Using a Chinese Entity for an All-foreign Joint Venture in China _ Does it Make Sense?

By Paul, Hastings, Janofsky & Walker LLP Shanghai Office

Foreign investors for many years used Sino-foreign joint ventures as a way to enter the Chinese market, either by choice or because Chinese law required it. In recent years it has become more common for foreign investors to own 100% of their China operations. Where two or more foreign parties combine to engage in China operations, the usual question that arises is: where should the joint venture entity be organized?

Many foreign parties organize their joint venture entities outside of China - in tax-favourable jurisdictions such as the British Virgin Islands or Mauritius - or in the home jurisdiction of one of the parties. Occasionally operational, tax, or other considerations will lead the parties to examine whether they can use the Chinese entity itself as their joint venture vehicle. This would be a multi-party wholly foreign-owned enterprise (WFOE) in China.