The 3 most common China entry modes for Foreign Investors

Any organization wishing to do business with or in China may consider at one moment in time to establish a business entity within China. Setting up a business in China requires much time and investment and may seem complex for foreign investors. It is important to have a good plan before entering the Chinese market and one must coordinate the entry well to avoid or minimize any disruptions to your business. 

China Entry Modes
Basically, there are 3 main entry modes available to foreign investors, which are the Wholly Foreign-Owned Enterprise (WFOE), Joint Venture (JV), and the Representative Office (RO). Key differences between these structures are the legal status, liabilities of shareholders, registered capital, business scope, employment regulations, and invoicing and contracting. 

A WFOE is the most common and generally most preferred entry mode to available to foreign investors in the Chinese market. A WFOE is a Limited Liability Company (LLC) which is established exclusively by the foreign investor's capital (hence "wholly foreign-owned"). In general, there are three distinct types of WFOEs, which are the following:

  • Standard/Consulting WFOE: is licensed to operate as a consulting business within the service industry.
  • Trading WFOE: is licensed to conduct trading, wholesaling retailing, and/or franchising activities in China. These types of companies are required to make an additional registration at Customs to be able to import/export goods in/from China.
  • Manufacturing WFOE: is licensed to manufacture goods in China. An additional requirement for is the environmental impact assessment (EPA). This needs to be completed, before you can receive your business license. 

Joint Venture
A Joint Venture (JV) is an LLC like the WFOE. A JV is a structure in which a foreign investor partners with a Chinese company (i.e. Sino Foreign JV). Generally, there are two reasons why companies want to establish a JV in China:

  • You want to invest in a restricted industry sector in which foreign investment is only permitted through a joint venture.
  • You want to utilize the network of a Chinese partner with local market knowledge and established contacts. 

However, a Joint Venture means joint management, which can be difficult to manage for companies without any significant international experience. Within the Chinese corporate environment, shareholders do not always have a direct influence on the activities of the company, instead the board of directors and above all the legal representative of the company have the authority to make principal decisions. Therefore, in case of a Joint Venture, if you are expected to possess a minority stake on the board, successfully operating a Joint Venture may prove difficult. 

Representative Office
A Representative Office is not a separate legal entity but rather a type of "branch" of the head office ("liaison office" ). Although the RO does not have any registered capital requirements, a defining characteristic is its limited business scope. They are only allowed to conduct marketing & research activities for the headquarters. In addition, they are required to pay Corporate Income Tax based on their expenses, which they are unable to offset as they are not allowed to engage in any real business activities, nor are they allowed to send invoices to their clients in China. 

Comparison of China entry modes
To better understand the differences between these different entry modes, we have made a comparison (see table below) of the different entry modes. Please note that the optimal entry mode depends on your business and expectations of the Chinese market, any of these entry modes could be suitable for your business in China. 

This article has been prepared by Moore Stephens Consulting, a professional service firm based in China and member of Moore Stephens International. Moore Stephens Consulting provides full financial services to foreign companies active in China and Hong Kong. For more information regarding this article, please do not hesitate to contact us at  or visit their website  to be updated on news about China. 

And a prosperous Year of the Pig!
MS Advisory wishes you a Happy Chinese New Year!
At the start of Chinese New Year, on 5 February 2019, the "Year of the Dog" has made place for the "Year of the Pig". To celebrate this occasion, we would like to share several interesting facts with you about this important holiday in Chinese culture. We would also like to briefly reflect on the past and upcoming year. According to Chinese legend, the Jade Emperor (玉皇大帝 or "Yùhu
What has changed?
What is China's new Negative List and what is its impact on Foreign Investment?
Although China's entry into the World Trade Organization in 2001 helped liberalize its trading environment and reduce restrictive measures on foreign investment, several industries remain regulated or inaccessible. Since the introduction of the "Negative List" by the National Development and Reform Commission (NRDC) as part of the new Foreign Investment Law, of which a draft was published as early
Results of Sino Benelux Business Survey 2018 
Does China still remain an important market for Benelux businesses?
How have Benelux (Belgium, the Netherlands and Luxembourg) companies active in China performed in 2017 and what their expectations for 2018? Are Benelux companies more impacted by new rules and regulations in China and have Benelux companies experienced any business opportunities due to governmental policies such as the Belt and Road Initiative (BRI)? What do companies consider about the curr
The Year of the Dog!
MS Advisory wishes you a “Happy Year of the Dog”!
With 2018 being started, we will also transit in China from the “Year of the Rooster” to the “Year of the Dog” and celebrate the Chinese New Year. Chinese New Year is an annual celebration which brings most Chinese families together. An estimated 50% of the Chinese population will travel across the country to visit their families and as a result many businesses are closed during this perio
China Desk
Transfer Pricing in China: 5 things all foreign companies doing business in China should know
Fueled by initiatives such as the BEPS (‘Base Erosion and Profit Shifting’) Action Plan by the OECD and newly implemented transfer pricing local rules and regulations by OECD- and non-OECD member countries, transfer pricing has become a topic of increasing importance for companies all over the world. Though China is not a member of the OECD, they have also followed the recommendations by the O
China Desk
Why should foreign companies in China be ready to expect the unexpected?
Why should foreign companies in China be ready to expect the unexpected? Two exceptional cases to explain you why and what you can do about it Police in China seize 20,000 tonnes of low-grade ‘fake’ salt  The above is an actual headline taken from the Thursday, July 2, 2015 issue of the South China Morning Post.  China is a market which provides many opportunities t
China Desk
Have you updated your Business License in China already? An overview of the reform in China to the Five-in-One Business License
The Chinese authorities are trying to simplify administrative procedures and to reduce bureaucratic hurdles with the aim of developing a market-based economy and “promoting mass entrepreneurship and innovation”. Therefore, they have instituted administrative reforms simplifying China’s business establishment and registration procedures. In October 2015, the “Three-in-One” business lic
China Desk
How to sell services, conduct trade, and manufacture goods in China without owning a local entity
The rules and regulations for foreign companies to do business in China can be considered as strict and for some businesses even as restrictive, However, it certainly remains possible for foreign companies to do business in China without owning a local entity. Foreign companies can sell their services in China, sell and import their goods into China and have their products produced in China, all w
China Desk
A changing economic environment in China: results Sino Benelux Business Survey
Sino Benelux Business Survey 2017: A changing economic environment in China and how have Benelux businesses performed within this context? The year 2016 has demonstrated again to be a year of many changes. The Chinese economy has been steering more and more towards domestic consumption, new regulations have been implemented (i.e. VAT Reform and Transfer Pricing) and many developments have taken
How do you apply this principle?
China "tax break" principle for expatriates
Expatriates living in China for almost five years or more are regularly asked whether they had or will have a “Tax Break” to avoid being taxed on their worldwide incomes.

Subscribe to our newsletter