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Entity Establishment Solution

There are numerous ways to invest in the China market. Nowadays the most popular option is to establish a Wholly Foreign-Owned Enterprise ("WFOE") in China through Hong Kong Holding Company (as a special purpose vehicle); over 75% of foreign investors choose this investment vehicle when entering the China market.

Types of Foreign Investment Enterprises ("FIEs")

Representative Office ("RO")

  • Non-legal entity
  • Direct hiring is not allowed
  • Limitation of business scope
  • Intermediate step to monitor Chinese market before making substantial investments or commitments in the PRC
  • Focus on export activities or monitor quality control without establishing a legal entity
  • Operate in industries that are clearly regulated, restricted or prohibited in China but wish to establish a presence

 

Wholly-owned Foreign Enterprise ("WFOE")

  • Default option for most foreign investors, particularly popular with small or medium-sized foreign companies
  • Registered Capital is varied depending on the industry and business scope, however no deadline on capital injection (Within 5 – 8 years is recommended)
  • Full control & management of the company’s direction in the long term and safety of certain intangible assets
  • Most of business activities can be conducted; pre/post-approval and licensing are required for specific industry e.g. construction, telecommunication, media and etc.

 

Joint Venture ("JV")

  • Normally exists due to:
    1. Legal restrictions in China;
    2. Investment/participation into an existing company such that the current shareholder(s) remain in the business;
    3. Advantages or capabilities of the Chinese partner to a large extent, e.g. local brand awareness, distribution network;
  • Foreign invested JVs often face challenges in management styles, culture, expectations versus local standards
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