Manufacturing in China

China is becoming a global manufacturing centre. A report on the global investment situation in 2001, initiated by the United Nations Conference on Trade and Development, shows that at present nearly 400 of the Fortune 500 enterprises have more than 2,000 projects in China. Many manufacturers of computers, electronic products, telecommunications equipment and petrochemicals already have factories and sales outlets in China.

Manufacturers come to China for many reasons:

• stable policies toward foreign investment, compared with other third world countries
• steady economic growth: China has recorded an average economic growth rate of 8 per cent on a yearly basis over the last 20 years since the start of the "open-door" policy, and the country has been the largest recipient of foreign direct investment among developing countries for eight consecutive years
• untapped market potential
• the availability of a skilled labour pool
• lower cost land and workforce than most developed countries

Over the past two decades, a substantial number of manufacturing industries have set up in China. This has been more true of Hong Kong manufacturers than of other businesses from other countries, because of the land shortage and high wage base in Hong Kong. Since the early 1980s, much of Hong Kong's manufacturing has shifted out of Hong Kong to China's Pearl River Delta in Guangdong Province. It is estimated that 90 per cent of all Hong Kong manufacturers have facilities in China. The manufacturing activities of Hong Kong manufacturers often involve outward processing or assembly arrangements, meaning that the products are processed or assembled in the Mainland China with imported materials and then exported. In recent years, China's manufacturing industry has been undergoing a process of industrial upgrading. One side effect of this has been the closure of a number of state owned enterprises, and the acquisition by foreign companies of many others.

A number of multinationals, including Microsoft, Motorola, GE, JVC, AT&T, etc., have set up research and development centres in China.

Foreign manufacturers typically set up a wholly owned subsidiary or a joint venture with a Chinese partner to manufacture products in China. The establishment of these companies requires approval of and registration with various governmental authorities.

A number of tax incentives have been made available by the Chinese government to foreign-invested manufacture enterprises in China. For example, a manufacturing company with a term of operation of at least 10 years is exempt from income tax for 2 years commencing from its first profit-making year and is entitled to a 50% reduction in the normal tax rate in the subsequent three years.

For further information, please contact Luke Filei on [email protected] or on +86 10 6590 0389.