The 8 Types of Trading Companies in China: A Guide on How to Open Them
Komal Chalotra – Business Consultant
China has witnessed extensive growth in its economy over the past few decades.
This rapid growth in economic success can be contributed to the fact that China is the largest export of manufactured goods which has created many new employment opportunities for import-export companies to flourish in China.
Trading companies in China are chosen by many companies that want to enter the Chinese market and want to reach millions of consumers.
In the article, we will give you an overview of the 8 types of trading companies that you can open in China and what are the steps required.
What is a Trading Company?
A trading company can be considered as a source of multiple goods that are produced by various units for meeting the demands of customers.
It is a corporation that brings sellers and buyers in the same region. Trading companies in China can also refer to intermediaries between suppliers and producers. Since they acquire goods from multiple factories they charge rates for goods that are higher of the factory rates for selling the products under their name.
Trading firms are experts in the processing of import and export and are well versed in the laws and regulations governing the business.
Their dealing includes networking with multiple manufacturing units and negotiating with the suppliers and manufacturers with the sole purpose of maximizing their sales.
In general, trading companies hire sales representatives in the national and international markets to increase the selling of the products and attract more orders.
The 8 Types of Trading Companies in China
1. Hong Kong Trading Companies
Hong Kong used to be one of the many places used to manufacture goods. In the 1980s, although the manufacturing was shifted to the Mainland, the trading companies still kept their offices in Hong Kong. These companies then formed large manufacturing groups that operated in different regions including Malaysia, Cambodia, China, Vietnam.
Many smaller units are operating as a single factory on the Mainland and offer quality that is not found anywhere else.
2. Factory Group Trading Companies
As the name specifies, these companies are comprised of multiple production facilities that cover a different type of material and product. They combine to form a larger manufacturer or a single trading entity to ease out the export and the invoicing procedure.
3. Combined Manufacturer & Trading Company
These trading companies often provide the services of both the manufacturer and supplier to satisfy customer demands. The firm uses its own resources to manufacture along with trading the products produced by them.
4. A Certain-Filed Trading Company
The focus of such companies is on a specific niche of products. They have a deep-rooted history in the individual segment. They boast their successful business based on the highly sophisticated and experienced team and can provide better competitive prices when compared to manufacturing units directly.
5. Grocery-type trading company
Such trading companies deal with all kinds of different products and are dependent on factory resources around them. A typical Grocery type trading company upload any new product that is available or produced nearby to their website.
6. Hot-Selling Type Trading Company
As indicative of the name such companies focus and deal with the sale of hot selling products in the market. Such trading companies are very keen and have a good sense of studying and identifying the latest market trends. They make easy and quick cash by selling products through insights available from selling resources from the factory and quickly opt-out as soon as the demand declines and shift the focus on the new product in the market.
7. SOHO Trading Company
SOHO implies a small office or a home office. This is a type of trading company with a minimal amount of people. These are the people that become founders of SOHO once they have gained the trust of old customers and starting their own business.
The basic working of a SOHO company includes registering the company and setting up an account on Alibaba, so as to project themselves as a factory or a trading company for gaining customer trust.
8. Sourcing Company
Such a trading company serves as an intermediary between the importers and the Chinese factories. In other terms, they act as a middleman helping to bridge the gap between the supplier and the client. They are responsible for sourcing, supervising, quality control, and shipping the products.
Advantages of Opening a Trading Company in China
- Customer-focused: Trading companies are more focused on the customers and therefore, understand the customers’ needs more in-depth than the factories.
- Trust: Since the trading company works closely with the factories, it is able to build a good relationship with them. This trust in the relationship is automatically passed onto the customers as they want to increase their worth to their clients.
- Providers: Trading companies are willing to provide multiple items sourced for one product for their clients. If the customer has special requirements such as special packages or labeling, they are willing to help.
- Competitive Rate: Trading companies often deal with factories that cannot afford their own sales team or export license. This implies that they are in a relationship with factories that offer lower prices as compared to competitors online.
- Less Mark-up: Trading companies have minimal overhead (sometimes as small as 1.0%), offering lower prices.
- Any company size: Since trading companies have great relations with factories and have products available on hand, they are the best option for small or medium quantity buyers as they can accept lower quantity orders from small-sized companies.
- Variety: They provide a wide range of products and are willing to offer samples for various products for free.
Can Foreigners Open a Trading Company in China?
After the entry of China into the World trade organization in 2001, the process of opening a legal company for all the foreign enterprises willing to open a trading company in China became simpler.
