1. Why set up a manufacturing or assembly operation in China ?
In the first decade of the 2000s, it was common for Western companies to benefit from very attractive investment policies. Industrial zones granted exemptions or steep reductions in corporate taxes for the first 2 to 5 years. Investors also benefited from relatively low labor costs, especially for labor-intensive manufacturing or assembly processes.
In recent years, the evolution of domestic consumption, the evolution of environmental requirements, but also the increase in production costs have changed the objectives of foreign investors running a production center or assembly plant in China. There is a clear increase in salaries, factory rents or the cost of purchasing land.
While the goal of manufacturing in China for re-export to France or other countries is no longer necessarily a given, there are still advantages to manufacturing locally for the Chinese market. These include the ability to produce locally to Chinese standards, which is a tool for responsiveness and competitiveness.
2. What are the advantages of manufacturing in China to sell on the Chinese market ?
30% of foreign companies in China are involved in assembly, production or transformation for domestic or export sales. More and more US and European SMEs are setting up in China to be competitive and sell locally. Consumer goods are mainly, if not exclusively, produced in China to be sold locally. Think appliances, home furnishings, games/leisure, etc.
|
Manufacturing locally with components sourced in China often provides good economies of scale. It also avoids the costs of international transportation, taxes and duties associated with importing for resale. Much of the business of European companies, especially luxury goods, is based on exporting from Europe, importing and selling in China. Their presence in China allows them to better manage a network of online and offline Chinese distributors or agents.
Often these companies are not directly involved in production on Chinese soil. However, foreign car manufacturers (such as Audi, BMW or Mercedes Benz) offer two ranges of vehicles: local production for standard models and imported models that are more luxurious and expensive. There are also examples of Western brands of leather goods or cosmetics. |
Those who have taken this step are also foreign companies that have developed a good customer base in China and a promising turnover based on an import activity. More and more of them are setting up a local production center. This can take the form of an assembly plant that integrates imported and Chinese components. Or it can be a manufacturing center that integrates most or all Chinese components to complete a line of imported products. In this case, opening a factory in China becomes a reason for competitiveness and sustainable development. For these companies, the competition in China comes from well-known foreign competitors installed locally, but also from Chinese industrialists who have acquired know-how, reputation and recognized quality.
International companies are also gradually entering the Chinese market to coordinate more complex activities that require processing in a bonded zone (outward processing).
3. How to set up a factory in China: with or without a local partner ?
More and more small and medium sized companies are setting up in China in order to become or remain competitive and to sell their products locally.
A persistent idea is that it is still obligatory to work with a local partner to set up a company in China. This is no longer the case, except in sectors considered strategic. Before 2000, most foreign companies had to set up a joint venture (JV) with a Chinese partner. At that time, regulations did not allow them to operate an industrial or commercial activity on their own. Among the first investors were Western carmakers, who set up JVs with Chinese carmakers. To this day, the automobile manufacturing sector is only open to Sino-foreign joint ventures. On the other hand, for the majority of other sectors, it has been allowed for more than 15 years to set up a 100% owned LLC foreign company (ex-WOFE or WFOE) in China.
The rules for foreign investment were set out in a Foreign Investment Catalogue, which has been replaced by a "negative list" since 2018. In principle, if the targeted business sector is not included in this list, the investment is allowed as a 100% foreign-owned enterprise or subsidiary. You can check the updated negative list of foreign investments valid in 2025.
To gain quick access to local expertise, labor, customers and distribution channels, entrepreneurs may consider a joint venture with a Chinese partner. Often this is with a partner they already do business with and have a relationship of trust. A well-chosen joint venture partner gives them what they need to get started. It also saves time and money to start operations ex-nihilo.
To date, mainly for one-off project activities (construction, infrastructure, nuclear), large foreign companies continue to form Sino-foreign JVs. More precisely, they are "cooperative joint ventures" (CJV) with Chinese partners that are state-owned enterprises.
