China Steps Up Enforcement against Illegal Foreign Representative Offices.

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The Chinese government is stepping up their enforcement of illegally operating foreign representative offices. Increasing fines from 20.000 yuan to 500.000 yuan, the State Administration for Industry and Commerce is attempting to crack down on the many foreign enterprises that infringe Chinese regulations by using their representative offices for business activities.

Many firms choose to set up a representative office in order to gain experience and a better understanding of the size and potential of the Chinese market. The mission of the representative office is to act as a liaison between the home office and trade organisations or related industries in China.

However, according to investigations by the central government, a large number of representative offices engage in business activities which contravene regulations introduced in 1983, restricting representative offices of foreign enterprises to non-business activities. The motivation behind setting up these representative offices rather than wholly foreign owned enterprises is that the regulation is much less complicated and representative offices do not pay taxes.

In April 2008, the Beijing Public Security Bureau investigated and punished 16 representative offices of foreign enterprises which were engaged in financial fraud.