Do You Really Need a Chinese Company? Cases That Work — and Those That Don’t”
- Roman Verzin
- May 28
- 4 min read
Updated: Aug 31
Let’s pause for a moment.
We’ve been talking about opening a company in China.
But do you actually need one?
In our experience — many founders start for the wrong reasons.
Here’s what we often hear:
“I’ll get VAT refunds instead of paying exporters”
“Chinese banks will give me cheap loans”
“We’ll use Chinese SDN banks and trade with anyone we want”
“I’ll open a company and freely hire foreigners”
“My company will pay contractors and remote team abroad”
“Find me a ready-made Chinese company — I’ll buy it and save time”
None of these work the way people expect.
Let’s break them down one by one.
❌ Building a business on VAT refunds
Yes — your Chinese company can export and reclaim VAT.
But only if you have:
A real office
Chinese staff
Clean paperwork and tax history
Setting that up takes 6+ months and real investment.
Also:
Not every product qualifies
You pay VAT first, wait months for refunds
Margins are often just 2–4% — same as export agents charge
So: VAT refund can be a bonus, not a business model.
❌ Borrowing cheap money from Chinese banks
Not for foreigners.
Chinese banks only lend against collateral — not future projections.
If your company is foreign-owned — financing is almost impossible.
Instead: negotiate better terms with suppliers.
❌ Using sanctioned (SDN) banks to bypass restrictions
Yes — some SDN-listed banks may onboard “sensitive” clients.
But that brings serious risks:
You lose access to other banks
Most institutions refuse to work with SDN-linked accounts
Your reputation suffers
It’s not a loophole — it’s a trap.
❌ Freely hiring foreigners
Even if it’s your own company, you still need:
A real business with local staff
A work permit, Z visa, residence permit
A founder is not exempt
Most cities apply the “1 foreigner : 3 Chinese staff” rule.
Each person must qualify individually — no shortcuts.
❌ Paying foreign contractors from China
Theoretically possible — but in practice, slow and complicated.
You’ll need:
Government approval
Withholding tax
Multiple filings
Banks willing to process outbound payments
That’s why most international teams pay from Hong Kong — not China.
❌ Buying a ready-made company to save time
Usually a bad idea.
Risks include:
Unknown company history
Hidden debts or tax problems
Inactive accounts
Slow ownership transfer
Full bank due diligence anyway
In 90% of cases, starting fresh is faster and safer.
❌ Other common cases that don’t require a Chinese entity
Occasional trade only
Wanting a bank account, but no local operations
Trying to play short-term tax tricks
If that’s your case — skip the China entity.
There are simpler options.
✅ When does a Chinese company make sense?
Here are five cases when setting up in China is worth it.
1. You run high-volume export trade
If you want VAT refunds and full control — this may be for you.
But be ready to invest $50–70k in setup and $30–40k/year to maintain.
You’ll need:
Office
Staff
Full compliance
At 3–4% margin, your break-even volume is around $2M/year.
You also gain:
Access to suppliers that don’t export (domestic-only factories)
Deeper relationships with key suppliers
Financial control — direct payments, no agents
Better legal protection under Chinese law
Brand and IP protection
Simpler documentation for overseas importers
This is the most common reason why our clients open a Chinese company.
2. You want to sell inside China
If you plan retail, e-commerce, or licensing — you’ll need a local entity.
But this path is expensive and highly competitive.
If you’re not ready to invest heavily in marketing —
Consider working with a Chinese distributor or local JV partner instead.
Also, some marketplaces let you sell in China as a foreign company.
That’s often simpler and cheaper than local incorporation.
3. You invest in local production
If you’re putting money into a Chinese factory — especially in priority sectors —
then a Chinese company is a must.
You may also get government support — if your project meets local criteria.
4. You need “face” or legal presence in China
Sometimes you already have business — and just need local certificates.
For example, in finance, leasing, insurance, or tenders.
A Chinese WFOE or Representative Office may help you pass compliance checks.
5. You run critical infrastructure abroad that depends on China
If your overseas factory relies on Chinese suppliers —
any disruption can cost millions.
Some companies open a local WFOE or RO in China
just to build relationships and reduce risk.
During COVID, those who did this early outperformed their competitors.
If that’s your case, consider:
A Trading WFOE — for buying locally and exporting
A Representative Office — for sending a sourcing or engineering team
Each has pros and cons. The key is strategic preparation.
Final thoughts
A Chinese company is not a trophy.
It’s a tool — useful only when the conditions are right.
So before you register anything, ask yourself:
What exactly are we doing in China?
What problem are we solving?
Do we need licenses or local presence?
Will we have people and operations on the ground?
Who are our suppliers? How do we pay them now?
Where is our cash coming from — and where is it going?
Who will own the company?
If you don’t have clear answers — don’t rush.
Sometimes Hong Kong or Singapore are better fits.
Need help making the right choice?
United Suppliers Group helps founders from complex countries build real businesses in China, Hong Kong, and Singapore.
Book a free intro call — we’ll help you understand your options.