There are a number of options available to foreign companies planning to carry out trading and distribution activities in China:

• finding an import/export agent
• setting up a representative office
• setting up a trading company in a free trade zone (“FTZ”)
• setting up a manufacturing company
• or establishing a Chinese holding company.

As from the end of 2004 (11th December, to be exact), foreign companies could have an extra option, to establish what are called

* a “foreign-invested commercial enterprise (“FICE”)

This is very important because foreign investors have, in the past, been kept out of the trading and distribution sector. That made it very difficult for them to sell their products directly in the China market; they were obliged to use Chinese import and export companies or to set up a trading company in a FTZ.

Practical information about FICEs
As from 11th December 2004, foreign investors are allowed to apply to establish a 100 per cent FICE. The following are permitted activities for an FICE:

Major barriers to entry have been removed. For instance, the minimum capital of an FICE is manageable and investors no longer have to show annual average sales over three years. The minimum registered capital for setting up wholesale FICE is Yn500,000 and that for a retail FICE is Yn300,000.

Together with the expanded business scope and relaxed entry requirements, the FICE is permitted to trade in domestic products and to obtain the right to import (which licence has to be applied for).

Pointers and guidance
Why should a foreign investor be interested to set up an FICE? What advantages does it offer? Here are some, to
• Gain market share
• Exercise better credit control and collect receivables locally
• Gain control over importation channel
• Establish own distribution network
• Improve control over the supply chain
• Enhance after-sale services
• Gain experience, competent people and business connections to operate in China


If a foreign investor would like to set up an FICE, the options may include a ‘single entity structure’ and a ‘parallel entity structure. Taking each of these in turn:

Single-Entity Structure
If a foreign investor adopts the ‘single entity structure’ ( i.e. only one distribution vehicle in China), the FICE is permitted to trade domestic products and to import (provided it applies for a licence). Furthermore, such an FICE can set up branches with a wide geographic coverage to carry out direct business.

This approach would be a straightforward solution for those foreign investors who have not set up any distribution entities in China.

Parallel-Entity Structure
For those companies which already have a trading company established in a free trade zone (FTZ), one idea may be to keep the existing trading company and also to set up a FICE outside the FTZ, to operate in parallel - at least until such time as the rules governing FICEs have become clearer.

Written by Derek Chow, partner, and Helen Liu, manager, with PricewaterhouseCoopers in Shanghai. The above information is not intended to be comprehensive or final. To contact the authors, e-mail Derek at Derek.Chow@cn.pwc.com or Helen at Helen.Liu@cn.pwc.com.