This document discusses considerations for entering the Chinese market. It outlines preliminary factors to consider such as objectives and partnership needs. Various entity structures are described including representative offices, wholly foreign owned enterprises, joint ventures, and contractual joint ventures. Alternative structures like contract manufacturing, distribution, licensing and agency agreements are also covered. Finally, the document addresses exiting China and resolving disputes.

1. Getting In:
Considerations and Structures for
Entering the Chinese Market
Jack Yong
Partner

2. First Things
• Chinese law
• Tax considerations
• Not one-size-fits-all
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3. Preliminary Considerations
• Why do you want to be in China?
• What do you want/need to do in China?
• Can you do it alone?
• If not, what kind of partner do you need?
• What kind of staffing and presence do you need,
and what can you afford?
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4. Due Diligence
• Areas of due diligence
• Challenges and options
• Taxes and incentives
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5. Checking the Catalogue
• Encouraged
• Permitted
• Restricted
• Prohibited
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6. Types of Vehicles
• Representative Offices (RO)
• Wholly Foreign Owned Enterprises (WFOE)
• Joint Ventures
• Equity Joint Venture (EJV)
• Contractual Joint Venture (CJV)
• Foreign-Invested Partnership Enterprise (FIPE)
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7. Representative Office (RO)
• Not a separate legal entity
• Generally restricted from direct activities
• No registered capital required
• Tax based on RO expenditures
• Basic RMB bank account
• No direct hiring
• 3 year operation term
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8. Wholly Foreign Owned Enterprise (WFOE)
• Independent legal entity
• Can enter into contracts
• Minimum registered capital depending on
business type and scope
• Many business activities
• More taxes applicable
• Need a basic RMB bank account and a foreign
currency account
• Can employ directly
• No limits on operation term
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9. Equity Joint Venture (EJV)
• Typical for long-term ventures
• Usually limited liability
• Foreign investor must contribute at least 25% of
registered capital
• Partners share in investment, management,
profits and liabilities
• Only way to establish business for certain
industries
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10. Contractual Joint Venture (CJV)
• Suitable for short-term or limited purpose
ventures
• Can be registered as a limited liability company,
but not mandatory
• Unlike EJV, profits, liabilities and losses can be
allocated in a proportion different than equity
contributions
• Also more flexibility for removing investment
before expiry of term
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11. Foreign-Invested Partnership Enterprise (FIPE)
• No MOFCOM approval
• General and limited partnerships
• SOEs, public companies, public welfare
institutions and social organizations may not be
general partners
• No minimum registered capital
• Similar advantages and disadvantages as
partnerships here
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12. Structures
(besides going it alone)
• Contract Manufacturing
• Distribution
• Licensing and Agency
• Joint Venture
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13. Contract Manufacturing
• Pros and cons
• Risk of IP transfer, competition
• Contracting with party outside China
• Watching own relationships
• Non-competition and allocation of rights to
improvements
• Term
• Due diligence
• Opportunity re non-core IP
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14. Distribution
• Distributor buys, takes title and resells
• Hong Kong traders
• Domestic distributors
• Pros and cons
• Governing law
• Regulatory approvals
• Exclusivity
• Distributor obligations
• Proprietary rights
• Term and termination
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15. Licensing and Agency
• Agent helps finds customers and earns
commission
• You contract with the customers and are liable to
them
• Be specific with instructions and authorization
• Exclusivity
• Commissions
• IP
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16. Joint Ventures
• Purpose
• Exclusivity
• Governance, control and management
• Dispute resolution
• Funding and distributions
• Restrictions on transfer
• Exit strategies
• Aligning interests
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17. Getting Out:
Exits and Dispute Resolution
Jack Yong
Partner

18. Liquidation
• Why have a plan
• Differences among structures
• Creating a team
• Gathering information
• Execution
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19. Getting Funds Out
• Reserve requirements
• Foreign exchange controls
• Withholding taxes
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20. Dispute Resolution
• Options
• Arbitration
• Court system
• Early strategic considerations
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21. Thank You
Jack Yong
Tel: 604-443-7698
Email: jack.yong@gowlings.com
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