Opening a manufacturing company in China in 2022

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:
    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.
      • The ongoing trade war between USA and China is forcing global entrepreneurs and MNCs to look for alternative manufacturing jurisdictions like Malaysia, Vietnam, Thailand and Mexico.
    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 Provinces Shanghai (Municipality) Beijing (Municipality) Guangdong Zhejiang Tianjin (Municipality) Sichuan
    Preferred city for incorporation of the company? Shanghai Beijing Shenzhen Hangzhou Tianjin Chengdu
    Business output market size? (in US$ billions) 381 346 1,098 467 259 456
    Local purchasing power (GDP per capita)? US$13,701 US$14,252 US$8,859 US$10,360 US$15,074 US$4,911
    Most popular business sector? Finance Services Manufacturing Light industries Logistic Agriculture
    English Penetration (% of population) 15% 15% 10% 6% 10% 8%
    Specific attractive Government incentives available? Yes Yes Yes Yes Yes Yes
    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? Yes Yes Yes No No No
    City airport with flights to Europe, Australia and America? Yes Yes Yes No No No
    Logistical considerations
    Attractive State for a manufacturing business? No No Yes Yes Yes Yes
    Attractive State for a e-business? Yes Yes Yes No Yes No
    Attractive State for an export-oriented service business? Yes No Yes No Yes No
    CBD monthly office rental per sq m? US$68 US$84 US$46 US$22 US$19 US$24
    Average monthly warehouse rental per sq m? US$20 US$22 US$7 US$5 US$5 US$6
    Average monthly electricity prices? (per Kwh) US$0.034 US$0.04 US$0.05 US$0.04 US$0.04 US$0.04
    Proximity of sea port to the main city? 25 km 160 km 27 km 25 km 55km 1,333 km
    Proximity of airport in kilometres to the main city? 33 km 32 km 32 km 30 km 24 km 20 km
    Proximity of rail in kilometres to the main city? 17 km 32 km 18 km 39 km 22km 20 km
    Number of international tourists? (in million) 11.63 7.92 41.3 6.41 1.44 4.1
    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? Good Good Good Satisfactory Satisfactory Satisfactory
    Corporate Banking and Finance considerations
    Is the main city a financial services hub? Yes Yes Yes No No No
    How many global banks are based in the state? 27 25 17 6 7 14
    How many Chinese banks with local branches? 23 23 20 21 20 19
    Recommended Bank for corporate banking? HSBC SCB Citibank HSBC Bank of China Citibank
    Client must travel for account opening? No No No No No No
    Quality of bank customer services? Good Satisfactory Satisfactory Good Good Satisfactory
    Quality of online banking services? Good Good Satisfactory Good Good Satisfactory
    English e-banking platform available? Yes Yes Yes Yes Yes Yes
    Does the State have a reputable financial district? Yes Yes Yes No Yes No
    Does the State have a local Stock Exchange? Yes Yes Yes No No No
    Are there Private Equity Funds/VCs in the State? Yes Yes Yes Yes Yes Yes
    Employment considerations
    Average monthly salary for local employees? US$1,250 US$1,280 US$746 US$782 US$913 US$659
    Average skilled labour monthly salary? US$2,000 US$2,000 US$1,500 US$1,630 US$1,650 US$1,250
    Average unskilled labour monthly salary? US$800 US$875 US$500 US$520 US$610 US$460
    Minimum monthly wage for local employees? US$330 US$260 US$285 US$280 US$278 US$226
    Is there a large expatriate community in the main city? Yes Yes Yes No No No
    International schools for children of expatriate employees? Yes Yes Yes Yes Yes Yes
    General availability of bars and restaurants? Yes Yes Yes Yes Yes Yes
    Will I find European F&B products in the supermarkets? Yes Yes Yes Yes Yes Yes
    Mercer Survey Ranking for global cities? 101 118 119 Not ranked Not ranked 136
    Is the main city of the State safe for expatriates? Yes Yes Yes Yes Yes Yes
    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? Yes Yes Yes Yes Yes Yes
    Business incentives offered by the state government? Yes Yes Yes Yes Yes Yes
    Deed tax payable on transfer of property rights? 3% 4% 3% 3% 3% 4%
    How many FTZs and EPZs available? 1 0 5 2 1 0
    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? No No No No No No
    Minimum notice to dismiss employees? 1 month 1 month 1 month 1 month 1 month 1 month
    Minimum redundancy indemnity? (for tenure of 1 year) 1 month 1 month 1 month 1 month 1 month 1 month

Contact us

For additional information on our manufacturing company registration services in China, please contact our in-house country expert, Ms. Chrissi Zamora, directly:
client relationship officer - Chrissi