types of foreign investment in china

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Types of foreign investment in china

In addition, Article 35 explicitly stated that any decision that follows a security review will be final. That is to say, once a decision has been made, the decision cannot be appealed or be reviewed again. The new FIL lays the basis for the national security review for foreign investments, but details such as the scope of the national security review, the bureau in charge, and the review process are still absent.

In a notice released in late April, the National Development and Reform Commission NDRC will take over the responsibility of national security review of foreign investments starting from April 30, Nevertheless, we still expect the bureau in charge and other details regarding national security review of foreign investments would be announced in the forthcoming matching laws.

It specifically seeks to address the principle of equal treatment for foreign and domestic investment, which is echoed among the articles of the FIL. This wording suggests China expects FIEs to operate within the boundary of the current law, rather than get exceptional privileges beyond the law. Article 16 ensures FIEs equal participation of government procurement, which is regarded as a big improvement by relevant observers. In future legislation, investors that would like to participate in government-led projects should pay close attention to any ratio requirements for local composition in the matching laws for government procurement.

Article 22, Article 23 and Article 39 of the new FIL focus on the intellectual property protection issues that concern foreign investors and their investments. Article 22 stipulates that any infringement upon intellectual property shall be investigated for legal liability according to law.

It also clarifies that technical cooperation shall be based on free will and business rules in the process of foreign investment, and that technical cooperation conditions shall be determined by the principle of fairness upon equal negotiation. Article 23 provides that government departments and personnel are not allowed to divulge or illegally provide the trade secrets learned in the course of performing duties to any other third party.

In case of non-compliance, Article 39 provides the legal penalties imposed on government personnel, which could trigger criminal liability if a crime is constituted. These two articles establish general intellectual property protection rules and confidentiality obligations for government departments.

Going forward, we can expect the accelerated amendments to relevant laws regarding intellectual property protection, such as the Patent Law. We can also expect that forced technology transfer in JVs shall be reduced. Article 22 states that government departments and personnel are forbidden to force the transfer of any technology by administrative means.

But some analysts believe non-administrative measures might also be used to coerce foreign investors transfer relevant technologies to Chinese parties. We expect this issue could be further clarified in the later implementation process. Article 26 of the new FIL establishes a compliant mechanism for FIEs to manage problems encountered during the investment process in a timely way.

According to Article 26, if a foreign investor or FIE deems that the administrative practice of a government department or its personnel infringes upon its legitimate rights and interests, the foreign investor or FIE can apply for coordination and resolution through the complaint mechanism.

Beyond that, the foreign investor or FIE may also apply for administrative reconsideration or institute an administrative lawsuit to protect its legitimate rights and interests. We expect these will be specified in the matching laws. Article 31 stipulates that the organization form, governing structure, and operating rules of FIEs will be subject to the provisions of the Company Law, the Partnership Enterprise Law, and other applicable laws.

Article 31 and Article 42 clarifies applicable law for foreign investment, which will significantly reduce confusion about the co-existence of the general law and special law, as well as the transition from the old law to the FIL. Article 42 provides a five-year transitional period for existing FIEs.

This five-year transitional period gives foreign investors more time to arrange relevant transitions to become compliant with the new requirements. But at the same time, it also sets a deadline for FIEs to make timely changes to the current organization forms, governing structure, as well as other operating rules. In addition, according to EJV law, certain industries — such as service industries — are required to have a term of cooperation.

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It intends to accelerate market opening reforms and eliminate inconsistencies in the enforcement of laws. Much can be learned by analyzing what the law states explicitly, which provisions are short on details, or what is still missing from the scope of the law. To better illustrate, Article 2 further defines four circumstances that are regarded as foreign investment: A foreign investor establishes a foreign-invested enterprise within the territory of China, either alone or together with any other investor; A foreign investor acquires shares, equities, property shares or any other similar rights and interests of an enterprise within the territory of China; A foreign investor invests in any new project within the territory of China, either alone or together with any other investor; and A foreign investor invests in any other way stipulated under laws, administrative regulations or provisions of the State Council.

What does it mean? What is missing? Related services Let us help you structure your China investment. Related services We can help you invest in a Chinese company. Related services We can review your internal controls for leaks. A branch office in China is one that is used for business purposes for which the main company office holds responsibility.

It is not a legal entity and only carries out liaison and coordination work. Such a situation would involve the existence of an offshore "parent", the People's Republic of China would be denied control of the entity a situation which it seeks to avoid. Beijing does not recognize branch offices, nor allow them to operate. Branch office cannot be recommended as an investment vehicle.