If the sector allows it, international companies prefer to set up a WOFE type subsidiary to start a production, assembly or manufacturing activity. In some cases, they are also connecting one or more sales offices to serve as a relay in other cities in China.
We observe that these production units not only satisfy the needs of their parent company for markets outside China, but also have an increasing tendency to successfully develop sales in the Chinese territory.
A 100% foreign owned company has full management independence from its Chinese partners. It can directly sell products made in China or imported.
Its dividends can be converted into USD or EUR and regularly repatriated to the parent company's (investor's) accounts.
Investors who wish to retain full control over their operations and need the highest level of protection of intellectual property rights (patents, trademarks) should consider this legal form. |
|
4. Where should a production or assembly center be located ?
In a country that is geographically 10 to 15 times the size of most European countries, where to locate production in China? From the outset, the criterion of proximity to suppliers and subcontractors, or proximity to customers, allows an initial targeting of potential regions, provinces or cities.

|
Here, factory buildings under construction in an industrial zone (Zhejiang Province).
To produce for export, foreign investors tend to locate their production lines in coastal regions near international ports and airports.
Given the potential for very long trucking distances in China, optimizing the supply chain and logistics costs is key to meeting delivery costs, deadlines and project profitability.
|
Historically, the regions that have welcomed foreign industrial investment are the coastal provinces of:
- Guangdong (Canton, Shenzhen, Dongguan, Zhongshan, Zhuhai)
- Fujian (Xiamen, Fuzhou)
- the triangle of Shanghai + Zhejiang (Ningbo, Hangzhou, Yiwu) + Jiangsu (Suzhou, Taicang, Kunshan)
- and the northern provinces of Shandong (Qingdao, Jinan), Tianjin and Liaoning (Dalian).
More recently, the central megacities of Chongqing and Chengdu, located more than 1000 km from a seaport, have developed high-tech service and manufacturing activities, for example in the aerospace industry. High value-added products can be exported either by air (direct flights to Europe) or by the gigantic rail network that now connects these regions with Europe in 2 to 3 weeks.
Since 2005, many foreign companies have set up a production base in China to manufacture, supply and invoice - in Chinese currency - the Chinese subsidiaries of their global customers. This has become very common in the aerospace, medical and pharmaceutical, automotive and chemicals industries. The choice of location for a production unit is dictated by the location suggested by a major customer. Or by the options left by stricter regulations. These new companies are often subcontractors of large Western industrial groups. These large companies are able to provide visibility or even guarantees for a minimum volume of business. This is essential for subcontractors setting up their first international production subsidiary in China. It also enables them to obtain support and financing from government agencies or investment banks. Similarly, large foreign banks have been established in China for 20 or 30 years to follow their largest foreign industrial clients.
Here, the ground floor of a new factory building for rent in a Chinese industrial park.
This concrete structure is pre-installed with a fire protection system and sprinklers, a ventilation network, and evacuation of residuals from the activity.
This site is ready to receive epoxy resin flooring before the machinery can be installed. This site will house a cutting line for precision mechanical parts. |
|
5. Moving a factory from one industrial park to another in China
Many foreign industrial companies set up shop 10 to 15 years ago in industrial parks near major urban centers. We can mention Beijing, Shanghai, Qingdao, Tianjin or Guangzhou. These companies have established stable production activities. However, sometimes they are forced to consider moving to another industrial zone. What is the reason?
Development of urban planning in China
The very large municipalities (10 to 20 million people) continue to develop their urban planning, building highways, residential and office buildings. Some industrial areas have either become too expensive (rent, consumables, salaries) or are announced to disappear in a few years. As a result, tenants must consider relocating their production facilities to another area of their province or to a neighboring province. The consequences affect the stability of the activity, the personnel and sometimes the supply or distribution chain. There are other more traditional reasons for companies to move and relocate their production facilities in China, from one industrial park to another. These are as follows:
To increase local production capacity
Need to increase the production, assembly or installation area when the industrial park where the company is located does not allow the expansion of industrial buildings. Often there are no suitable premises available for purchase or rent. For additional temporary or permanent storage needs, a space separate from the main production site can also be considered.
