How to establish a wholly foreign owned
enterprise in China?
A:Wholly
foreign owned enterprises are permitted to register
in cases where at least half of their annual output
is exported or if the nature of their operations
relies heavily on advanced technology and the
application of this high technology is beneficial to
China. Approval to establish a wholly foreign owned
enterprise is granted much more sparingly when
compared to joint ventures.
Like joint ventures, wholly foreign owned
enterprises are in most cases required to balance
their foreign exchange and are allowed to occupy
facilities other than those managed by the Foreign
Management Bureau. As a Chinese legal entity they
may sign separate contracts with the appropriate
government authorities or Chinese business entities
to acquire land use rights, rent buildings, and
receive utility services.
Wholly foreign owned enterprises enjoy exclusive
management control of their business activities and
have autonomy in their operation and management with
less interference from the Chinese government.
Because there is no Chinese partner to guide the
project through the approval process and through the
other regulatory issues associated with construction
and operation of the enterprise, the logistics of
establishing a wholly foreign owned enterprise can
be difficult and costly.
A wholly foreign owned enterprise is considered a
Chinese legal entity and must abide by all Chinese
laws. They must employ Chinese labor in accordance
with local and central government labor laws and are
encouraged to establish trade unions (but not
required to do so.
Traditionally the wholly foreign owned enterprise
has rarely been the chosen method for investment in
China. The independence offered to the foreign
investor is often outweighed by the lack of direct
links to the domestic economy. Most international
corporations choose to establish joint ventures for
the relationships and connections provided by the
Chinese partners.
Recently some major international players in
China's telecommunications industry including
AT&T and Ericsson have set up wholly owned
enterprises to handle much of the domestic
management originally handled by their
representative office. They have done so only after
years of business experience in China and despite
their registration as a wholly foreign owned
enterprise, maintain the registration of their
representative office.
