How to establish a wholly foreign owned enterprise in China?
Updated: 2006-04-17 09:31
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.
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