01 Choosing a Business Structure in Mainland China
Foreign investors entering mainland China or Hong Kong can choose from several structures. The appropriate option depends on the activities the business will carry out, whether it needs a local partner, and whether it needs a separate legal entity with local operating capacity.
Mainland China: WFOE, joint venture or representative office?
“Wholly foreign-owned enterprise,” or “WFOE”, remains a familiar business term. Since the Foreign Investment Law took effect in 2020, however, foreign-invested enterprises are generally organized under the same company or partnership laws as domestic entities. A WFOE is therefore commonly used to describe a company, often a limited liability company, owned entirely by foreign investors; it is not a separate company-law form.
A wholly foreign-owned company is often considered when the investor wants direct control and foreign ownership is permitted for the proposed business. A “joint venture” allows foreign and Chinese investors to participate in the same company. It may be appropriate where a Chinese partner brings market access, operating capability, assets or local expertise—or where sector rules require a Chinese partner or limit foreign ownership.
A “representative office” is a more limited presence for activities such as liaison and market research. It is not a separate legal person and generally cannot conduct profit-making activities. It should not be used where the business needs to sell, invoice or collect revenue in China.
↑ Back to article navigation02 Foreign Investment Procedures in China
Foreign investment in China is governed by a pre-establishment national treatment and negative-list system. This means foreign investors are generally treated on the same basis as domestic investors in sectors outside the foreign-investment negative list. It does not mean that every activity can begin without a licence or other regulatory procedure.
Start with market-access and ownership checks
Before choosing an entity or signing a transaction, identify the company’s actual business activities and check whether foreign investment is prohibited, restricted or subject to an ownership condition. The proposed business may also be subject to market-access rules that apply to domestic and foreign companies alike, as well as industry-specific licences.
Complete company registration and information reporting
A foreign investor establishing a company generally applies for entity registration with the competent market regulation authority. The foreign-investment initial report is submitted through the enterprise registration system as part of the information-reporting framework. Changes and annual information may also need to be reported through the relevant systems.
This information-reporting process is distinct from a general, case-by-case foreign-investment approval. However, where an industry law requires prior approval, the approval may need to be obtained before registration or before the company begins the regulated activity.
Check project, security and competition review requirements
Certain fixed-asset investment projects may require project approval or filing under the procedures applicable to domestic projects. Foreign investments that affect, or may affect, national security may be subject to security review. An acquisition or other transaction may also require an anti-monopoly filing if the applicable thresholds are met.
The filing sequence depends on the sector, transaction and location. Investors should review the requirements before making binding commitments, particularly where the project involves regulated services, sensitive assets or a Chinese business acquisition. KINGBRIDGE Law Firm can help map the relevant procedures and coordinate the registration and licensing work.
↑ Back to article navigation03 Foreign Investment Restrictions and Licences: TMT and Beyond
Foreign investors should assess market access before they choose an ownership structure or apply for a company licence. China’s foreign-investment negative list identifies sectors where foreign investment is prohibited or subject to special conditions. Activities outside that list are generally treated on the same basis as domestic investment, but may still require ordinary business licences or industry permits.
TMT rules depend on the specific service
“Technology, media and telecommunications” covers many different activities, and the rules are not the same for every online or technology business. Under the national foreign-investment negative list, basic telecommunications businesses must be controlled by Chinese investors. For many value-added telecommunications services, foreign ownership is generally capped at 50%, although the list identifies exceptions, including certain specified service categories.
The list also prohibits foreign investment in specified internet content services, including internet news, internet publishing and internet audio-visual programme services, subject to the terms of the applicable rules. A company’s product features, revenue model and technical function can affect how its activity is classified. Some pilot programmes provide different access conditions for specified services or locations, so the applicable rules should be checked against the exact business plan.
Other regulated industries
The negative list also contains restrictions or prohibitions affecting certain activities in fields such as education, healthcare, transport, agriculture, natural resources and culture. Financial services are subject to additional sector-specific laws and approvals. Even where foreign ownership is permitted, the operating company may need qualifications, permits, compliant premises or other conditions before it can provide services.
China also maintains a separate market-access negative list that applies to domestic and foreign businesses. Passing the foreign-investment check is therefore only one part of the analysis. Businesses should review the current lists, the relevant industry rules and any local or pilot-area measures before committing to an investment.
↑ Back to article navigation04 Mainland China or Hong Kong: Choosing Where to Establish
Mainland China and Hong Kong are separate business environments with different legal systems, company-registration regimes and operating requirements. A Hong Kong entity does not, by itself, authorize business operations in mainland China.
Hong Kong: local company, branch or representative office?
A limited company is the most common way to start a new business in Hong Kong. A private company limited by shares is a separate legal entity; overseas shareholders can own its shares. A foreign company may instead register a Hong Kong branch, which remains part of the overseas parent company. A representative office is generally used for limited non-revenue activities.
A Hong Kong company is not a mainland China operating company. If the business plans to sell or hire in mainland China, it should separately assess whether it needs a mainland entity, licences or another approved arrangement.
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