It Ain’t Easy Leaving China
There is a long line of foreign companies looking to get out of China. These companies call the China lawyers at my law firm expecting their leaving China will consist of little more than flipping a switch and waving goodbye. But this being China, nothing could be further from the truth. See How to Close a China WFOE.
Once the client realizes that shutting down their Chinese entity (usually a WFOE, but perhaps a Joint Venture or a Rep Office) is not going to be so easy, they sometimes ask want to know if our law firm has any clients that might be interested in buying their business. My answer is almost always no.
The people trying to sell their China entity are usually looking to sell a barely existing WFOE. The thing about barely existing China WFOEs is that they were customized for their existing owner and not for potential buyers. And this is where the first set of problems arise.
A Real World Example of Trying to Sell a China WFOE
Let’s take as an example a WFOE about which I was recently asked. That company was in the IT outsourcing business in a second- tier city. So right there, its only real potential buyer is someone interested in doing IT outsourcing in that second-tier city. Because if the buyer of that WFOE is interested in doing anything other than IT outsourcing, it will need to petition the government to expand or change its business scope. Similarly, if the buyer is interested in doing IT outsourcing in some other city, it will need to petition the government to move its WFOE or it will need to set up a branch in that other city and thereby have to maintain two offices. When you throw in the fact that anyone buying a WFOE will need to conduct due diligence on it to make sure it truly does have no liabilities of any kind (including, tax, employee, environmental, tort, etc.) and you can quickly see why forming a WFOE will be safer and probably equally fast and cheap. The biggest benefit in buying a shell WFOE would be speed, but it is going to be the rare instance where saving a few months will warrant the extra risk.
The Market for China WFOEs is Almost Non-Existent
The odds of a shell WFOE’s city and scope lining up perfectly with that of a potential WFOE buyer are slim. Those odds would no doubt be better if there were a website that matches up WFOE sellers with potential WFOE buyers, but I know of no such site.
But even if there were such a site, the reality is that there are a ton of companies looking to leave China, but it is the incredibly rare company that is looking to go into China by first forming a company there. Plenty of companies are still looking to profit from China, but most of those companies are looking to do so via licensing or distribution relationships with companies already in China, not by setting up a new entity and going into China with both feet.
Want to sell your China WFOE? Good luck with that.
