certificate of Approval, was submitted to the Shanghai Industrial and Commerce Administration Bureau. Initial indications from the Shanghai Industrial and Commerce Administration Bureau was that the approval process for the Business License would take approximately 15 days. However, this was not achieved, despite frequent follow ups by our Shanghai office. In reality, approval took a full calendar month.

Corporate Banking
A scanned copy of the Business License was e-mailed to our Client on the same day it had been issued. This confirmed that the WOFE has a legal entity and was able to conduct business as per the consulting activities noted on the license. However, to the frustration of our Client (who was keen to start invoicing Clients in China), we were still unable to open a corporate bank account in China at this stage, due to Chinese banking regulations which require a Foreign Exchange Registration Certificate. While Tina applied for a Foreign Exchange Registration Certificate at the Foreign Exchange Bureau, Hazel liaised with the Shanghai Municipal Bureau of Finance to obtain a Tax Registration License for the company. As part of this process, a tax officer visited the WOFE premises (in this case, Healy Consultants’ Shanghai office) to conduct a physical inspection. 

Five days after submitting the application, the Foreign Exchange Registration Certificate was issued by the Foreign Exchange Bureau, finally enabling the WOFE to open a foreign currency corporate bank account at Standard Chartered Bank in Shanghai. To fulfill the bank’s account opening requirements, our Shanghai Banking Team were required to complete the following tasks:

1. Complete an SCB Shanghai foreign currency corporate bank account application form, signed by the legal representative of the WOFE and stamped with the WOFE’s seal (made following the business license approval).

2. Ask all directors (including the legal representative) to have their signatures, passport copies and proof of residential address to be verified by an SCB officer in Singapore (where the directors are based). Healy Consultants’ Singapore Banking Team accompanied the directors to the bank, close to our headquarters in Singapore.

With point 2 complete, Healy Consultants’ Singapore Banking Team couriered the verified SCB Singapore documents to our Shanghai office, where our Shanghai Banking Team received them and submitted the full application pack to the bank branch in person.

Other Services
To support our Client’s WOFE, Healy Consultants provide full Virtual Office services, including meeting facilities when required, as well as a telephone answering and mail forwarding service.

EUROPEAN PHARMACETICAL COMPANY SETS UP CHINA BRANCH OFFICE

Background
Our client, Mr. Narain, is the general manager of an international pharmaceutical company with corporate offices in London, UK and Berne, Switzerland. The company was formed in London in 1996 and provides innovative and effective prescriptions and products in three main areas of medicine: oncology (cancers), cardiovascular and neuroscience. The company has operations mainly focusing on markets in Europe and the Americas and has many ties with leading researchers and universities from around the world.

In 2003, the company undertook a strategic review of its global operations, both to streamline processes and penetrate new markets. The emerging market of China was of particular interest, given its blistering economic growth of 9.5% at the time, and with this in mind the management took the decision to create a presence in the country. Preliminary research and an exploratory visit to China by the company management highlighted the potential challenges of establishing a presence in China, not least the language barrier, complex Chinese bureaucracy and ongoing concerns over the protection of intellectual property rights (despite China’s obligations as a member of the World Trade Organisation (WTO)). In short, Mr Narain required professional assistance to set up a branch office in China as quickly and as efficiently as possible.

Engagement Planning
Mr. Narain contacted Healy Consultants in February 2005, sending us an e-mail outlining his requirements and objectives for the China operation. We replied with a comparison table of different Chinese entities, including a wholly foreign-owned entity (WOFE), a joint venture and a foreign investment enterprise (FIE), highlighting the advantages and disadvantages of each, as well as the approximate costs of setup. Our client had indicated that the China entity would not be involved in manufacturing – it would be a sales, marketing, storage and distribution operation, with facilities in southern China, possibly Guangzhou. Research and development (R&D) and manufacturing, he said, may occur at a later date but would continue to be done in Europe until they were more confident of China’s commitment to protecting intellectual property.  