Comply with the latest safety and environmental regulations
Industrial or assembly activities involve processes that are becoming increasingly controlled, particularly from the point of view of food and ealth products regulations and environmental protection. They have become an important consideration pointed out by Beijing. Since 2017, in the Suzhou region of Jiangsu province, 60 km from Shanghai, all printing ink production companies have had to relocate because local regulations no longer allow the operation of activities considered too polluting. In the Ningbo region, chrome plating and coating operations were affected.
Reducing structural costs and operating costs
The extent of the increase in labor costs and the cost of land for construction has caused companies to leave industrial zones that are too close to major urban centers. Note that in China, minimum wage levels are set at the provincial level. Outside of the legal minimum wage thresholds, it is the labor shortage that is driving up wages. Why is that? Workers sell themselves to the highest bidding employers. For example, in Guangdong Province and its major industrial areas (Shenzhen, Dongguan, Foshan, Shunde, Zhongshan), there is a constant shortage of workers. Many migrant workers come from central provinces (Jiangxi, Hubei, Henan, etc.). When they can, they return to their families or take advantage of one-time policies to support agricultural activities in their home regions. Since 2005, many industries in Guangdong have relocated to industrial parks in neighboring provinces (Zhejiang, Jiangxi), several hundred kilometers from the original production site. Some industries have also chosen to relocate all or part of their operations to neighboring countries such as Vietnam, Cambodia, Myanmar and Laos.
Secure and better control supply costs
The Covid-19 pandemic has weakened the quality and purchasing costs of many importers. Chinese manufacturers and suppliers are no longer able to deliver on time or at stable or predictable prices. Or local suppliers go out of business or go bankrupt. This situation also affects the consumer products imported by large trading companies in France. Some of these companies have decided to set up their own textile assembly or manufacturing facilities in China.
6. In which industrial zone or business park should you set up a Chinese factory ?
There are several categories of industrial zones in China which can be classified as follows :
-
National Status Industrial Zones: These are large industrial parks with high quality infrastructure. Integrated administration, on-site customs offices or bonded areas, recruitment offices for workers and technicians, integrated or adjacent residential and commercial areas. These zones construct factory premises ready for rent or prepare land for large buildings (several tens of thousands of square meters per building).
-
Industrial zones with provincial status: Under the direct supervision of a province, these zones also have good quality infrastructure. They are also designed to accommodate Chinese and foreign SMIs with more modest infrastructure needs (usually 1000 sqm to 10,000 sqm). For a simple assembly workshop, it is difficult to find areas smaller than 1,000 sqm.
-
Industrial zones with local status: under the direct supervision of a municipality. These areas are often smaller and have fewer integrated services. They are also often less demanding in terms of investment conditions, especially in terms of statistical ratios (capital/area) and fiscal profitability (annual taxes/occupied area). In these areas, it can also be difficult to find premises for rent for very small areas of just a few hundred square meters.
Among these zones, we can also mention the Special Economic Zones (SEZ):
-
Free Trade Zones (FTZ): Due to the peculiarities of their customs and tax status, they allow companies registered within them to import products and enjoy duty and tax free. Duties are payable only when the finished or assembled products enter China outside the zone. FTZs also welcome non-industrial enterprises. For example: freight forwarders, transportation companies, warehousing and storage companies, e-commerce platforms. Shanghai FTZ is the most developed. It covers an area of 240 km2 and accommodates industrial and commercial enterprises. As of 2013, it includes Waigaoqiao, YangShan (which houses the new deep sea port), Pudong Airport and part of the Lujiazhui financial zone. Learn more about China's free trade zones.
- China's first free port and a major free trade zone on Hainan Island.
