A China WFOE for Educational Purposes: Buyer Beware

Many of our China clients are interested in setting up WFOEs in China to provide some sort of education to Chinese citizens. The problem though is that China does not particularly like foreigners educating its own citizens.

What WFOEs can and cannot do in the realm of education is vague and varies by locality. Oftentimes, what it comes down to is whether what is being taught is something China wants foreigners teaching or not. To put it on a spectrum, if your WFOE plans to teach Chinese citizens how to utilize some sort of new and obscure technology in demand in China and good for China, your chances of operating problem free are good. But if your plans are to teach something politically sensitive, your chances will be far less good.

Exacerbating this problem of educational vagueness for foreign companies is the large number of unscrupulous WFOE formation companies that take the money to form a WFOE that will never be able to engage in the sort of work its foreign owners hoped for it.

One of our China WFOE formation lawyers wrote the following email to a client about this (the email has been stripped of any identifiers):

The key point is as stated in your response:

After we set up our WFOE in China, we asked for advice from a Chinese government officer tasked with approving the scope of work in the Industrial and Business department. She told us that WFOEs are not allowed to engage in educational training in __________.

This prohibition applies generally. That is, no direct training, no training of _________ and no training of ________. This also means no direct publication of related training materials and no use of the Internet or social media to disseminate such materials. “Commercial consulting” is an intentionally empty term, no doubt intentionally chosen by the company you used to register your China WFOE. As I noted in my previous email, the scope of your WFOE’s business clearly states the absolute law: “where specific approval is required, the specific approval/legal restrictions apply and the scope of business is ignored.” You almost certainly will need specific approval to do _______ training and if that is not allowed by WFOEs, then your WFOE will in fact not be able to do what you thought it could do when you paid to have it formed.

There is, however, a way to do your business in China. There are several alternatives. Note, however, that the implementation of these alternatives depends ultimately on the attitude of the PRC government authorities to the content of your program. You have the most complete information on that issue and our plan will be to get all of that information from you and then research in the books and with government officials what is actually allowed and not allowed. The decision on whether you will ultimately be allowed to proceed will not be made by your clients and supporters (including Chinese companies that are encouraging you to move forward, but rather by Chinese bureaucrats, such as the “Chinese government officer” you mentioned in the quoted paragraph above.

And this same lawyer then emailed me to muse about how so many of WFOE formation entities are willing to set up a WFOE in this situation knowing that it will not be able to accomplish the business its owners intend for it, but “with little or no concern for the ramifications of this.”

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Foreign Investment