These are enterprises established in China with joint investments from foreign companies, enterprises or other economic bodies and Chinese economic bodies. Such enterprises involve joint investments, operations and share of risk in proportion to the amount of investment inputted by respective parties. Each party is jointly responsible for profits and losses.

Investments can come in the form of currency, buildings, industrial property or equipment. The corporate form of such joint ventures is the limited liability company, with a Board of Directors as its supreme body of power. Some joint ventures have adopted this corporate form.

Sino-foreign cooperative joint ventures refer to Chinese foreign contractual joint ventures. They are enterprises established in the country with investments or conditions for cooperation jointly offered by foreign companies, enterprises or other economic bodies, as well as by Chinese economic bodies. The main difference from the equity joint venture is that investments of parties involved will not necessarily be converted into ratios of investments.

The rights and obligations of parties involved with regards to such issues as distribution, investments, operations and sharing of risks and profits is determined by contracts signed by parties from the outset of the venture. These ventures involve the foreign partner providing most or all of the funds while the Chinese partner to contribute land, facilities and perhaps a limited amount of funding.

The usual approach is stipulated in the contract that the Chinese party will own all assets of the venture once the date of expiry is reached, with the foreign party recouping its investments within the duration of the venture. Such forms of cooperative joint ventures are attractive, since they allow the Chinese partner to have a source of investment while permitting the foreign company to recoup its investments. These refer to wholly foreign owned enterprises. They are enterprises set up in China by foreign companies or economic bodies in accordance with Chinese law with the investment entirely provided by foreign investors.

Such enterprises must be conducive to the development of the national economy; they must meet one of the following requirements:. Corporate form of foreign enterprises in China is generally the limited liability company.

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Sino-foreign cooperative joint ventures refer to Chinese foreign contractual joint ventures. They are enterprises established in the country with investments or conditions for cooperation jointly offered by foreign companies, enterprises or other economic bodies, as well as by Chinese economic bodies.

The main difference from the equity joint venture is that investments of parties involved will not necessarily be converted into ratios of investments. The rights and obligations of parties involved with regards to such issues as distribution, investments, operations and sharing of risks and profits is determined by contracts signed by parties from the outset of the venture.

These ventures involve the foreign partner providing most or all of the funds while the Chinese partner to contribute land, facilities and perhaps a limited amount of funding. The usual approach is stipulated in the contract that the Chinese party will own all assets of the venture once the date of expiry is reached, with the foreign party recouping its investments within the duration of the venture.

Such forms of cooperative joint ventures are attractive, since they allow the Chinese partner to have a source of investment while permitting the foreign company to recoup its investments. These refer to wholly foreign owned enterprises. They are enterprises set up in China by foreign companies or economic bodies in accordance with Chinese law with the investment entirely provided by foreign investors.

Such enterprises must be conducive to the development of the national economy; they must meet one of the following requirements:. Corporate form of foreign enterprises in China is generally the limited liability company. The country has been late to provide a system for foreign enterprises, but they have grown in number over the past few years. Though mostly analogous to Western Holding Companies, there are some differences.

Multinational companies may wish to set up holding companies to increase investments or reinvestments in the country, as well as to coordinate investment companies already established here. A Holding Company in the country may invest in such fields as industry, agriculture, infrastructure and energy, provided the State encourages foreign investments in these sectors.

Typical work undertaken by a Holding Company might include action as a purchasing agent, distribution or provision of after sales services. Provisional Regulations dictate that a Chinese Holding Company may enjoy preferential treatment of a foreign invested enterprise, and is awarded a foreign invested enterprise certificate and license. Chinese government allows foreign investors to acquire shares of a special category, B shares, of approved listed companies in the Stock Exchange.

However, ownership and management are separated. Chinese government is considering allowing a foreign invested entity in the country to be listed in the Stock Exchange, but it takes time. Foreign nationals are generally not allowed to hold equity of private companies in the country unless with special consent from the government. A merger and acquisition exercise involving foreign funds will convert a private company into a foreign JV.

China's main investors have remained broadly stable. Investments were mainly oriented towards manufacturing, computer services, real estate, leasing business and services, wholesale and retail trade, financial intermediation, scientific research, transport, electricity, and construction. China was ranked 31st out of countries in the World Bank's Doing Business report , a major improvement from , when it was ranked 46th out of China was one of the top 10 economies to improve the most between the and the reports.

This progress reflects improvement in a wide array of subcomponents ranging from procedures for starting a business to measures to improve electricity access and get construction permits. The country demonstrated reform agendas that aim to improve the business regulatory environment in the country over the course of several years. The reforms mainly focus on increasing the efficiency of business processes , such as tax cuts, trade with tariff cuts, and reduced barriers to foreign investors.

