PEO China is a label imported from the United States onto a legal regime that does not contain it. There is no Chinese equivalent of US co-employment; what vendors sell under the PEO name in China is either labor dispatch, a tightly regulated arrangement where a licensed agency employs the worker and assigns them to you, or a full employer of record through the provider's own Chinese entity. The distinction is not branding: labor dispatch carries statutory caps and position restrictions under Chinese law, and the buyer shares liability with the agency, so which structure a provider actually uses is the first question to ask.
The dispatch regime and its limits
China's Labor Contract Law and the 2014 Interim Provisions on Labor Dispatch confine dispatched labor to a supplementary role. An employer's dispatched workers may not exceed 10% of its total workforce, counting both direct hires and dispatched staff, and dispatch is only permitted for three position types: temporary positions lasting no more than six months, auxiliary positions supporting the main business, and substitute positions covering absent employees during study, leave or similar periods. Analyses of the regime note that representative offices are treated differently, since they cannot hire directly and engage staff through dispatch agencies. For a foreign company planning a permanent core team in China, those limits are the central problem: an engineer employed indefinitely through a dispatch arrangement does not fit any of the three permitted categories.
What the agency relationship looks like
In a compliant dispatch arrangement the agency, not the client, is the legal employer, and commentary on the rules highlights obligations that follow from that: dispatch agencies must sign fixed-term labor contracts of at least two years with the workers they place, and dispatched employees are entitled to equal pay with direct hires doing similar work, with local market rates as the reference where no comparable role exists. Chinese courts have also confirmed that protections such as eligibility for open-term contracts after successive fixed-term contracts extend to dispatched workers. The client company cannot contract its way around this framework: the rules are statutory, and an agency willing to paper over the position-type or percentage limits is creating risk that lands substantially on the client.
Joint liability: the risk the label hides
The sharpest warning in practitioner commentary on China dispatch is that using an agency does not eliminate legal responsibility. Hiring companies face liability alongside the dispatch agency when worker rights are violated, courts consistently favor employee protections in disputes, and exposure can include double wage claims and wrongful termination damages. That inverts the sales pitch: a US buyer hears PEO and assumes the provider absorbs employment risk, while the Chinese framework deliberately keeps the end user on the hook so the dispatch form cannot be used to launder employer obligations. Due diligence therefore has to cover the agency's licensing, the actual contracts it signs with workers, and how the arrangement fits the statutory position types, not just the provider's marketing.
PEO versus EOR in China, practically
For most foreign companies building a lasting team, the workable structures are two. An employer of record with its own licensed Chinese entity employs your hires directly under standard labor contracts, outside the dispatch caps, and runs payroll, social insurance and housing fund contributions in each city; this is what much of the market actually delivers when it says China PEO. Alternatively, incorporating a wholly foreign-owned enterprise gives you direct employment at the cost of setup time and ongoing administration, and becomes the sensible exit once headcount grows. Genuine labor dispatch remains legitimate for what it was designed for: short-term, auxiliary and cover roles within the 10% cap. Ask any provider which of these three it is selling, in writing; the answer determines your liability. Nothing here is legal advice, and the cited analyses plus local counsel should anchor any structure you choose.
Questions people ask about peo china
Is there a real PEO model in China?
Not in the US co-employment sense. Providers selling China PEO deliver either labor dispatch through a licensed agency or employer of record service through their own Chinese entity; the legal consequences of the two differ substantially.
What are China's labor dispatch limits?
Dispatched workers are capped at 10% of an employer's total workforce and may only fill temporary positions of up to six months, auxiliary positions, or substitute positions covering absent staff, under the 2014 Interim Provisions.
Does using a dispatch agency remove employment liability?
No. Practitioner analyses stress that hiring companies share liability with the agency for violations, and Chinese courts lean toward employee protection, so the client's risk survives the outsourcing.
When should a company incorporate in China instead?
Once a team is permanent and growing, direct employment through your own entity avoids dispatch restrictions and per-employee fees; EOR arrangements suit the earlier stage when headcount is small and speed matters.