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WFOE Woes

When it comes to wholly foreign-owned enterprises in China, reality bites.

Doing business in China has never been easy, and the triple whammy of media management, pandemic prohibitions, and regulatory restrictions has led many foreign businesses, joint ventures and Chinese companies to throw in the towel.

Although overall foreign investment in China has actually increased during the pandemic — especially among large companies with existing China infrastructure — the formation of new China WFOEs (wholly foreign-owned enterprises) has dropped dramatically over the past two years, while the number of WFOE closures has increased. WFOEs large and small are shutting down for a variety of reasons, ranging from insufficient cashflow to strategic fatigue.

From 2008-2019, the majority of my creative work and consulting service was related to China’s entertainment market. Since 2020, most of my Asia-Pacific consulting has been for foreign companies and producers wishing to extricate themselves from China and pivot their endeavors to Southeast Asia or elsewhere.

“Begin with the end in mind” applies in spades when it comes to Chinese markets — especially for foreigners, who have never been part of China’s long game in any field of endeavor. Most foreigners spend so much time and effort wrangling their entry into China that they don’t put much thought into their eventual departure. As with any endeavor anywhere in the world, your exit strategy is essential.

Most of those I advise are either preoccupied with the personal liability that they may incur doing business in China, or are blissfully unaware of it. The cautionary note that you can be refused permission to depart China while facing a lawsuit comes as a shock to many.

Simply put, China is a business roughhouse in which “Rule of Law” is skewed to the home team. Most local governments and courts care less about contracts and written law than they do about political appearances and about the payment of Chinese salaries and taxes. Pressure on locally-based foreign staff can range from legal and financial to physical.

The Harris Bricken firm’s China Law Blog has been an invaluable resource during my years living and working in China, and their FAQ on China WFOE Closures is a must-read for anyone seeking to divest themselves from China, as well as for those thrill-seeking souls still eager to engage.

Kevin Geiger's picture

Kevin is the author of AWN's Reality Bites blog, his musings on the art, technology and business of immersive media (AR, VR, MR) and AI. You can find Kevin's website at www.kevingeiger.com and he can be reached at holler@kevingeiger.com.

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