Forms of Investment

Foreign investment attracted to China is generally in the form of direct investment and in other forms as well. For instance, Sino-foreign joint ventures, Sino-foreign co-operative ventures, wholly foreign owned ventures. As China continues to open the country wider to the outside world, there has been a gradual increase in the forms of investment in the country, including that of foreign-funded financial institutions. In particular, the form of BOT (Build-Operation-Transfer) investment has been introduced into China in recent years. Other forms of investment cover those of compensation trade, processing and assembling operation and international lease, which have all been the forms of foreign investment widely used by China over the past more than 10 years. In making decisions on investing in China, foreign investors, in accordance with their own purposes and interests, may compare the characteristics and advantages of various forms of investment before selecting an appropriate form.

Sino-Foreign Joint Ventures

Sino-foreign joint ventures also refer to Chinese-foreign equity joint-venture enterprises. They are the enterprises established in China with joint investment from foreign companies, enterprises and other economic organisations or individuals as well as from Chinese companies, enterprises or other economic organisations. Enterprises of this category have the characteristics that all the parties participating in the joint venture jointly offer investment in it, jointly operate it, share the risks of it in accordance with their different proportions of investment, and are jointly held responsible for the profits and. losses of it.

All the parties participating in the joint venture can offer their investment in the form of currency or with buildings, machinery, equipment, the right to use the work site, industrial property and exclusively -owned technology. The proportions of, investment offered by all the parties participating in the joint venture are accordingly converted into ratios of investment. Generally the ratio of investment offered by the foreign party participating in the joint venture shall not lower than 25%. The corporate form of the Sino- foreign joint venture is the liability limited company, with the Board of Directors being its supreme body of power. Along with the development of China's experiment to introduce the system of joint stock liability partnership, a small number of Sino-foreign joint ventures have adopted the corporate form of joint stock limited company.

2. Sino-Foreign Co-operative Ventures

Sino-foreign co-operative ventures also refer to Chinese-foreign contractual joint ventures. They are the enterprises established in China with investment or conditions for co-operation jointly offered by foreign companies, enterprises, other economic organisations or individuals as well as by Chinese companies, enterprises or other economic organisations. Their largest difference front Sino-foreign equity joint ventures is that the investment from the Chinese And foreign parties participating in the co-operative venture will not generally be converted into ratios of investment, and that they will not share the profits in accordance with their ratios of investment. The rights and obligations of all parties participating in the co-operative venture, including the provision of investment and conditions for co-operation, the distribution of profits or products, the sharing of risks and losses, the form of operation and -management, and the ownership of property at the termination of the contracts are all defined in the contracts signed by all parties. In establishing a Sino-foreign co-operative enterprise the foreign party will generally provide all or most of the funds while the Chinese party will offer land, workshops, usable equipment, facilities, and sometimes a certain proportion of funds. Normally, the Chinese and foreign parties participating in the co-operative venture will define in their contracts that when the duration of co-operation ends, all the assets of the co-operative venture will be owned by the Chinese party and that the foreign party can first recoup its investment within the duration of co-operation. Such a form of co-operation can not only meet the needs of Chinese enterprises for sources of investment, but is also greatly attractive to many foreign investors who are eager to recoup the investment.

3. Foreign Enterprises

Foreign enterprises in China also refer to wholly foreign-owned enterprises, they are the enterprises established in China by foreign companies, enterprises, other economic organisations or individuals in accordance with Chinese law with all the investment solely offered by foreign investors. According to China's law on foreign enterprises, the establishment of foreign enterprises in China must be conducive to the development of China's national economy, and must meet at least one of the following requirements - that they will apply internationally advanced technology and equipment, and that all or most of their products will be export-oriented. The corporate form of foreign enterprises in China is generally the limited liability Company. Along with the development of China's experiment to introduce the system of Joint stock partnership, a small number of foreign enterprises in China have adopted the corporate form of joint stock limited company. Although China was relatively late in introducing the system of establishing foreign enterprises, the establishment of wholly foreign-owned enterprises in the country has developed relatively rapidly over recent years.

