Forms of Foreign Investment in China

Several people have recently asked me about the various forms of legal entities available to foreign investors in China.  So I’ll reprint an excellent overview (courtesy of the website CHINA BUSINESS LAW).

FORMS OF FOREIGN INVESTMENT

Sino-foreign Equity Joint Ventures, Sino-foreign Contractual Joint Ventures, Wholly Foreign-Owned Enterprise are the three main forms of Foreign Direct Investment in china for absorbing foreign capital.There are some Other investment forms ,such as Share Company with Foreign Investment, Foreign Invested Holding Company, Joint Exploitation, BOT, etc.

1. Chinese-Foreign Equity Joint Ventures Sino-foreign Equity Joint Ventures are enterprises jointly established within Chinese territory companies, enterprises, and other economic entities on the other side. An equity joint venture shall be invested and operated jointly by both foreign and Chinese investors, who shall share the profits and losses, as well as risks, in proportion to their respective shares in the registered capital. Sino-foreign Equity Joint Ventures are Limited Liability Company, and possess the status of Chinese legal person. In such an enterprise, the proportion of the investment contributed by the foreign party shall in general not be less than 25% of the total. The partner could offer cash, or other kinds of things instead such as building, workshop, machinery, industrial property right, special technique, and field utilization right The profits and other legal interests that foreign investors have shared can be remitted out or reinvested China.

2. Sino-foreign Contractual Joint Ventures Sino-foreign Contractual Joint Ventures are enterprises jointly established within Chinese territories by foreign companies, enterprises, other economic entities of individuals and Chinese companies, enterprises or other economic entities, according to their cooperative conditions. The both parties to a contractual joint venture should prescribe in the contract their respective conditions, lights, obligations, incomes distribution, responsibilities for risks and debts, the company management and negotiations on the property transaction at the expiration. When establishing China-Foreign Contractual Joint Ventures, the foreign party provides land, factory buildings, certain usable machines and facilities, and in some cases a certain amount of capital as well. Sino-foreign Contractual Joint Ventures may posses the status of conventional person or not.

3. Wholly Foreign-Owned Enterprises Wholly Foreign-Owned Enterprises are invested entirely by foreign companies, enterprises, other economic entities or individuals within Chinese territory in accordance with the related Chinese laws. Wholly Foreign-Owned Enterprises usually take the form of limited liability companies, and do not include the Chinese Branch of foreign company or other economic organization.

4. Share Companies With Foreign Investment Share Companies with Foreign Investment are stock limited companies set within China’s territory by foreign companies, enterprises, or other economic organizations with Chinese companies, enterprise or other economic organizations, which are established according to the principle of stock. All principal of Share Company with Foreign Investment is made up of equal amounts of stocks, every stockholder would take certain responsibility for company in accordance with his amount of stocks, and the company is responsible for debts with all estate. It is a form of foreign-invested company, which fits with relative regulations of national laws and statutes on foreign investment company.

5. Foreign Invested Holding Company Foreign Invested Holding Companies are Sino-foreign Equity Joint Ventures or Wholly Foreign-Owned Enterprises within Chinese territory that deal with direct investment usually in the form of limited liability companies. Foreign investors, who apply to establish an Foreign Invested Holding Company must possess great assets and good reputation, establish a certain mount of companies within China, and own over $30 million of actual-paid part of registration principal. Upon the approval of the Chinese government, Foreign Invested Holding Company could enjoy a broader field of managing than other ordinary companies, in an attempt to encourage big overseas companies to carry out their series of investment plans. At present foreign invested Holding Company can invest in the fields of industry, agriculture, infrastructure and energy that the county encourages and permits.

6. Joint Exploitation Join Exploitation refers to that Chinese company and foreign company sign venture contract to carry out a joint exploration on inland and offshore petroleum, and mineral resources. It is a widely used form of economic cooperation in the field of natural resources exploration throughout the world. The main features of the joint exploration are high risks, high input, and high output. Joint exploitation is usually carried out in three phases: exploration, development and production.

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