What are the
options for foreign enterprises to establish a permanent presence
in China?
For foreign companies, there are four main forms business
establishments in China can take:
1) representative offices
2) branches
of foreign companies
3) joint ventures and
4) wholly foreign owned
enterprises.
The avenue chosen by a foreign investor is dependent
on many factors: How active one wants to be in China; the industry
one is investing in; and whether or not a Chinese partner is necessary,
either because it is required by law or in order to benefit from the
partner's experience in and access to the Chinese market.
The most popular form of establishment is a representative
office, but they are very limited in the activities they may carry
out. They may not carry out direct business activities and are limited
to activities such as market research and liaison. In practice, some
representative offices exceed their business scope and thus flirt
with negative legal ramifications.
If one wants to legitimately carry out profit making business
activities, one must set up a Joint Venture with a Chinese partner
or a wholly foreign owned enterprise.
As for branches of foreign enterprises, they are allowed
only in theory and, therefore, there exist no implementing regulations.
Many investors prefer Wholly Foreign Owned Enterprises to
Joint Ventures, because this gives them full control over their business.
However, there are certain industries in which a Wholly Foreign Owned
Enterprise cannot be established - although this list is getting shorter
and shorter. Also, some investors choose to cooperate with a Chinese
partner to form a Joint Venture for strategic reasons. In general,
though, WFOEs are gaining popularity, mainly because they are easier
to establish now than in the past.
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