Wholly Foreign-owned Enterprises (WFOEs)  

The Wholly Foreign Owned Enterprise (WFOE) is a limited liability company wholly owned by the foreign investor(s). In China, WFOEs were originally conceived for encouraged manufacturing activities that were either export orientated or introduced advanced technology. However, with China's entry into the WTO, these conditions were gradually abolished and the WFOE is increasingly being used for service providers such as a variety of consulting and management services, software development and trading as well.

It should be noted that though the WFOE is allowed in most industries now, there are still certain sectors (e.g. education, telecoms, nuclear, automobile, insurance etc) where WFOEs are not allowed and companies are restricted to having a local partner if they want to invest. The ‘Guidance Catalogue for Foreign Investment’ published by the Ministry of Commerce (MOFCOM) is a list of industries that the government has declared: ‘Prohibited’, ‘Restricted’ or ‘Encouraged’ and can be used to check whether and what kind of restrictions may apply to your business.

Advantages of a WFOE
The advantages of establishing a WFOE include:
(1) Independence and freedom to implement the worldwide strategies of its parent company without having to consider the involvement of the Chinese partner;
(2) Ability to formally carry out business rather than just a representative office function and capable of issuing invoices to their customers in RMB (Chinese Currency) and receive revenues in RMB;
(3) Capable of converting RMB profits to US dollars or other foreign currency for remittance to their parent company outside China;
(4) Greater protection of intellectual property rights, know-how and technology since no partner required and therefore more control of IP;
(5) Greater efficiency in its operations, management and future development.

The information above is taken from the “Introduction to Wholly Foreign Owned Enterprise (WFOE)” produced by China-Britain Business Council.

What is better a WOFE or a JV?