Contract manufacturing in China: No need to set up a WFOE or JV

assembly line

Ben, representing a venture capital firm, writes PassageMaker to ask:

I’m trying to help a venture backed company whose supplier’s factory is missing some licenses that are imperative given that the product contains batteries.

These guys are 100% committed to doing everything above board – do you have any ideas for who could help them? Might need to set up a WFOE but I’m not an expert by any stretch.

Setting up a WFOE (wholly foreign owned entity) is certainly possible (I own 3 of them in China) but it takes time and investment to get all the licensing in place, as you have discovered.

The headache is that you can’t use the WFOE to import/export until all details of the registration are complete.

It’s a bit of a catch 22. On one hand, you want to do things in accordance with the law, and you want to set up a WFOE. On the other hand, WFOE set up takes significant registered capital and you even need to have staff trained up and on payroll to pass the audits to get the license to import-export. That process can take months to years (in some cases) and most investors don’t want to hire a team and set up a factory to have people sitting around on their hands for months at a time waiting for the paperwork to legally produce a product.

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