by Jessica Wang
China’s acceleration of foreign investment is an important step in its fundamental principle of opening up to the outside world. It is also an important component of Deng Xiaoping Theory, which consists of a series of political and economic ideologies seeking to build up the socialist economy with Chinese characteristics. China’s existing foreign investment legal system mainly includes three types of enterprises: wholly foreign-owned enterprises (WFOE), Joint Venture and Joint Cooperation Venture.
If you want to invest in China, you may take the following issues into consideration:
1. Chinese Foreign Investment Laws. Determine if the industry and type of enterprise you wish to invest in are encouraged, restricted or prohibited. It’s easy for you to research this, as the Catalogue for the Guidance of Foreign Investment Industries (Amended in 2011) lists the relevant information. Regarding the types of enterprises, in most cases, you can make a decision at your own discretion. However, in some special industries, especially in the restricted industrials, the laws and regulations will require that foreign investors establish a Joint Venture or Joint Cooperation Venture, and in some cases, your share proportion shall not be more than 49 percent.
2. Region Selection for Investment. Although the national laws and regulations are promulgated and valid in the whole country, different regions have different privileges. For example, the west of China is much more privileged than the east; however, the transportation and personnel availability important to your business operation are more abundant in the east.
3. Enterprise Establishment. The establishment of enterprises with foreign investment is subject to project-by-project examination, approval and registration by the government and the state adopts a classification administrative system for foreign investment. Many provinces, autonomous regions and municipalities have established foreign investment service centers, which offer foreign investors a one-stop service, ranging from legal consultation to procurement of project approval.
4. Employee Recruitment. When you start to recruit the employees and negotiate on the salaries, you must take social insurance into consideration. The social insurance that the employer needs to pay to the social insurance fund pool usually demands 25 to 35 percent of the employee’s salary, and since the end of 2011, foreigners must join the social insurance system as well, which raises the burden of employers.
5. Intellectual Property Registration. Intellectual property issues are a great concern for businesses operating in China. It is thus crucial that you safeguard your intellectual property, especially trademarks and patents. The first step is to ensure ownership by registering your intellectual assets with the relevant government authorities.
In closing, since China is the second largest economy in the world and is also the world’s largest exporter and second largest importer, China offers a tremendous opportunity for foreign investors. The above article provides an introduction to foreign investment in China with an explanation of the most important legal considerations.
Jessica Wang can be reached at chinashanghaiattorney@gmail.com | cell +86-15901811001 | Skype: gushanyancui