How to establish a foreign-
funded enterprise in China?
A:It
is naturally most important that foreign investors
understand the procedures which need to be followed
in order to establish foreign- funded enterprises in
China. The regular steps which must be taken in this
regard shall now be examined.
(1)
Choice of Projects, Co- operation of Partners and
Relevant Office Approval
The logical first step for foreign investors to take
is to decide upon a project to undertake. Foreign
investors have two options to choose from in this
respect; they may chose a project proposed by
enterprises or institutions across China or they may
propose investment projects by themselves.
If
the first option is taken, it should be noted that
institutions and enterprises across China have
proposed numerous projects, some of which have
government approval and some that do not. It is
therefore best to select those projects which have
been officially approved in order to secure the
approval of the relevant authorities.
The
second option requires awareness as to whether the
chosen project conforms to China's industrial
policies, and whether the project belongs to a field
which they are officially allowed to invest in.
In
addition to this, attention should be paid to
attaining reliable Chinese partners for investment.
When applying for joint ventures or co-operative
ventures, it is the responsibility of the Chinese
partner to submit the application for the
establishment of investment projects to the
competent authorities for approval.
For
wholly-owned foreign ventures, investors should seek
assistance from the consultants who shall assist in
the establishment of the presence in China.
(2)
Submission of Feasibility Study Reports and Relevant
Official Approval
Investors in a joint venture or a co- operative
joint venture can only mount a feasibility study on
a project once the application for establishment has
been approved. A feasibility study report usually
needs to contain the following 10 items:
q
Outline of implementation
q Background and history of the project
q Marketing and production capacity
q Materials and inputs
q Site location
q Design of Project
q Organisational costs
q Construction arrangements
q Financial and economic assessments
q Foreign exchange equalisation and assessment of
risks
Once
again, in equity and co-operative joint ventures it
is the Chinese partner to submit the feasibility
report. However, the foreign party should maintain
an effective channel of consultancy to screen
through the papers and process. For investors in a
wholly foreign- owned venture, the report should be
submitted along with the application for
establishment by consultants to the relevant local
government authority.
(3) The Signing of Contracts and Charters of
Association in addition to Relevant Official
Approval
Once the feasibility study is approved, the
respective partners in equity or co-operative joint
ventures can get down to the matter of addressing
contracts, charters of association and other legal
documents. Competent government authorities require
these charters, contracts and documents to conform
to the following principles:
q
The content must be complete, with specific terms
and precise language used. The responsibilities of
all parties must have been clearly defined
q The rights and obligations of all the parties
concerned with the contracts must have been provided
on an equal footing
q The content of the contracts and charters of
association must conform to the relevant provisions
of Chinese law and Regulations
q Liabilities to third party should be limited to
the amount of registered capital
It is possible to refer to standardised contracts
and charters of association which have been prepared
by the Chinese government for reference during the
negotiation and drafting of contracts.
In
the case of equity and co-operative joint ventures,
it is the responsibility of the Chinese partner to
submit the contracts and charters of association for
approval by the competent authorities. When the
charters are approved, the authorities will issue a
certificate of approval for the foreign- funded
enterprise.
In
the case of wholly-owned foreign enterprises, a
formal submission of the charters and other
documents may be made after the initial application
has been approved. Once again, certificates will be
issued if this formal application is successful.
The
Chinese government has recently moved to simplify
matters for small ventures of all the varieties
mentioned, allowing all the applications,
feasibility reports and legal document to be
submitted in unison.
(4) Registration
Two steps should be followed by foreign investors
and their Chinese partners during the application
stage:
q
The name of the foreign- funded enterprise must be
registered after the establishment application is
fully approved
q The establishment of the foreign- funded
enterprise must be registered after the contract and
charter of association are fully approved.
The
registration of the name of the venture serves to
protect the use of the name. No party concerned with
the project is allowed to use the name registered to
conduct business before the registration of the
venture itself is completed.
After
the contract and charter of association have gained
approval, foreign investors and their co- operation
partners should proceed to apply for registration to
the administrative authorities for industry and
commerce within 30 days. A business licence will be
issued to all parties when the registration is made
and checked.
Once
all this has been done, the procedure for the
establishment of a foreign- funded enterprise in
China is completed.
Time Limit for Operation and Enterprise Termination
The
time limit for foreign investment enterprises is
usually 20 years at the longest, and may be
stipulated by investors through negotiation. Where a
time limit is appointed, termination of the
enterprise comes with the expiration of the time
period.
Prolongation
may be sought at least 180 days before the
expiration date from the relevant approving
authorities.
