Getting In: Considerations and Structures for Entering the Chinese Market by Jack Yong

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
2

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?
3

4. Due Diligence
• Areas of due diligence
• Challenges and options
• Taxes and incentives
4

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)
6

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
8

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
9

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
10

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
12

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
13

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
14

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
15

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
20

21. Thank You
Jack Yong
Tel: 604-443-7698
Email: jack.yong@gowlings.com
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