To be or not to be (a foreign rep office)

A representative office (rep office) has been a relatively low-cost way for foreign companies to establish themselves. By setting up a rep office in China initially, a foreign company can learn about the China market before deciding whether to upgrade to an operational branch (if the foreign company operates in an industry that is allowed to have a branch) or a wholly foreign-owned enterprise (WFOE). Recently updated rules governing rep offices may make rep office a less attractive option for certain foreign companies.

In November 2010, the State Council issued the Regulations for the Administration of the Registration of Resident Representative Offices of Foreign Enterprises (外国企业常驻代表机构登记管理条例)(Regulations). The Regulations will become effective March 1 2011 and will replace the Administration of the Registration of Resident Representative Offices of Foreign Enterprises Measures issued in 1983 (关于外国企业常驻代表机构登记管理办法) (1983 rules). The Regulations reinforce the stricter supervision of rep offices under the Circular on Further Strengthening Administration of the Registration of Resident Representative Offices of Foreign Enterprises (关于进一步加强外国企业常驻代表机构登记管理的通知) (Notice) issued in January 2010 by the State Administration of Industry and Commerce (SAIC) and the Ministry of Public Security.