Procedures for the Establishment of Foreign-Funded Enterprises in China

In making investment in China, foreign investors need to understand the procedures governing the establishment of foreign-funded enterprises in China, which consist of the following regular steps:

1. The Choice of Projects and Co-operation Partners as well as Relevant Official Approval

The first step that a foreign investor shall take in making investment in China is to choose appropriate projects. For foreign investors wishing to establish joint ventures and co-operative ventures in China, they should also consider the choice of appropriate co-operation partners.

In choosing investment projects, foreign investors can have two options: (1) to choose investment projects proposed by enterprises or institutions across China and (2) to propose investment projects by themselves.

Under the first option, foreign investors should pay attention to the fact that enterprises and institutions across China have proposed numerous investment projects, among which some have been formally approved by the government and others have not been officially approved at all. Therefore, it is advisable for foreign investors to choose those which have been officially approved, in order that they may easily get the approval of competent authorities in applying for the establishment of foreign-funded enterprises in the country.

Under the second option, foreign investors should first of all be aware whether the projects they propose by themselves will conform to China's industrial policies, and whether these projects belong to the fields which are officially allowed to invest in. Secondly, foreign investors should pay attention to the choice of appropriate and reliable Chinese Cupertino partners.

For foreign investors and their Chinese Cupertino partners applying for the establishment of Sino-foreign joint ventures and co-operative ventures, it is the responsibility of the Chinese Cupertino partner to submit the application for the establishment of investment projects to competent authorities of the Chinese Government for approval. For foreign investors applying for the establishment of wholly foreign-owned ventures, they should get assistance from government authorities at the location they have chosen to establish the project. In this case, the local government authorities concerned will be responsible for submitting the application and feasibility study report concerning the establishment of the project to higher government authorities for approval.

2. Submission of Feasibility Study Reports and Relevant Official Approval

Only when the application for the establishment of a Sino-foreign joint ventures and co-operative ventures has been approved can the investors concerned proceed to conduct the study on the feasibility of establishing it. A feasibility study report is generally required to include these 10 items of content: the outline of implementation, the background and history of the project, the capacities of marketing and production, materials and inputs, the location to build the project and the site chosen, the designing of the project, the costs of organisation and management of the project, the arrangement for progress of construction, financial and economic assessments, and the foreign exchange equalisation and the analysis of risks. It is required that the rate of error in the calculation of investment and costs should be restricted within the level of 10%.

For foreign investors and their Chinese co-operation partners applying for the establishment of Sino-foreign joint ventures and co-operative ventures it is the responsibility of the Chinese co-operation partner to submit the feasibility study report for the establishment of investment projects to competent authorities of the Chinese Government for approval.

For foreign investors applying for the establishment of wholly foreign-owned ventures, they should submit the feasibility study report along with the application for the establishment of investment project to local government authorities, which will then transfer them to higher authorities for approval.

3. The Signing of Contracts and Charters of Association as well as Relevant Official Approval

After the feasibility study report is officially approved, the foreign investors and their Chinese co-operation partners applying for the establishment of Sino-foreign joint ventures and co-operative ventures can proceed to discuss the signing of contracts, charters of association and other legal documents concerning the establishment of the projects. Competent authorities of the Chinese Government require that the contracts and charters of association for foreign-funded enterprises in China must conform to the following principals:

That the content must be complete. the terms must be specific, the language must be careful and precise, and the responsibilities of all parties must have been clearly defined;

That the rights and obligations of all parties concerned with the contracts must have been provided for on an equal footing;

And that the content of the contracts and charters of association must conform to relevant provisions of Chinese law and regulations.

Competent authorities of the Chinese Government have prepared reference samples of the standardised style of contracts and charters of association for foreign-funded enterprises in China, which can be consulted in relevant negotiations as well as in drafting contracts and characters of association.

For foreign investors and their Chinese co-operation partners applying for the establishment of Sino-foreign joint ventures and co-operative ventures, it is the responsibility of the Chinese co-operation partner to submit the contracts and charters of association for the ventures to competent authorities of the Chinese Government for approval. When the contracts and charters of association concerned are approved, competent, authorities of the Chinese Government will issue certificates of approval for the establishment of foreign-funded enterprises.

