Do You Need a Company in China for E-commerce? When It Pays

You sell online, your products come from China, and someone has told you to set up a Chinese company. Should you, or should you keep buying on AliExpress? The answer depends on the size you are now, not the size you intend to be. This guide explains when a company in China for e-commerce pays for itself, what it costs to keep running, and the order in which to grow into it.

Three stages, not one decision

The question we are asked most by e-commerce sellers is whether to buy on AliExpress or set up a company in China. In practice there are three stages, and most sellers should move through them in this order:

1. Test on AliExpress. Buy a few units and find out whether the product sells at all.
2. Buy direct from the factory. Once the volume is there, buy from the manufacturer as an importer in your own country, through an agent on the ground.
3. Set up an entity in China. Only once the numbers are clear and one of the specific reasons below applies to you.

Skipping a stage is where money is lost. A company set up before the product is proven is a monthly cost with nothing to carry it.

Stage one: AliExpress is for testing

AliExpress lets you buy small quantities, pay by card and receive goods without handling freight or customs paperwork yourself. That makes it the right tool for testing: order a small batch, list it, and learn what sells, at what price and with what return rate.

Where it stops working

• The price carries a middleman's margin. Many AliExpress sellers are traders rather than manufacturers.
• Quality is not guaranteed. Two orders from the same listing can come from different factories.
• You cannot modify the product or put your own brand on it. No custom packaging, no logo, no change of material.

These limits do not matter while you are testing. They start to matter when a product sells steadily and your margin depends on unit cost and on a brand customers recognise.

Test with some care. Order the same product from two or three sellers, compare the quality side by side, and note which one your customers keep. Ask the best seller whether they make the product or buy it in; the answer can lead you to the factory when you are ready for stage two.

Selling on AliExpress is a separate question

Buying on AliExpress needs no company. Opening your own store on AliExpress, or on other Chinese-run marketplaces, is different: some seller programmes require a mainland Chinese company, and the rules change, so check the platform's current seller requirements. Our guide to opening an AliExpress store through a Chinese company covers that route.

Stage two: buying direct from the factory

Once you are past a few hundred units a month, buying direct from the factory starts to save real money: usually between 30% and 60% on unit price against retail platforms, depending on the product, the order size and how much customisation you need. You also gain control over the specification, the packaging and the brand.

You do not need a Chinese company to do this

Setting up a company in China is not a requirement for importing. You can buy from the factory as an importer in your own country, with the factory or a forwarder handling Chinese export clearance. What you do need is someone who can verify the supplier, check the goods before you pay and arrange shipping. That is where an agent on the ground earns its fee.

Compare landed cost, not unit price

An AliExpress price usually includes delivery. A factory price does not. Before you compare, add packaging, freight, insurance, customs duty and VAT at home, local delivery and an allowance for damaged units. Factories also set minimum order quantities, often in the hundreds or thousands, so the saving comes with more stock and more cash tied up.

Protect your brand before you share it

Once your logo goes on the product, register your trademark in China. China registers trademarks on a first-to-file basis, so a factory or a third party that files your name first can cause you real trouble, including at export. Filing early costs far less than disputing a registration later.

Stage three: when a Chinese entity makes sense

A Chinese entity starts to make sense in three situations. If none of them applies to you, you probably do not need one yet. When one does, setting up a company in China from A to Z walks through the registration itself.

You need a local bank account to cut transfer fees

Paying factories in CNY from a Chinese account avoids an international transfer fee and a currency spread on every payment. At high volume, with many suppliers, those costs add up. Opening a corporate account for a foreign-owned company involves bank due diligence and can take time, so ask the bank about its requirements early. Decide also who will run the company day to day: it needs a legal representative, and someone you trust must hold the company seals and bank access.

Factories prefer a domestic counterparty

Some factories, often larger or specialised ones, prefer to contract with a Chinese company. They are paid in CNY, issue a domestic VAT invoice (fapiao) and avoid export paperwork. A local entity can sign contracts under Chinese law, which some suppliers take more seriously than an overseas buyer.

