Do You Need A Chinese Partner?

The topic that we shall discuss today is a very common misconception that I would like to clarify once and for all because everybody who wants to register a company always asks me the same question, and this is whether or not you need a Chinese partner to incorporate a company in China

The simple answer is no. But that has not always been the case here. Let’s dive in for a simple history lesson. Around 40 years ago, the first laws regarding foreign investment were born. Back that, it was a requirement for foreign investors to partner with a Chinese person or company to establish their company in China. At that time, China was still in its infant stage and a third-world country.

In order to protect local businesses, China had to impose high trade tariffs, and prevent foreign investment from flooding in. Foreign investment was allowed, but highly restricted and regulated. If you look at Brazil and South Africa, which are very similar countries, as they are also developing countries with huge size and population, you can see that these countries do not have their local brands and industries and China did not want the same problem.

Therefore, the first investors had to gang up with a Chinese partner in order to exploit the Chinese market. Let’s take the automobile industry for example. If you take a look at the German brands BMW, Mercedes and Audi, their China manufactured cars all have Chinese words on the back of them. BMW is a joint venture with Brilliance Automotive, Mercedes’ Chinese partner is Beijing automotive, and Audi has partnered with FAW group.

In the early 2000s, China introduced a new set of laws called the foreign investment enterprise laws and slowly loosened the restrictions regarding foreign investment. I am not going to go in-depth about these laws because they have also been abolished in 2020. The new set of laws put in place is called the Foreign Investment Law, and under this law, a Chinese partner is no longer needed. China’s local brands in various industries like Maotai in the wine industry, Xiaomi in the phone industry, BYD in the electrical automotive industry, ICBC in the finance industry and Alibaba in the e-commerce industry had already grown to become giants.

Take Tesla as an example. If you check their records online, you will find that it is solely owned by a Hong Kong company and there is no Chinese partner at all. For your information, Hong Kong is a special administrative region and has its own sets of laws, mainly British law as it was a former colony, so a HK company is considered as a non-mainland Chinese company and does not follow PRC laws. The HK legal system is totally different from our system here, and that is another topic for another day.

To sum up, you do not need a Chinese partner to set up a Chinese company. In fact, you do not need any partner at all if you wish. It is possible to be the sole shareholder of a company. I would not recommend doing that though, and I will explore this topic in future videos.