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Legal Forms for Foreign Investors in China

Seminar Paper 2011 17 Pages

Law - Civil / Private / Trade / Anti Trust Law / Business Law

Excerpt

Table of Contents

Executive Summary

List of Abbreviations

List of Figures

List of Tables

1. Introduction

2. Foreign Investment Categories in China

3. Legal Forms for Foreign Investors in China
3.1. Joint Venture
3.1.1. Equity Joint Venture
3.1.2. Cooperative Joint Venture
3.2. Representative Office
3.3. Wholly Foreign Owned Enterprise
3.4. Holding Enterprises for Foreign Investors
3.5. “B” Stocks

4. Legal Protection of Foreign Investors in China

5. Conclusion

ITM Checklist

References

Executive Summary

Investing in China is still considered as one of the most profitable business opportunities. On the one hand side the Chinese market brings around 1.3 billion new potential consumers and on the other an annual growth rate of around 10%, both are quite attractive for foreign investments. Moreover, the Chinese government is permanently improving the investment climate for foreign enterprises and investors by improving respectively building the required infrastructure or revising business laws and lowering market entry barriers for foreigners for instance. Investing in China is not only a subject for large and international enterprises but also for small and mid sized private companies.

China’s progress in accepting market-oriented economic and business principles as well as their 2001 entry into the World Trade Organization (WTO) is attracting foreign investors the same way as a growing Chinese middle class and low labor costs. Companies of all sizes understand that by ignoring this prospering and huge market for their goods and services or by not taking advantage of the latent labor arbitrage that they are risking to fall behind their competition.

The assignment is providing some statistics on foreign investments in China, is dealing with a brief overview of the different industry areas for foreign companies and investors in China and explains the main investment forms which can be considered for business establishment in China. The work is concluding with some general information about legal protections for foreign investors and the ITM checklist.

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1: Direct Foreign Investment in China 2010

List of Tables

Table 1: Foreign Investment Categories and Industry Fields

Table 2: Investment Categories in the industry field “Farming, Forestry, Animal Husbandry and Fishery” versus the Scope of Work

1. Introduction

When the general agreement on tariffs and trades, commonly abbreviated as GATT, was established in 1948, China was a founding member. When they resigned the contract only one year later the county achieved in 1982, more than 30 years later, an observation status again (WTO | NEWS, 16.11.2005). Chinas endeavors to become a full member were without success and their motion in 1986 was defeated the same way as their application to become a Charta member of the world trade organization (WTO).

Since 2001 the People’s Republic of China (PRC) is a member of the WTO and since then the number of market entry and investment models for foreign companies and investors has been extended. The previous two joint venture models, the cooperative and the equity joint venture, are still existing but it is now also possible for investors to own Chinese stocks or to own a Chinese company completely.

The following investment models are available today for foreigners in China:

- Equity Joint Venture (EJV)
- Cooperative Joint Venture (CJV)
- Representative Office (RO)
- Wholly Foreign Owned Enterprise (WFOE)
- Holding Enterprises for Foreign Investors (HEFI)
- “B” Stocks

2010 the number of newly approved foreign funded enterprises in the PRC, with a total investment of US $105,735 billion, reached 27,406 which is an increase of nearly 17% compared to the year before.

Around 90% of the foreign invested capital came from ten countries as shown in Figure 1 (MINISTRY OF COMMERCE PEOPLE’S REPUBLIC, 25.06.2011).

illustration not visible in this excerpt

Figure 1: Direct Foreign Investment in China 2010

2. Foreign Investment Categories in China

Investments of foreign companies in the PRC are only allowed in certain industrial areas and are subject to prior approval. The approval is done according the catalogue for foreign investors which consists in addition the information if this industrial area allows foreign investors to establish a wholly foreign own enterprise (WFOE) or just a joint venture (JV) (FDI – Laws for Investments in China, 17.06.2011).

Since 1st of December 2007 the foreign investments are categorized in

- Encouraged Foreign Investment
- Restricted Foreign Investment
- Prohibited Foreign Investment

with different industry areas in each category (FDI – Laws for Investments in China, 17.06.2011).

illustration not visible in this excerpt

Table 1: Foreign Investment Categories and Industry Fields

For each industry field certain aspects and mainly the scope of work will be considered as the basis for the categorization. Table 2 shows an example for the industry field “Farming, Forestry, Animal Husbandry and Fishery” versus the corresponding category and the related work scopes.

illustration not visible in this excerpt

Table 2: Investment Categories in the industry field “Farming, Forestry, Animal Husbandry and Fishery” versus the Scope of Work

The specific approval and registration procedures may vary depending on the category of the investment as set out in the guiding catalogue of foreign investment projects (FDI – Laws for Investments in China, 17.06.2011).

3. Legal Forms for Foreign Investors in China

For an appropriate investment in China some factors must be considered as those will lead to different legal and tax considerations. Once the needs and goals are clearly defined a suitable legal form has to be chosen. Several choices for foreign investors in a Chinese enterprise are available with different features and obligations:

- Equity Joint Venture (EJV)
- Cooperative Joint Venture (CJV)
- Representative Office (RO)
- Wholly Foreign Owned Enterprise (WFOE)
- Holding Enterprises for Foreign Investors (HEFI)
- “B” Stocks

3.1. Joint Venture

The joint venture (JV) was the only model for foreign investors in China until the PRC joined the WTO in 2001, nevertheless it is still the most popular one. A JV is typically set up for a fixed timeframe of 30 or 50 years by a Chinese and a foreign entrepreneur and is a legal entity with the same rights and obligations as other privately owned Chinese companies and has limited liabilities according Chinese business law. Two different forms, the equity and the corporate joint venture, are existing.

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Details

Pages
17
Year
2011
ISBN (eBook)
9783656494829
ISBN (Book)
9783656495123
File size
497 KB
Language
English
Catalog Number
v233249
Institution / College
University of applied sciences, Munich
Grade
1.7
Tags
Business Law China Foreign investor Legal Form MBA

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Title: Legal Forms for Foreign Investors in China