The concept of trading companies has been around for centuries. In the 16th and 17th centuries, Western European countries made a fortune with such businesses which handled importing and exporting with other countries in order to get new markets for existing goods. Today, this strategy is also proving effective in China, particularly as an option for foreign companies.

The Role of the FIE

In China, these types of trading companies are known as Foreign Invested Enterprises. Essentially, the companies are allowed to purchase and distribute products from China around the world without having to pay taxes or deal with quotas. Clearly, there are benefits to this approach.

For one, products made in China can be purchased for much less than in other parts of the world. Therefore, selling them elsewhere can produce greater profitability for the company. However, only manufactured goods are available for these exports.

To become one of these trading companies or FIEs, a firm must complete an application and have the minimum amount of capital investment required. Currently, RMB 1 million is required. All applications are reviewed and approved/denied in the provinces instead of at the national level. For businesses seeking this type of arrangement that means they need to do some research and determine which provinces are most likely to approve their application and which are the most desirable for setting up trading companies.

The advantage of having the applications processed at the local level is much faster processing times. That means businesses can learn the status of the application sooner and can begin working on making their export license effective for them.

Understanding the Requirements and Limitations

One of the most confusing parts of these trading companies is some of the rules and regulations related to them. When the rules were changed in 2006 by the Ministry of Commerce, they added new elements which have, in some ways, complicated the situation for many trading companies. For example, some foreign firms based in China are only allowed to export the products they directly produce while other companies may be required to have 50% of their profits come from this aspect of their business.

The best way to deal with these potential complications is by conducting thorough research on the subject before starting the application process. Ask questions, talk to existing trading companies, and consider working with firms designed to assist foreign companies in successfully applying and implementing such a strategy.

Choosing This Option

While FIE’s or trading companies are one method for getting involved in the Chinese market and profiting from such an arrangement, there are other methods, too. Researching this option carefully is important because it will not be the right choice for all foreign companies. For example, if your business is not manufacturing-focused, you might not even be eligible for this type of export license and would be wasting valuable time trying to apply.

As with most aspects of entering any foreign market, the best guarantee for success is research and knowledge.