You want to export under your own name and reclaim export tax

A Chinese company with the right registrations can buy goods against VAT invoices, export under its own name and claim the export VAT rebate. Rebate rates depend on the product's HS code, and some products get none, so check the current rate for your code before building it into your plan. The company needs its customs and tax registrations in order first; see business licence and import and export rights in China.

What a Chinese entity really costs

Recurring and one-off costs

An entity in China needs registered capital, a registered address, monthly bookkeeping and an annual audit. Those costs are recurring, and they are rarely mentioned in the advertising.

• Registered capital. The amount you commit to invest. Under China's revised Company Law, in force since July 2024, shareholders of a limited liability company must generally pay in subscribed capital within five years, so do not subscribe more than you can fund.
• Registered address. A real, usable commercial address is required, and borrowed or virtual addresses carry risks; read real, virtual or fake company registration addresses in China before you sign anything.
• Monthly bookkeeping and tax filing. Returns are due every period, even in months with no sales.
• Annual audit and annual report. Foreign-invested companies commonly need an audited financial statement for their annual filings.
• Set-up costs. Registration, company seals, bank account opening and, if you will spend time in China, visas.
• Closing costs. Deregistering a company later takes time and accounting work, so plan for it from the start.

The accountant you choose will carry most of this work; see how to choose an accounting firm in China.

Checklist before you register a company in China

• Product proven on AliExpress or another test channel.
• Buying direct from a verified factory for several months.
• Monthly volume and landed cost per unit recorded.
• A clear reason: a local bank account, domestic contracts or the export rebate.
• Annual running costs quoted in writing.
• Estimated savings from the entity larger than its running costs.
• Registered capital set at an amount you can fund within five years.
• A real registered address identified.
• Accounting firm chosen.
• A named person to run the bank account and sign documents.

A worked example: 400 phone cases a month

The figures below are illustrative, to show the method. Replace every one with your own numbers.

• Current cost: you sell 400 phone cases a month and pay USD 3.00 per unit delivered on AliExpress.
• Factory price: USD 1.20 to 1.60 per unit at an MOQ of 1,000, depending on material and print.
• Landed cost: after branded packaging, sea freight, insurance, duty, VAT, inspection and delivery, say USD 1.80 to 2.20 per unit.
• Saving: USD 0.80 to 1.20 per unit, or USD 320 to 480 a month, roughly USD 3,800 to 5,800 a year.
• Cash needed: an order of 1,000 units ties up about USD 1,800 to 2,200 for two to three months of sales.

That saving comes from stage two, buying direct as an importer, and needs no Chinese company. Now test stage three. Ask for written quotes for the registered address, monthly bookkeeping, the annual audit and bank fees, and add them into one annual figure. Then estimate what the entity would save: transfer fees on perhaps 6 to 12 factory payments a year, better terms from factories that want a domestic buyer, and any export rebate on your HS code. If the annual running cost is higher than those savings, stay at stage two and run the calculation again when your volume doubles. At this size, the entity's fixed costs are hard to cover.

Common mistakes

• Setting up a company before you have the volume to justify it.
• Believing a Chinese company is required to import. It is not.
• Comparing the AliExpress price with the factory price instead of the landed cost.
• Subscribing registered capital far above what you can pay in.
• Using an address that fails a verification visit.
• Stopping bookkeeping in quiet months, when filings are still due.
• Skipping the agent stage and ordering from factories you cannot visit or inspect.

What to do this week

1. Write down your monthly unit sales per product for the last three months.
2. For your best seller, ask two factories for prices at your real quantity and calculate the landed cost.
3. Compare it with your current AliExpress cost and work out the annual saving.
4. If the saving is real, move that product to direct buying first, with inspection before you pay.
5. Only if one of the three reasons applies, ask for written quotes for set-up and annual running costs. When you reach that point, HiGreenPanda handles company formation in China from Shenzhen and Shanghai, with the address, bank account and bookkeeping arranged together.