Article | Managing a WFOE in China - 2023

Instability still exists in doing business in China – due to ongoing changes in Covid-19 policies but also, due to the nature of local business-culture. In this reality, and especially when travel is restricted, a Wholly Owned Foreign Enterprise (WFOE) must find a responsible way of doing business in China. One of the feasible options is to use outsourced business services. This solution is particularly suitable for small and medium companies who want to sustain their China operation with minimum disruption to the business’s routine.

Recruitment and hiring new employees are usually two of the first tasks international companies tackle when entering the Chinese market. We believe building a local sales team should be the first on your to-do list. Many companies choose to use staffing agencies or local providers of payroll services, but those merely cater to a narrow aspect of a company’s HR needs.

It’s critical to understand, that building a committed China team requires help with verifying candidates’ background for each position, drafting valid labor contracts that serve your needs, supervising employees’ expenses and annual leave, maintaining direct contact with them on an ongoing basis, and, when needed, crises handling and liaising between your local employees and the HQ.

This holistic managerial approach is precisely what you should aim for when employing in China, and not settle for merely recruitment or Chinese payroll services. HR management should provide an all-encompassing support package that follows the entire employee life cycle and is well versed in China’s strict and often-changing labor laws.

Once starting a business in China, many SMEs tend to hire a local accountant to prepare their financial reports for the local tax office. Nonetheless, even if written flawlessly, the reports often don’t meet the HQ needs.

Overseas CFOs are repeatedly confused when they receive data from their Chinese subsidiary. Apart from language obstacles and the gaps between accounting in China and the respective international accounting standards, the financial reports often fail to describe the real happenings of the local operation.

For instance, a sales expenses report is based on tax invoices in China, but it won’t indicate excessive or unnecessary expenses. But, if the company had an expert financial management function in China, it would also provide strategic planning and hands-on financial activity supervision.

Comprehensive financial management in China examines ALL business aspects. In addition to bookkeeping, the service includes budget planning, consistent updates in the company’s ERP system, overseeing and negotiating customs and duty costs, expenses vs. incomes management, VAT refunds in China, upgrading the company’s tax level in China, and periodical reporting to the HQ about financial activities and changes in tax rules.

Many international companies that export to China rely on freight forwarders and local import agents to ensure that their goods are released from customs and arrive safely to their destination. That said, our experience has taught us that in order to maintain a smooth and profitable operation in China, as well as in competitive industries and in times of crisis, it’s recommended to utilize a local service provider that administers the supply chain management and provides logistics services in China.

Such a team works as an extended arm of your HQ operations and is linked directly with the financial team, helping to close all loops and making sure things work smoothly.