| Types of foreing investment in China
The current Chinese law recognizes three types of business entities that have foreign interest.
A Foreign Representative Office (RO):
- RO can only perform liaison work between the foreign parent company and local Chinese businesses.
- RO can engage in market research, monitoring purchasing activities, marketing and sales administration.
- RO cannot generate revenue in China and cannot sign or enter into any types of revenue generating contracts with local businesses.
- RO licenses are generally issued for one or three years, and can be renewed.
- Advantage: easy to establish.
A Joint Venture (JV):
- In China, a JV is a recognized corporate entity, which is a partnership between the foreign investor and the local Chinese partner.
- JVs take one of two forms: a foreign investment JV or a foreign cooperative JV. They are also capable of entering the vast majority of Chinese industries.
- Advantage: immediate market entry with local market expertise and understanding of local practice and requirements;
A Wholly Foreign Owned Enterprise (WFOE):
- This is a 100 percent wholly owned foreign subsidiary doing business in China. WFOEs are increasingly becoming the vehicle of choice for foreign direct investment in China.
- WFOEs must meet one of the following requirements: the application of internationally advanced technology, or the orientation of most of the products for export.
- Advantages: absolute decision-making power, no sharing of profits, more control over company operations.
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