The limited liability company i.e. WFOE (Wholly Foreign-Owned Enterprise) is one of the most favored platforms for handling business in China, and other structures such as Joint Venture and Representative office are also available.
When a foreign company is willing to engage in the trading of products defined in the business scope, then the Trading Wholly Foreign-Owned Enterprise in the form of FICE (foreign-invested commercial enterprise) is established.
A FICE refers to a foreign-invested enterprise (FIE) that is engaged in the following activities:
- Retailing: Selling goods from fixed venues or via television, telephone, mail order, internet, and vending machines, and related services.
- Wholesaling: Selling goods to retailers and industrial, commercial, or other customers or wholesalers.
- Franchising: Authorizing the use of trademarks, trade names through contracts.
- Commission agency activities: Acting as a sales agent or broker for goods to conduct sales of goods and related services on the basis of a contract.
The important point to consider is that FICE can only be established in the form of a Wholly Foreign-Owned Enterprise and a Joint Venture.
A WFOE can further be categorised as Wholesale or Retail. The trading company or the FICE has the capability to import products into China and export Chinese products from China to other countries.
Therefore, Trading WFOE or FICE is the best suitable option for foreign companies willing to open a trading company in China.
The FICE structure is one of the most common types of a legal entity established by foreign investors in China willing to conduct the following activities:
- Expanding the sourcing platform and looking after logistics and quality control.
- Purchasing to resell finished or semi-finished products in China as an intermediary between Chinese suppliers and foreign China-based clients.
- Importing goods to China to sell them directly.
- Establishment of an operational China sales and after-sales platform.
A FICE is simple to set up when compared to a full manufacturing WFOE because of the lower capitalization requirements as there are no machinery or tooling requirements.
It is also more preferred than a representative office. However, accurate technical and administrative knowledge is required for establishing and running a FICE.
Steps to Open a Trading Company in China
A Chinese trading business entity refers to the commercial activities that are managed by a corporation through purchase, selling, and other business activities to deal with daily transactions, orders.
If you are deciding to expand product marketing in mainland China, a trader needs to be familiar and learn the procedure and regulations for opening a trading enterprise.
No matter what trading business one plans to establish, the following are the two requirements or conditions that need to understand for approval to run business in China.
It is required to prepare the documents according to the requirements to start a business in China. Trading companies can be given approval for domestic trading, international transactions (importers and exporters), and specific post-sales services along with technical assistance.
Confirming information for registration, which should include the following:
- Corporate structure: Decide what are the shareholders, legal representatives, supervisors. Shareholders can be individuals or existing registered enterprises in other countries. Legal representatives and supervisors should be individuals, although it should not be the same person for both the positions.
- Business registration information: It should include registered capitals, shares, and shareholders, business activities, commercial office address, secretary, accountant.
Preparation of the following documents to submit for verification:
- Providing valid identification documents and submitting the same Industrial and Commercial Administration Bureau i.e. the supervisory department.
- Documents should include legal notarized files for shareholders, legal representatives, and supervisors depending on the structure of the corporation.
On submission of these legal documents for the verification and identification for authenticity purposes, the company process can be started smoothly.
Process of opening a Chinese business
The procedure for opening a trading company slightly differs from consulting or services industries. It requires an additional procedure to apply for the qualification of foreign trade or import and export licenses along with the permit for obtaining approval for operating international transactions and businesses.
Below mentioned are the four steps of registering a trading company in China.
Step 1. Business registration application
- Approval of the name of the corporation in Chinese and English
- Identifying required documents
- Obtaining a business license and company stamps
- Obtaining a certificate of registration of foreign enterprises
Step 2. Opening of bank account
- Identification of corporation legitimacy and submission of application forms
- Checking the authenticity of the legal representative and licensed files
- Obtaining corporate bank account details
Step 3. Tax registration and VAT
- Registration of qualification of the corporate taxpayer
- Publishing the VAT invoices machine and tax system
- Obtaining a general taxpayer qualification
Step 4. Customs registration
- Certificate of registration issued by the Customs
- Business certificate for international trading
- License and permits of import and export
- Electronic port IC cards and system
Nowadays, trading companies in China are a popular option for individuals and companies interested in entering the Chinese market.
Trading companies have the ability to source multiple products from factories and offer these to the customers. And they are often preferred by customers because they can offer more products, they also need to have a competent customer service team, and this can increase the trust in the consumers.
Contact us if you are interested to know more about how you can set up a trading company in China!