Opening a manufacturing company in China in 2023

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:
     • China’s manufacturing sector, valued at over US$4.4 trillion, makes up 42% of its GDP. The country’s manufacturing sector contributes nearly 25% of the global produce;
     • China is the world’s largest merchandise exporter, owing to the country’s well-developed distribution market which enables cheap transportation of goods;
     • The country is home to i) 7 of the 10 largest container ports by cargo volume and ii) 4 of the 20 largest airports by cargo traffic in the world;
     • Deloitte has also ranked China as the most competitive nation with regards to manufacturing operations in the 2016 Global Manufacturing Index;
     • Foreign companies set up offices in China mainly to take advantage of the low labour costs. Today, even though the average wages in China are rising, they are still lower than their Western counterparts.
  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.
     • 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

  • Companies wishing to engage in import and export of goods must obtain trade and customs registration certificates from i) the Chinese Ministry of Commerce (MOCO) and ii) Chinese General Administration of Customs (GAC);
  • Good categorized as “restricted or prohibited may either be subject to tariffs or quotas or may be permanently banned from being imported into China;
  • Registered companies must also obtain an import/export licenses which are generally valid for 1 year for import and 6 months for export. Goods imported for further processing or re-export will not require licenses;
  • Imported goods are subject to inspection and certification by the General Administration of Quality Supervision (GAQSIQ) and in certain cases the Certification and Accreditation Administration (CAA);
  • The tariff rate on imported goods averages at 9.8% as of 2015. Import and export goods are also subject to custom duties.

• 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