Aidan Healy, the managing director of Healy Consultants, followed up this initial correspondence with a telephone call, during which he described to Mr Narain the potential challenges of setting up a wholesale FIE in China, including the long timeframes, and the company’s legal and tax obligations. With the engagement costs agreed, Mr. Narain transferred the required funds to our company bank account, and then signed our Client Engagement Letter (which had been included in our original e-mail), couriering it, along with the required due diligence on the new company’s directors and shareholders, to us from London.

Company Incorporation
Healy Consultants began the incorporation process by submitting a foreign investment application to the Guangzhou Bureau of Foreign Trade and Economic Cooperation at Guangzhou Municipality. This included an application form (completed by Healy Consultants in Chinese) for name approval, a feasibility study on the company’s intended activities (prepared by Healy Consultants, this included information on the company’s products and services, a detailed analysis of market conditions, and financial projections, translated into Chinese), draft articles of association and due diligence on the investors. Preliminary approval was provided by within 20 days, enabling Healy Consultants to take the process to the next stage – applying to the Foreign Trade and Economic Cooperation of Guangdong for FIE approval. This involved submitting similar documents as those supplied to the Guangzhou Bureau of Foreign Trade and Economic Cooperation, in addition to the name approval certificate, a lease agreement for an office (to overcome this requirement, our client decided to use our Virtual Office services in Guangzhou as a temporary measure), and proof that the minimum paid up capital had been paid into a bank in Guangzhou (completed by Healy Consultants).

Healy Consultants received a Certificate of Approval for the FIE from the Foreign Trade and Economic Cooperation of Guangdong, enabling us to then apply for a business license on behalf of the FIE. Healy Consultants again completed an application form, which was submitted, along with the Certificate of Approval, to the Guangzhou Bureau of Foreign Trade and Economic Cooperation, which issued a business license (allowing the company to conduct wholesale and retail activities) within three weeks.

Corportate Banking
With the company a legal entity, Healy Consultants was asked to open a corporate bank account to support its activities. To enable an FIE to open a bank account in China, it requires a Foreign Exchange Registration Certificate, which is obtained from the Guangzhou Foreign Exchange Bureau. At the same time, Healy Consultants applied for a Tax Registration License, which involved a Guangzhou tax officer visiting the FIE premises (in this case, Healy Consultants’ Guangzhou office) to conduct a physical inspection. Five days after submitting the application, the Foreign Exchange Registration Certificate was issued by the Foreign Exchange Bureau, finally enabling the FIE to open a foreign currency corporate bank account in Guangzhou. To fulfill the bank’s account opening requirements, Healy Consultants completed the following tasks:

1. Completed a foreign currency corporate bank account application form, signed by the legal representative of the FIE and stamped with the FIE’s seal (made following the business license approval).

2. Asked all directors (including the legal representative of the company) to have their signatures, passport copies and proof of residential address to be verified by a bank officer in the UK (where the directors are based). With point 2 complete, our client couriered the verified bank documents to Healy Consultants, and we then submitted the full application pack to the bank branch in person.

Other sevices
For the pharmaceutical company to be able to import and export items (chemicals, medicine and laboratory equipment), it is required to obtain specific licenses. Healy Consultants applied for an import/export card from the Bureau of Foreign Trade in Guangzhou to allow the company to be able to distribute its products both locally and internationally.

Healy Consultants’ final role in the engagement was to help Mr Narain find suitable premises in Guangzhou, including offices and a small yet specialised storage facility, according to his specifications and budget. Within two weeks, a draft lease agreement had been prepared and forwarded to Mr Narain for his acceptance and signature, which he did and couriered to us. This marked the end of the engagement from Healy Consultants’ perspective.

Contact Us for more information on our China corporate services, email email@healyconsultants.com or telephone us at (+65) 6735 0120.

Return to Client Case Studies in Asia page.