China continues to show strong growth through 2025, exceeding forecasts. of manufacturing, export and technology sectors are moving forward, making now a great time for international businesses looking to expand into China.

The two most popular expansion vehicles in 2024 are the Wholly Foreign Owned Enterprise (WFOE) and the joint venture. Since the 1980s, joint ventures have been the most popular way for foreign companies to enter China, whether they want to or not.

In this article, I want to explain why a WFOE is becoming more and more sensitive expansion option.

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Why expand with a wholly foreign-owned enterprise?

Wholly foreign-owned enterprises are limited liability entities incorporated where the foreign company or investor has 100 percent ownership and control of the legal entity in China.

As an independent legal entity, a WFOE with the necessary registrations has a wide scope of activities in China. Traditionally, this structure is divided into three types of entities: WFOE Consulting, Trading WFOEs and Manufacturing WFOEs.

Apple, Microsoft and Nike manufacture all their goods in China through WFOEs, retaining full control of their operations and intellectual property.

While there are no universal minimum capital requirements, an approved amount of registered capital is required. Some industries (such as banking and telecommunications) require much more capital than consulting or retail operations.

The WFOE gives the maximum degree of control over their operations in China to the foreign entity or investor.

Why expand with a joint venture?

A joint venture in China operates similarly to joint ventures in other regions, serving as a partnership model for businesses. Typically, for foreign investors, this is set up through a limited liability company where foreign and domestic Chinese partners own shares in the venture. So why might a company choose a joint venture over a wholly foreign-owned enterprise?

One reason is that the WFOE structure is not accessible to all types of businesses. For example, foreign car manufacturers and telecommunications companies generally must form a joint venture, unless they have specific exemptions. Tesla stands out as the first exception in the automotive sector, having received approval to run the Shanghai Gigafactory as a WFOE.

Second, partnering with a local business is often crucial to the success of China expansion. Local partners have direct access to local networks, resources and expertise. It is much more difficult for a company to get up and running on its own quickly.

Third, joint ventures have reduced registered capital requirements. The existence of China-based partners means that the authorities are much more relaxed about the amount of capital required.

However, along with those potential benefits, it is still important to consider some of the potential downsides of joint ventures compared to WFOEs.

First, a joint venture means relinquishing a degree of control. The China-based partner usually has access to the company's assets and other official documentation and can act without the foreign partner's full knowledge or consent. This even carries intellectual property risks through the possible sharing of confidential company information.

Second, the profits will be shared with the China-based partner. Some companies may find that they are sharing profits in a way that does not fully reflect the contributions of both parties.

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What is better? WFOE or a joint venture?

Assuming you're not yet in the Apple or Tesla category, which option is best for your China expansion?

I suggest you ask the following questions:

1. Is the industry limited to joint ventures? Note that even where the industry is limited in this way, exceptions are often possible,
2. Do you have the financial resources for a WFOE? Not only do you have to meet the increased capital requirements, you have to be sure you can pay the bill just in case something goes wrong.
3. How important is protecting your IP? For consulting or retail, this is likely not a critical factor. However, sharing IP access can be dangerous for manufacturing, industrial or software applications.
4. How important is brand consistency? If you produce luxury goods, for example, a WFOE will be the best way to ensure the integrity of product for global consumers. Conversely, if you are actually targeting Chinese consumers, a Joint Venture partner can be essential to effectively diversify your product.
5. Do you need fast access to local distribution and production networks? Historically, this has been more difficult to achieve through a WFOE, although businesses are increasingly able to do so through non-equity partners such as consulting and advisory firms.
6. How important is government support? In China, most financial support for businesses comes from local governments. A joint venture with a local partner can help applicants apply for subsidies and grants.

Join forces or go it alone

Joint ventures have traditionally been the main structure for foreign businesses entering Chinaregardless of whether this structure is desired. However, it is becoming less necessary to form a joint venture and a wholly foreign-owned enterprise often turns out to be a more favorable option.

A WFOE allows a global business to retain full control over its China operations and related profits. While local support is essential for success in the Chinese market, this need can now be met through consulting partners rather than seeking equity partnerships.