It’s time for entrepreneurs to enter the Chinese market – this strategy is the smartest choice

China continues to show strong growth in 2025, exceeding forecasts. The production, export and technology sectors are growing rapidly, making it an excellent time for multinational firms looking to expand into China.

The two hottest expansion vehicles in 2024 are a wholly foreign owned enterprise (WFOE) and a three way partnership. Since the Eighties, joint ventures have been the hottest way for foreign firms to enter China, whether or not they want to or not.

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

Why grow in a wholly foreign-owned company?

Wholly foreign-owned enterprises are registered limited liability entities in which a foreign company or investor has 100% ownership and control of the legal entity in China.

As an independent legal entity, WFOE with the required registrations has a wide selection of activities in China. Traditionally, this structure is divided into three varieties of entities: consulting WFOE, business WFOE and production WFOE.

Apple, Microsoft and Nike produce their goods in China via WFOE, retaining full control over operations and their very own mental property.

Although there are no universal minimum capital requirements, an approved amount of share capital is required. Some industries (e.g. banking and telecommunications) require much more capital than consulting or retail activities.

WFOE provides the maximum degree of control over its operations in China to a foreign entity or investor.

Why is it value developing thanks to Joint Venture?

Joint Ventures in China operate similarly to joint ventures in other regions, serving as: partnership model for enterprises. Typically, for foreign investors, this is arranged through a limited liability company in which each foreign and domestic Chinese partners own shares in the enterprise. So why might a company select a three way partnership over a wholly foreign-owned company?

One reason is that the WFOE structure is not available to all kinds of companies. For example, foreign automakers and telecommunications firms generally must form joint ventures unless they have specific exemptions. Tesla stands out as the first exception in the automotive sector, receiving approval to operate its Shanghai Gigafactory as a WFOE.

Second, partnering with a local company is often crucial to the success of China’s expansion. Local partners have direct access to local networks, resources and expertise. It is much harder for a company to quickly start a solo business.

Third, joint ventures have lowered share capital requirements. The existence of partners based in China signifies that the authorities are much more relaxed about the amount of capital required.

However, in addition to these potential advantages, it is still necessary to consider some of the potential disadvantages of joint ventures compared to WFOE.

First, a three way partnership means giving up some degree of control. The Chinese partner often has access to the company’s assets and other official documentation and may act without the full knowledge and consent of the foreign partner. There is even an mental property risk due to the possible sharing of confidential company information.

Secondly, the profits shall be shared with the Chinese partner. Some firms may find that they share profits in a way that does not fully reflect the contributions of each parties.

Which is higher? WFOE or Joint Venture?

Assuming you do not yet fall into the Apple or Tesla category, which is the most suitable choice for your expansion in China?

I suggest asking the following questions:

1. Is the industry limited only to joint ventures? Please note that even where the industry is restricted in this way, exceptions are often possible,
2. Do you have the financial resources for WFOE? Not only do you would like to meet the increased capital requirements, but you furthermore may need to ensure that if something goes fallacious, you may have the ability to foot the bill yourself.
3. How necessary is it to protect your IP address? In consulting or retail, this is probably not a critical factor. However, sharing access to an IP address could be dangerous for manufacturing, industrial or software applications.
4. How necessary is brand consistency? For example, if you produce luxury goods, WFOE shall be the best way to ensure the integrity of your goods product for consumers around the world. Conversely, if you are actually targeting Chinese consumers, a Joint Venture partner could also be essential to effectively pivot your product.
5. Do you would like quick access to local distribution and production networks? Historically, achieving this goal through WFOE has been harder, although firms are increasingly able to do so through non-equity partners corresponding to consulting and advisory firms.
6. How necessary is government support? In China, most financial support for businesses comes from local governments. A three way partnership with a local partner might help applicants apply for grants and grants.

Joining forces or traveling alone

Joint ventures have traditionally been the primary structure for foreign firms entering China, no matter whether such a structure is desirable. However, forming a three way partnership is becoming less and less essential, and a wholly foreign-owned company often proves to be a more advantageous option.

WFOE allows a global company to maintain full control over its China operations and associated profits. While local support is essential to success in the Chinese market, this need can now be met through advisory partners somewhat than requiring equity partnerships.