Ways to enter the Chinese market – Direct vs. Indirect entry
For foreign investors looking to enter the Chinese market, there are several preliminary issues to consider. Among those issues is whether you want to found a company in China, or simply want to do business there, with nothing more than maybe a small office.
In general, there are two main options: Directly establish a legal entity VS. indirectly establish an entity in China.
Direct establishment of an entity in China
This approach let you directly establish a legal entity in China, which can be done in one of two ways:
- Establish a Wholly Foreign-Owned Enterprise (WFOE) on your own, or
- Establish a Sino-Foreign Joint Venture (JV) together with a Chinese company.
It is worth noting that, in order to further attract foreign investment, China passed a new Foreign Investment Law (FIL) in 2019. This law provides more protection than the previous ones in various areas, including IP to foreigners who want to expand their business to China.
Indirect establishment of an entity in China
This approach allows you to conduct trade in China indirectly, without registering a company locally. There are several ways to do this:
- Establish an office or branch, which makes it easier for you to deal with your potential business partners and clients,
- Appoint an agency and/or distributor, or
- Enter into franchise agreements with qualified business partners.
The bottom line for foreign investors to enter the Chinese market
While each option has its own pros and cons, the one that will work best for you, or which ones you can legally choose, will depend on your particular circumstances – these can be the products or services you are selling or the technology you are licensing.
If you would like more detailed information about how to enter China’s large market, it is recommended to speak to a business lawyer for further discussion.
This article is provided by Emilia Shi, a business lawyer based in Shanghai, China. She has over 20 years of experience in securities and corporate law.
Her primary areas of practice include corporate governance and compliance, foreign direct investment (FDI), mergers and acquisitions, private equity and real estate. She has advised clients on projects covering automobiles, chemicals, education, manufacturing, media, pharmaceuticals and real estate.
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