For foreign investors applying for the establishment of wholly foreign-owned ventures, when their initial applications for the establishment of the ventures are approved by competent author ties in written replies, they can proceed to submit formal applications, charters of association and other documents concerned to the authorities for approval. After these formal documents are approved, the authorities will issue certificates of approval for the establishment of foreign-funded enterprises.

In an effort to simplify the procedures, the Chinese Government has adopted a stipulation that, for foreign investors and their Chinese co-operation partners applying for the establishment of small-size projects, they can simultaneously submit the applications, the feasibility study reports and the contracts and charters of association together to competent authorities for overall approval.

4. Registration

During the stage of making applications, foreign investors and their Chinese co-operation partners should take two steps for registration:

to have the name of the foreign-funded enterprise registered after the application for its establishment is officially approved, and

to have the establishment of the foreign-funded enterprise registered after the contract and charter of association are officially approved.

The registration of the name of the venture to be established is intended to protect the name to be used, to avoid the possible repeat of a same name, and to avoid the possibility that the name chosen in negotiations and in the process of approval could be used by someone else for registration. Therefore, before the whole procedure for the registration of the venture is completed, no party concerned with the venture is 11lowed to use the name registered to conduct business operations.

After the contract and charter of association are officially approved, foreign investors and their Chinese co-operation partners, with the certificate of approval and other document concerned with the establishment of the foreign-funded enterprise, should proceed to apply for the registration to administrative authorities for industry and commerce within a period of 30 days. When the registration is made and checked by competent authorities, the foreign investors and their Chinese co-operation partners concerned will be issued a business license. The date of issuing the business license means the date of the establishment of the foreign-funded enterprise concerned.

By now, the procedures for the establishment of a foreign-funded enterprise in China are completed.

The Establishment of Representative Offices in China

For foreign investors who have no immediate plans to open business ventures in China but wish to open representative offices in the country, they may contact local commissions, (in cities or provinces) of MOFTEC (Ministry of Foreign Trade & Economic Co-operation) and go through necessary procedures for opening representative offices locally. For foreign investors wishing to open representative offices in the capital city of Beijing, they may contact the MOFTEC directly.

In applying for the establishment of representative offices in Beijing, foreign investors are required to supply the following documentation:

An original copy of the written application addressed to the Chinese Ministry of Foreign Trade and Economic Co-operation;

In the written applications addressed to the Chinese Ministry of Foreign Trade and Economic Co-operation the applicants are required to specify the business scope of their companies, reasons for opening the representative office in Beijing, the full name of the chief representative to be dispatched, the desired location of business of the representative office in Beijing, major planned business operations in China (restricted within the framework of liaison and consultation operations), and the planned duration of operation of the representative office.

A certified copy of the certificate of registration of the company (Hong Kong-based companies are required to simultaneously supply a certified copy of the business registration certificate);

An original copy of the written statement of the Board of Directors of the company on the establishment of the representative office in Beijing;

A copy of introduction of the company (including information on the basic conditions, business operations and the annual turnover, etc.;

An original copy of the certificate of appointment of the chief representative to Beijing issued by the Board of Directors of the company;

An original copy of the certificate of financial standing of the company issued by the bank with which the headquarters of the company has opened an account.

An original copy of the resume of the chief representative to Beijing (including information on the background of education and work experience);

A photocopy of the passport of the chief representative to Beijing (for foreign nationals);

(For those from Taiwan, Hong Kong and Macao, the company concerned is required to simultaneously supply a photocopy of the Homeland-visiting Certificate, or 'Huixiangzheng" in Chinese.)

(And, if the chief representative to Beijing will be a Chinese national, the company concerned is required to supply an original copy of the certificate (or 'Zhengmingxin’ in Chinese) issued by the Foreign Enterprises Services Company, and a photocopy of the person's Resident's ID Card (or "Juminshenfenzheng' in Chinese.

Three identically filled applications forms for the establishment of the foreign enterprise representative office in Beijing;

Three identically filled forms to declare the personnel of the foreign enterprise representative office in Beijing (attached with six passport-size (2") photos of the chief representative.