I think you are going to far in making it seem that what happened to Kitto in China is common. I blogged on that here: [link].
The reality is that Kitto's magazine was being run illegally and he was in partnership with the state. Both of those things make what happened to him far more likely than a WFOE that has been set up properly in China.
My understanding from reading about Mr. Kitto's case is that it would be impossible to set up a media outlet without some sort of state partnership, due to the inavailability of the appropriate licenses. But in matters of law, I will of course defer to the experts. I agree, though, that Mr. Kitto took risks and got burned, and that his case is more instructive as an example of how not to set up a business rather than as representative of all businesses experiences in China. But as the CLB post linked to in the comment points out, China's superfluity of laws makes it far too easy to run afoul of legal requirements, even if one is more careful about such things than Mr. Kitto.
And, as my original post noted, for those who cannot afford expensive and time-consuming legal processes, China's excess of laws is of little use. I don't have any statistics on the number of business or property disputes settled by gangs of stick-weilding thugs, but it seems like every paper we've read (that is, read to me by my wife, because I can't read Chinese) during our stay here contains at least one such story--a pheasant farm blocking a development destroyed, a bunch of senior citizens hustled away from a park to be turned into a parking lot--which suggests such tactics are fairly common. Some of our Chinese friends are cynical enough to believe that any private business that begins to show a considerable profit will in some way or another be coopted or shut down by the state officials. I don't have any way to confirm their suspicions, and I think they're probably too cynical, but their perception corroborates my feeling that doing business in China is an exceedingly tricky business.