|
Three major types of foreign direct investment in China,
commonly known as the Three Funds Enterprises 1) Equity Joint Venture
Its features include: A 50-year
term, which may be extended while entities in certain industries may enjoy an
unlimited period of operation; Profit
and risk sharing proportionate to investment; Limited
access to domestic sales; Non-negotiable
share holdings; Specific requirements for management
structure with either party being chairman of the board of directors; Regulated
debt-equity ratios;
Minimum
25 percent foreign capital contribution; Foreign
exchange account balanced, including remittance of profits abroad; Investors restricted from withdrawing registered capital during the life of the contract; each party contributing cash, buildings, equipment, materials, intellectual property rights, and land use rights but not labor. Equity joint venture may only be terminated upon the agreement of the investors an approval of the original investment approval authority. From the viewpoint of the Chinese Government, equity joint ventures are the preferred form of investment. 2) Contractual Joint Venture
The features for a contractual joint venture include: No minimum foreign contribution is required; Contribution
is not necessarily expressed in monetary value; Contribution resembles that allowed for
equity joint ventures and may include labor, resources, and services; Profits
are divided according to the contract terms rather than investment share; Great
flexibility in structuring organization, management, and assets are allowed; There
are no limits on duration of the joint venture; Trade
unions are required;
Foreign investors may withdraw registered capital during the duration of the contract. The contractual joint venture is the primary form of small business investment in China. 3) Foreign-Owned Enterprise
Theoretically, foreign-owned enterprises are required to use
advanced technology or export almost all of their products. They are also
required to: Register as a legal person; Employ
Chinese labor in accordance with local and central government laws; Balance
foreign exchange;
Sign separate contracts with government
authorities or Chinese business entities for land use rights, buildings, and
utilities. In such enterprises, trade unions are encouraged, but not
required. The company has exclusive management control and enjoys autonomy in
operation and management with less Chinese Government interference. Because
there is no Chinese partner to guide the project through the approval process
and other regulatory issues associated with construction and operation, it is
advisable to retain the services of a well-connected Chinese consulting
entity. Typically, a foreign company would open
a representative office when it first goes into China. However, later on when
it is ready to operate in the local currency, hire local employees and set up
a full service sales office in China, it will have to convert this office
into a foreign-owned enterprise. ______________________________________
Limited Company
In addition to the Three Funds
Enterprises, a new foreign direct investment instrument has been
available since 1992. A company limited by share is considered a legal person
that raises capital through the issuance of shares of equal value. The
corporate structure of such company, a limited company, is similar to that of
an equity joint venture or contractual joint venture. The management of this
limited company is quite different form the existing foreign invested
enterprises (FIEs) whereby shareholders having a greater say and role in the
company. Under the Shanghai and Shenzhen
regulations the purpose of appointing a supervisory board is to monitor the
actions of the company’s mangers and directors. Local regulations permit limited companies to issue 25 percent
of their shares to foreigners as referred to as "B shares” and given
preferential treatment accorded to FIEs. Office Hours (USA) Monday – Friday
(8 AM – 5 PM EST) Office Hours (CHINA) Monday – Friday (8 AM – 5 PM Chinese
Time) M. CRISPI INTERNATIONAL, LTD. P.O. DRAWER 804 E. SETAUKET, NY
11733-0614 TEL: (001-631)
246-9683 FAX: (001-631)
689-8606 Email: Info@M-Crispi.com |