Foreign Enterprises ("FEs") and Foreign Invested Enterprises ("FIEs") are categorized broadly into three models: (1) the Representative Office ("RO") (an FE), (2) Wholly-Owned Foreign Enterprise ("WOFE"), and (3) Joint Ventures (JV)
- Representative Office: An RO is ideal for foreign companies that operate in a business area where foreign investment is still restricted by the Chinese government, as a means to establish business relationships and conduct important market research. ROs can have expenses but no revenue, and are taxed at a rate that assumes that the company is booking revenue offshore (taxes are based on turn over see China Considerations"Business Tax"). They are easy to establish, require no commitment for investment, do not have a separate legal identity and have limited business activity within a taxable structure.
- Wholly-Owned Foreign Enterprise: A WOFE is completely 100% foreign owned and controlled and does not have any direct Chinese ownership participation. The foreign holding entity has control over operations and intellectual property, does not need to share profits with the domestic company, and is more efficient and effective. Management can be established within a short timeframe and the foreign party does not require Chinese assistance in problem resolution, but would need to build up capabilities from scratch.
- Joint Ventures: JVs are the most common, but sometimes also the most complex, means of bringing foreign investment into China. The JV approach is encouraged by the government in order to allow business partnerships that include the transfer of technology and Western business knowledge into the Chinese economy. The Chinese provide existing consumers and supply chain networks, facilitate local government contacts and grant availability of existing infrastructure, which reduces the capital intensity of projects. JVs can consume significant time and resources when being established, may have challenging exit procedures, and commonly employ a consensus-based management style for operations.