Wholly foreign-owned enterprises

WFOEs, companies owned by one or more foreign investors, are authorized under the Wholly Foreign- owned Enterprise Law in 1986 , and the Wholly Foreign- owned Enterprise Law Implementing Rules of 1990, are seen as having fewer management and profitability problems and are now more popular among the foreign investment community than joint ventures because they do away with conflicting partner interests, corporate cultural differences and other control problems inherent in any joint venture.

WFOEs have become an important part of the investment scene. MOFTEC (COFTEC) regulates WFOEs more stringently than it does joint ventures. China currently bans WFOEs in key sectors such as publishing, telecommunications, some petrochemicals, some chemicals, pharmaceuticals and agriculture.

WFOE project proposals are submitted to MOFTEC/COFTEC, depending on the registered capital of the project, and if approved, a formal application is made with the company's proposed articles of association and a feasibility study. Documents relevant to the investors are also required. If approved it takes the form of a limited liability company for a specified term , although a perpetual existence is theoretically possible. After approval the WFOE must go through the same AIC registrations as any other company. Laws, regulations and policies, which are passed for other FIEs often apply to WFOEs.

Where an investment project has begun as a joint venture limited liability company, it is often converted into a wholly foreign-owned company with the buyout of the PRC party's equity. This is accomplished by assignment of equity after approval of the Chinese partner and the original approval authority (MOFTEC or COFTEC) pursuant to the 1997 Several Regulations Of The Ministry Of Foreign Trade And Economic Cooperation And The State Administration For Industry And Commerce Concerning Changes In The Equity Interest Of Investors In Foreign Invested Enterprises. Considerable discretion is given to the local authorities in the actual conversion process.