The Wholly Foreign Owned Enterprise Regulations were recently amended. What are the most significant changes?

The most significant change is the lifting of the requirement that a wholly foreign-owned enterprise, or WFOE, must either meet advanced technology requirements or export 50%, or more, of its product output. Therefore, establishing a WFOE will be open to more industries, especially with China's accession to the World Trade Organization.

In the past, export requirements restricted existing WFOEs in their marketing and sales strategy, since they could increase their domestic sales only if their exports were equally as high.

A main driving force of foreign investment in China continues to be the prospect of selling to a consumer market that has a quarter of the world's population. After the regulations are amended and export restrictions are curbed, the incentive to partner up with a Chinese company will wane. Therefore, we will likely see an increase of wholly foreign owned enterprises.

There still may be reasons to seek a local partner, but foreign investors will enjoy more freedom in structuring their investments in China.

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