-
Export Processing Zones (EPZs): dedicated to industrial companies with export-oriented activities. For example, production or assembly of goods integrating components imported into China under the possibility to enjoy no tax and import duties for certain activities. These zones are mainly located near major seaports.
-
High-Tech Zones: Reserved for research and development (R&D) activities by nature, they also host companies with industrial production or assembly activities. They prefer to host activities that are "clean" in terms of environmental regulations. These zones reflect the Chinese government's policy of transforming the country from a world factory to a center of R&D and innovation. The most technological and innovative activities benefit from support, preferential tax measures and even subsidies to be negotiated.
The search for a good location in an industrial zone is conditional on the completion of the general urban plans for the factory sites.
The local government and the operator of an industrial park will need a plan for the construction or development of the production facility.
|
|
They will also require a presentation of the operating process for the target activity before confirming the feasibility of the proposed operations. In particular, the project's compliance with increasing environmental protection regulations has become a key factor in the acceptance of new projects.
7. Environmental and occupational safety regulations for industrial activities
Globally, the evolution of Chinese environmental protection regulations means that more and more industrial zones are reluctant to host or continue to host industrial production, assembly or textile manufacturing activities that have highly polluting emissions. Any new company setting up in an industrial investment park must complete an environmental impact report. This report must describe the processes of the targeted activity in great detail. The content of the report is binding as it will be reviewed for approval by the Chinese regulatory authorities.
In parallel with European MACF regulations aimed at reducing Co2 emissions, China has also committed to achieving carbon neutrality by 2060.
8. The forecast of a annual sales and taxes to be evaluated
In addition to the environmental aspects, during the meetings with the Chinese management of the industrial zones, it is also necessary to present the desired activity in a broader way. That is to say: the production process, the resources (machines, men), the means (investment, capital and release plan), the objectives of the activity in terms of sales volume and turnover.
This will lead the management of an industrial park to deduct or ask you to estimate annual tax amounts. These taxes include corporate income tax, VAT, customs duties, etc. The tax performance ratios in relation to the operated industrial zone are at the discretion of each zone.
In most countries, job retention and job creation are important criteria used to evaluate and approve new investment projects. In China, taxes, statistics (invested capital), safety and environmental criteria are the most important.
9. Budget: what is the cost of setting up a factory in China?
For factory premises to be rented: To prepare a realistic preliminary budget of the installation costs, you can include in your business plan the following items:
- Monthly rent + security deposit to be paid to the factory owner (investment park or a private owner)
- Security and site management costs
- Consumables related to the production activity (water, electricity, steam, gas)
- Disposal or recycling costs
- Sometimes the cost of installing power cables to a new building
- Office space within the factory building
- If applicable, the need for a test room, clean room, temperature controlled room, EMC room, etc.
- Depending on the layout of the space, the need to add fire protection facilities in addition to those that brought the empty space up to code.
- Company registration fees and the cost of obtaining all necessary licenses and permits
- Legal fees for reviewing the facility and plant lease agreements.
For industrial land purchased by foreign investors: the cost of acquiring the land and related taxes, the cost of construction and qualification, and the cost of upgrading buildings and equipment.
All these aspects are also part of the initial negotiations with the target area.
10. Our advice for setting up a manufacturing center or assembly plant
-
Identify one or more regions suitable for your project and obtain advanced comparisons of availability for renting suitable factory premises. Or, according to the investor's project, buy and build industrial land.
-
You can also compare the investment conditions in different industrial zones, in order to identify the possibilities offered by the infrastructure around the site, the required implantation conditions. This concerns tax and customs regimes, other special benefits, availability of qualified manpower, living conditions if you plan to hire expatriates.
-
The availability of industrial sites within 100 km of major Chinese ports shows that investment conditions vary widely. They take into account the available space and land, the reputation of the investor and the tax benefits of each project. Several weeks or months of discussions and negotiations are required to present and revise a realistic business plan that is acceptable to the authorities in exchange for hard-negotiated preferential investment terms.
|