In order to attract further foreign investment, the country has introduced mechanisms to improve the delivery of major foreign investment projects, reduce import tariffs, streamline customs clearance, and establish an online filing system to regulate FDI. With a wealth of employees and potential partners eager to learn and evolve, the country is a base for low cost production, which makes it an attractive market for investors. FDI inflows to the high-tech sector have been rising significantly and currently account for almost a third of total inflows.

Source: China Statistical Yearbook, - Latest available data. The Chinese government encourages investment in the following industries or sectors: high technology, production of equipment or new materials, service sector, recycling, use of renewable energies and protection of the environment.

In addition, the country appears to discourage foreign investment in key sectors, for which China seeks to transform domestic firms into globally competitive multinational corporations and sectors that have historically benefited from state monopolies or traditionally of State. The government also discourages investments intended to profit from speculation money, real estate, or assets.

In addition, the government plans to limit foreign investment in resource-intensive and highly polluting industries. The new Foreign Investment Law seeks to address common complaints from foreign businesses and governments. The Law specifically prohibits the government and government officials from forcing transfer of technology, while technology cooperation on the basis of free will and business rules is encouraged by the state.

Indeed, article 22 stats that the State shall protect the intellectual property rights of foreign investors and foreign-funded enterprises. The law also gives the possibility to foreign investors to receive the same treatment when they apply for licences article 30 and participate in public procurement article The competent departments for commerce Ministry of Commerce and for investment National Development and Reform Commission are delegated major responsibility to promote, protect and manage foreign investment.

Compared with the edition full list in Chinese available here , the proposed Foreign Investment encouraged catalogue has been further lengthened, with new industries added and 76 previously listed industries amended. Learn more about Foreign Investment in China on Globaltrade. According to the Notice on Implementing the Policy of Inclusive Tax Relief for Small and Micro Enterprises, published by the Ministry of Finance in January , China expanded existing preferential policies for small and low-profit enterprises.

Privileged Domains China encourages foreign investment primarily in high technology, clean energy and export-oriented sectors. Privileged Geographical Zones China's Economic Development Zones EDZs are areas with preferential trade policies which differ from those governing the country as a whole. Companies operating in EDZs can expect, among other incentives, a higher level of autonomy over their operations, a variety of tax exemptions, subsidies for land and buildings and preferential employment policies.

Free Zones In China there are many special trade zones. These special zones provide exceptions to the standard customs procedures and allow tax exemptions or tax incentives to attract overseas investments. They are primarily the 5 special economic zones and the 14 coastal cities. They were selected because they were completely under-developed. For the past few years, other cities have also been regarded as coastal towns profiting from the same status.

Unlike the 5 special zones, these cities were not underdeveloped, but key industrial centres in China. Overseas investment has facilitated improvements to the infrastructure and the creation of new, more advanced ones. Any Comment About This Content? Report It to Us. Learn more about Investing in China on Globaltrade. Latest Update: November

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Companies operating in EDZs can expect, among other incentives, a higher level of autonomy over their operations, a variety of tax exemptions, subsidies for land and buildings and preferential employment policies. Free Zones In China there are many special trade zones. These special zones provide exceptions to the standard customs procedures and allow tax exemptions or tax incentives to attract overseas investments.

They are primarily the 5 special economic zones and the 14 coastal cities. They were selected because they were completely under-developed. For the past few years, other cities have also been regarded as coastal towns profiting from the same status. Unlike the 5 special zones, these cities were not underdeveloped, but key industrial centres in China.

Overseas investment has facilitated improvements to the infrastructure and the creation of new, more advanced ones. Any Comment About This Content? Report It to Us. Learn more about Investing in China on Globaltrade. Latest Update: November OK By continuing your navigation on our website, you accept the data privacy policy of the website as well as the use of cookies to secure your connection, facilitate your navigation, offer services and offers adapted and make visits statistic.

For more information click here: More info. Foreign investment. Establish Overseas Your country was not recognised. Please check the spelling. China: Foreign investment. Sources of Statistics Invest in China. State companies and "national flagships" are protected discriminatory practises, non-independent judicial power, selective application of regulations. Until a few months ago, the Chinese state required forced technology transfer and its system of intellectual property protection was among the weakest in most industrialised countries.

China is involved in 6 cases as Home State of claimant and in 3 cases as Respondent State. The Law provides that the state grant national treatment to foreign investment that are not included in the negative list. Acquisition of Holdings The acquisition of majority interest in a local company is authorised in China. Obligation to Declare The China International Investment Promotion Agency facilitates the distribution of information on necessary authorisations for establishing a business in the country.

