I happened to read an article in China law blog about the unregistered foreign companies doing business in China, entitled, "URGENT ALERT: Register Your Company In China NOW" , which read:

"Tens of thousands of foreign companies conduct business in China without properly registering to do so. These companies hire and fire Chinese workers, buy and sell goods, and engage in virtually every sort of business activities one might expect in China."
"Bottom Line:No matter how good your China connections (and trust me, they are not as good as you think), and now it is the time to get legal by registering your company. "
This is a piece of good advice, but I don't approve the standpoint of "the Bottom Line:.....".

Although most unregistered foreign companies doing business in China know what they are doing is illegal , they still want to run the risk of being punished, because they may think the Chinese government' efforts to crack down on isn't great and timely.

More familiar problem is:
Even if the resident office of a foreign enterprise proves to have been engaged in direct profit-making operations in violation of the provisions of Procedures for the Registration and Administration of Resident Offices in China of Foreign Enterprises,it shall be ordered by the State Administration of Industry and Commerce to stop its business operations, with a fine of less than 20,000 yuan (RMB) only.

Another problem is:
Wherever a foreign company violates any provision of the Company Law by unlawfully establishing any branch within the territory of China, the organ in charge of company registration shall order it to correct or close down and may impose thereupon a fine of 50, 000 yuan up to 200, 000 yuan.

Writer's Comments:

China Law Blog said:

Thanks for running this, but I do not understand why you do not approve of my conclusion. Please explain. Thanks.

November 17, 2006 1:20 PM

Zhong Yi said:

The foreign corporation actually know that doing business in China requires company registration , but they may risking doing it because the violating cost is low.
Those foreign investors that I come in contact with are all very careful before entering Chinese market, so "Unregistered Foreign Companies" and "local people in China" didn't relate with each other directly.
That is just my own viewpoint.
Thank a lot for your reply , honored.

November 18, 2006 10:45 AM

Yuyu said:

It is really a common sense for most businessmen that wherever they wanna expand his operation overseas (not only in China)legal registration is mandatory by local government.
The so-called “unregistered foreign companies” or “local people in China” are only excuses stated by those that don’t feel like abiding by Company Laws in China. If I may say for whatsoever reasons, such as tax evasion, cost deduction and so on and so forth.
As far as foreign investors I know, nowadays they prefer undertaking all the formal procedures to establish their corporates or plants, which certainly get protected by local government as well as could be entitled to quite a lot investment privileges.

November 18, 2006 11:35 AM