Abstract
The incorporation in a foreign jurisdiction of a wholly owned subsidiary is a typical investment decision for corporations that conduct business abroad. A significant advantage to this type of foreign investment is the ability to control the internal affairs of the subsidiary, yet retain flexibility by separating its operations from those of the parent. However, until recently, there existed no statutory authority for the formation and operation of wholly foreign owned enterprises (WFOEs) in China. Only the regulations pertaining to Special Eco- nomic Zones (SEZs) in Guangdong province permitted foreign inves- tors “to open up factories with their own investments.” This legislative void was filled when the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises (the WFOE Law) was adopted on April 22, 1986, by the Fourth Session of the Sixth National People’s Congress (NPC).