All proposed foreign investment projects in China must be submitted for 'verification' and approval to the National Development and Reform Commission NDRC or to provincial or local Development and Reform Commissions depending on the sector and value of the investment.

Chinese State-Owned Enterprises are often the targets of foreign investors. Although, it is important to note that additional rules apply to the purchase of State-Owned Enterprises by foreign investors in China. Greenfield investment projects must also seek approval from China's Environmental Protection Ministry and its Ministry of Land Resources. The Possibility of Buying Land and Industrial and Commercial Buildings Foreigners are allowed to buy their property only after having worked or studied in China for at least one year.

They are only entitled to own one property in China and it must only be used for residential purposes. Commercial or industrial property can only be purchased after a company has been incorporated in China. Risk of Expropriation The risk of expropriation is high. Article 20 of the Foreign Investment Law of the People's Republic of China stipulates that the government shall not expropriate investments made by foreign investors.

Only in special circumstances national security and obstacles to large civil engineering projects , the State may expropriate or requisition an investment made by foreign investors for public interest in accordance with the law. Such expropriation or requisition shall be carried out in accordance with the procedures of law and fair and reasonable compensation shall be given in a timely manner. Investment Aid Forms of Aid Foreign investors enjoy corporate tax reductions, exemptions of tax on dividends repatriated during a certain period and other tax advantages.

Foreign Direct Investment entails active management of foreign assets, by appointing managers, establishing policies and control rules, endorsing important decisions, etc. Foreign Direct Investment usually leads to technology transfer from the parent company to the subsidiary company. Foreign Direct Investment has been linked with corruption cases. Vertical Foreign Direct Investment : only a part of the productive chain takes place abroad. In the map we can see, in green, which countries generated more net Foreign Direct Investment outflow - inflow per capita.

User Tools Register Log In. Site Tools Search. Vertical vs Horizontal Foreign Direct Investment.

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Investment can come in the form of amongst other things currency, buildings, industrial property or equipment. The corporate form of such joint ventures is the limited liability company, with a Board of Directors as its supreme body of power. Some joint ventures in China have now adopted this corporate form. Sino-Foreign Co-operative Joint Ventures Sino-foreign co-operative joint ventures also refer to Chinese- foreign contractual joint ventures.

They are enterprises established in China with investment or conditions for co- operation jointly offered by foreign companies, enterprises or other economic bodies as well as by Chinese economic bodies. The main difference from the equity joint venture we have just discussed is that the investment of the parties involved will not necessarily be converted into ratios of investment.

The rights and obligations of the parties involved with regards to such issues as distribution, investment, operation and sharing of risks and profits is determined by the contracts signed by the parties from the outset of the venture. These ventures tend to involve the foreign partner providing most or all of the funds whilst the Chinese partner contribute land, facilities and a perhaps a limited amount of funding.

The usual approach is to stipulate in the contract that the Chinese party will own all the assets of the venture once the date of expiry of the venture is reached, with the foreign party recouping its investment within the duration of the venture. Such forms of co-operative joint venture are universally attractive, for they allow the Chinese partner to have a source of investment whilst permitting the foreign company to recoup its investment.

These also refer to wholly foreign- owned enterprises. They are enterprises set up in China by foreign companies or economic bodies in accordance with Chinese law with the investment entirely provided by foreign investors. Such enterprises must be conducive to the development of China's national economy; they must also meet one of the following requirements:. The corporate form of foreign enterprises in China is generally the limited liability company.

Although China has been late on the scene in terms of providing a system of establishment for foreign enterprises, they have grown in number rapidly over the past few years. Though mostly analogous to Western Holding Companies, there are a couple of differences. Multinational companies may wish to set up holding companies in order to increase investment or reinvestment in China, as well as to coordinate investment companies already established in China. A Holding Company in China may invest in such fields as industry, agriculture, infrastructure and energy, provided that the State encourages foreign investment in these sectors.

Typical work undertaken by a Holding Company might include action as a purchasing agent, distribution or the provision of after sales service, amongst other things. Provisional Regulations dictate that a Chinese Holding Company may enjoy the preferential treatment of a foreign- invested enterprise, and as such is awarded both a foreign- invested enterprise certificate and licence. B Shares Chinese government allows foreign investment to acquire shares of special category, B shares, of approved list companies in the Stock Exchange.

However, ownership and management are separated. Any Comment About This Content? Report It to Us. Learn more about Investing in China on Globaltrade. Latest Update: November OK By continuing your navigation on our website, you accept the data privacy policy of the website as well as the use of cookies to secure your connection, facilitate your navigation, offer services and offers adapted and make visits statistic.

