By Frank-Christan Raffel
Frank-Christian Raffel has been analyzing and shaping the strategy and corporate form of European companies in China and Southeast Asia since 1997, when he conducted a broad-based study in cooperation with the Hong Kong and Shanghai Chambers of Commerce.
It is remarkable how often we hear the question even today, in the year 2025: “Is a foreign company even allowed to set up a subsidiary in China, or is a joint venture with a Chinese partner mandatory?”.
The answer in a nutshell:
With a few exceptions, a 100% subsidiary is permitted. The exceptions are being successively reduced by China’s government
Until 2020, joint ventures were fraught with considerable problems in terms of corporate governance for the foreign partner, which is why the WFOE (100% subsidiary) was the only tried and tested model. However, since the comprehensive amendment of the Foreign Investment Law in 2020, the former problems of a JV can be overcome.
The question is now less: What is allowed? But rather: What is strategically desired by the company?
The global trend towards regionalization of value creation is very noticeable in China and is being promoted by the government. Taking this trend and other aspects into account, MRL Advisors has developed and already successfully implemented a hybrid model that combines the advantages of a joint venture with a local partner and the advantages of an own subsidiary – without the respective disadvantages:
- Strategic control of the set-up in China by the IP owner (usually manufacturer in Europe)
- Involvement of a local partner with networks and commitment.
Of course, the appropriate model for China must be individually designed and implemented depending on the specific starting situation and objectives. However, the hybrid model has many advantages, especially for SMEs with limited resources or for companies with high potential from local networks.
For further information, MRL Advisors Munich gladly provides you with a discussion paper available for download.