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Castlet Ltd

Setting Up A Business In China

By Bryan Carr

Castlet Limited

• Designers and manufacturers of industrial process equipment.

• High Voltage power supplies for Electrostatic Precipitators.

• Applications in Power Stations, Steel and Cement works, and Incineration Plants.

History

• By 1980 85% of UK market.

• By early 2000 25% world market outside of China, USA and Russia.

• By 2005 had supplied 19 new power stations in China.

• Always interested in having a company in China.

• Company founded in 1974.

GROWTH OF COAL FIRED POWER STATIONS IN CHINA

• 19492MW

• 198065MW

• 2003285MW

• 2010438MW

• 2020660MW

• Before 2004 emission limit 200mg/m³

• After 2004 emission limit 50mg/m³

• October 2004 gave paper at Chinese pollution control conference.

• Many Chinese companies wanted us to joint venture with them.

• Selected Shanghai Resistor a state owned company which was up for sale.

• Wholly Foreign owed enterprise (WFOE).

Shanghai Electric Group

Shanghai Enterprise Development

Shanghai Petrol Chemical Company

Shanghai Resistor

Shanghai ResistorMinhang District

• Employed 340 people.• 4,700m² manufacturing/office

space.• Output capability 400 power

supplies/annum.• Present output 100 per annum.• Average wage £75/month.

MINHANG DISTRICT

• Located SW suburbs of Shanghai.

• About 50 minute drive from centre.

• Population about 750,000.

• Inward investment by 2400 companies.

• Total FDI £5 billion from 40 countries.

• Exports £1.4 billion/annum.

QUALIFICATONS TO BID

• LETTER TO MOTHER COMPANY

– Your company profile

– Accounts showing assets

– Testimonials

– Reason you want to buy

– Products you will introduce to China

– How you will make workers conditions better at work

MUST AGREE

• Employ minimum of 70 people for minimum of 3 years.

• Wage structure for different classes of staff• To pay:

– Medical insurance– Pensions– Unemployment insurance– Housing fund– Total 62% add on costs

ASSET VALUATION

• Impartial Asset valuation.

• Public announcement of sale, asset value and registered capital.

• 20 working days to register interest for qualified bidders.

DOCUMENTS REQUIRED FOR REGISTER OF INTEREST

• The following documents in both English and Chinese, notarised by

• Solicitor with legal authority to notarise documents.

• Foreign and Commonwealth Office.

• Chinese embassy.

• Letter from bank sufficient funds.• Minutes of shareholders meeting

authorising the company to register interest. Signed by all shareholders.

• Share subscription agreement.• Memorandum and Articles of

Association.• Company certificate of incorporation.

• 21 September 2005 – Castlet only bidder.

• Due diligence revealed a horror story.• Many of the debtors did not exist.• Over inflated assets.• Motor vehicles with no registration

documents.• Overall very poor Quality Audit.

Plan B

• Identified suitable premises just a short distance from Shanghai Resistor.

• Invited senior managers to view.

• Priced all equipment needed.

• Made sure Mother Company were aware of Plan B.

• Mother company agreed only to sell certain assets.

• Legal agreement and warranty to ensure Castlet only responsible for events after signing.

DOCUMENTS REQUIRED TO SET UP A WOFE

• Five independent Chinese names• Applications letter• Business registration certificate• Passport copy of legal representative• Bank reference letter• Office leasing agreement – chopped by landlord• Passport copy of proposed Board and CV with 2 two

inch photographs• Environment protection, fire protection and sanitation

certificates• Tax, finance, customs, VAT registration certificates• Foreign exchange licence

In parallel and independent of all this activity.

• Located suitable manufacturing of printed circuit boards.

• Made sure nothing in documents related to Castlet.

• Order via reliable trading company.

• Cost reduction of about 50% from UK supply.

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