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China Business FAQ: September 2000 Back to Awakening Dragon Index
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 Is a Wholly Foreign Owned Enterprise (WFOE) a better form of organization than a Sino-Foreign Joint Venture (JV)? It is true that a growing number of foreign invested ventures are now opting to go at it alone without a local partner. At present, most foreign-invested ventures are in the form of Joint Ventures with local partners. While the WFOE gives the investor a free hand in internal management and allows the company to be freed from internal politics with local counterparts, it is still necessary to realize that outside your door, you are still in China! Thus, learning and establishing good local relationships is still essential. Even inside the company's own compound, Chinese law still applies. You will still not be able to get away from the local bureaucrats by simply using the WFOE model. You still need to get along with them and to obtain cooperation and good advice from those bureaucrats. For these tasks, the services of a local public relations agency will be helpful.
Are we, as foreign invested enterprises free to hire Chinese citizens from anywhere in China, or are we still restricted by residency (hukou)? Although the laws regarding foreign invested ventures permits employment of Chinese citizens without residency (hukou) restrictions, practices vary according to localities. A number of foreign firms adopt the policy of conforming to residency requirements for some of the positions in order to demonstrate their contribution and cooperation to the locality, though they need not do so legally. When hiring personnel with bachelor degrees or above, or an associate degree (junior college) or above, the hiree will be eligible for local residency (hukou) after 2-3 years of work with you.
Can we retain multinational headhunting firms for recruitment in China? According to Chinese law, Human resource management is one of the reserved areas for Chinese firms. However foreign consulting companies can be retained as "Investment Consultants" for investment projects in China. The tasks of these investment consultant could include the recruitment, selection and training of personnel. To be on the safe side, the consultant should work in cooperation with one of the locally licensed firms in these areas.
Can we quit and leave, if we are unhappy with our investment in China? Yes, you can sell your share to your local partner, or another local or foreign investor. However, make sure you check the details of your investment project and the laws. If you have exercised certain exemptions of import duties in the investment project, you will be required to pay previously exempted import duties if you did not complete the minimum number of years required.
Piset
Wattanavitukul | Piset Wattanavitukul is Managing Director of P. W. Consultants specializing in Investment, Management and Trade in and with China and Human Resource Development in Shanghai and Ningbo.
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