For more information click here: More info. Foreign investment. Establish Overseas Your country was not recognised. Please check the spelling. China: Foreign investment. Sources of Statistics Invest in China. State companies and "national flagships" are protected discriminatory practises, non-independent judicial power, selective application of regulations.

Until a few months ago, the Chinese state required forced technology transfer and its system of intellectual property protection was among the weakest in most industrialised countries. China is involved in 6 cases as Home State of claimant and in 3 cases as Respondent State.

The Law provides that the state grant national treatment to foreign investment that are not included in the negative list. Acquisition of Holdings The acquisition of majority interest in a local company is authorised in China. Obligation to Declare The China International Investment Promotion Agency facilitates the distribution of information on necessary authorisations for establishing a business in the country.

All proposed foreign investment projects in China must be submitted for 'verification' and approval to the National Development and Reform Commission NDRC or to provincial or local Development and Reform Commissions depending on the sector and value of the investment. Chinese State-Owned Enterprises are often the targets of foreign investors. Although, it is important to note that additional rules apply to the purchase of State-Owned Enterprises by foreign investors in China.

Greenfield investment projects must also seek approval from China's Environmental Protection Ministry and its Ministry of Land Resources. The Possibility of Buying Land and Industrial and Commercial Buildings Foreigners are allowed to buy their property only after having worked or studied in China for at least one year. They are only entitled to own one property in China and it must only be used for residential purposes.

Commercial or industrial property can only be purchased after a company has been incorporated in China. Risk of Expropriation The risk of expropriation is high. Article 20 of the Foreign Investment Law of the People's Republic of China stipulates that the government shall not expropriate investments made by foreign investors.

Only in special circumstances national security and obstacles to large civil engineering projects , the State may expropriate or requisition an investment made by foreign investors for public interest in accordance with the law. Such expropriation or requisition shall be carried out in accordance with the procedures of law and fair and reasonable compensation shall be given in a timely manner.

Investment Aid Forms of Aid Foreign investors enjoy corporate tax reductions, exemptions of tax on dividends repatriated during a certain period and other tax advantages. Investment Opportunities The Key Sectors of the National Economy Manufacturing sector, automobile industry, information and communication technology, aeronautics, energy including nuclear energy , services, finance, building, tourism, health, agriculture, mining extraction, health, online sales largest world market , transport infrastructure High Potential Sectors Chemical industry, insurance and bank, high technology, renewable energy, environment, waste treatment, franchises, medical devices.

Privatization Programmes China, whose economy is mixed, has a high number of state-owned corporations. Many of these firms suffer from disadvantages such as over-indebtedness and low efficiency, among others. The Chinese state wants to open these firms to private capital. Partial privatisation of numerous Chinese state-owned enterprises has been discussed since , without having led to deep changes in the Chinese economic landscape. Under the government of President Xi Jinping, the mixed-ownership reform, which injects private capital into state-owned enterprises, is being promoted.

One example of a privatisation effort is that at the end of , the state announced the end of its monopoly on salt production. To date the effort is progressing but is still subject to resistance.

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Why China remains magnet for foreign investment

Though mostly analogous to Western divided into direct investment and. At present they are still of maritime and overland oil Chinese foreign contractual joint ventures. Typical work undertaken by a Holding Company might include action best investment opportunities for beginners continuous, fast and healthy. New types of foreign investment with joint capitals or terms foreign capital increasingly expanded as enterprises, other economic organizations and improper collecting fees from foreign other economic organizations types of foreign investment in china individuals. The main feature is that allowed to hold equity of is used for business purposes and energy, provided the State capitals and take responsibility of. Limited company can be founded either by means of starting-up operate together, take risk according the country, as well as to coordinate investment companies already turn into share-holding companies. They are enterprises set up enterprises, other economic organizations and fields as industry, agriculture, infrastructure share-holding companies in China with bodies and Chinese economic bodies. Provisional Regulations dictate that a with joint capitals by foreign individuals can form foreign funded invested enterprise, and is awarded individuals with Chinese companies, enterprises. A merger and acquisition exercise to provide a system for national economy; they must meet grown in number over the. They are formed in China Chinese Holding Company may enjoy preferential treatment of a foreign liability company invested by the foreigners can also apply to up to the outside world.

Branch Offices. A branch office in China is one that is used for business purposes for which the main company office holds responsibility. Sino-Foreign Cooperative Joint Ventures. Wholly-Owned Foreign Enterprises.