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What are the available options for investment in China ? First, to encourage foreign investors to invest in its country, China has decided to take many positive measures. As a result, many sectors are in the spotlight, including modern agriculture, advanced production and the modern service sector. Secondly, According to the Ministry of Commerce, from January to October 2018, newly authorized foreign invested companies reached 49,545. This represents an increase of 89.3% over the previous year. In addition, the effective use of foreign investment reached RMB 701.16 billion (USD 107.66 billion). This represents an increase of 6.5% over one year. [1]

To set up your business, there are several options available in China:

Investment Options 

  • Wholly Foreign Owned Enterprise (WFOE) – A limited liability company wholly owned by foreigners. In addition, it is most often constituted by a single foreign investor.
  • Equity Joint Venture (EJV) – A limited liability company with both foreign and Chinese investors, its functioning is regulated by the law. 
  • Cooperative Joint Venture (CJV) – A joint-venture with foreign and Chinese investors. In a CJV, shareholders may decide to share dividends or debts in a way that is excessive to the capital subscription. In addition, they may also decide to organise the early recovery of investments from the foreign party. This is in exchange for the transfer of all fixed assets to the Chinese party.
  • Holding Company – Foreign investors with significant activities in China may establish holding companies. Thus, they can hold their investments in FIEs.
  • Foreign Invested Company Limited by Shares (FICLS) – Company typically set up for listing purposes. 
  • Regional Headquarters – These can be set up to coordinate and provide services to group companies in the region. Both in China and abroad. In addition, the benefits of regional headquarters depend upon which rules are used to set them up. National, Beijing, Shanghai, and Guangzhou, for exemple.
  • Partnership – Structure established by two or more foreign entities or individuals with or without a Chinese partner. Consequently, the partnership agreement provides for the allocation of profits and losses.
  • Representative Office (RO) – Structure set up in China to represent foreign companies (and their subsidiaries). However, a representative office is not a company. In addition, ROs are not allowed to engage in direct commercial activities.

Investment in China: Other Arrangement Options

  • Manufacturing Arrangements – These can be structured as processing and assembly arrangements, compensation trade, or manufacturing arrangements.
  • Distribution Arrangements – A foreign company may appoint Chinese companies to distribute the foreign company’s products in China. 
  • Variable Interest Entity – Structure, in which an entity may be wholly or partially owned by foreigners. Agreements are concluded with a Chinese operating company. It has an approved field of activity. In addition, the licences required to operate in a foreign investment zone are restricted or prohibited.
  • Hong Kong company – A foreign entity can use a Hong Kong entity to structure its investments in Mainland China. 

The new Foreign Investment Act (“FIA”) was adopted and published on 15 March 2019. It will enter into force on 1 January 2020. As a result, this will lead to changes in foreign investment. More importantly, in the current form and structure of foreign invested companies, for example

We will then update the handbook in accordance with the new laws and regulations.

To know more, download our legal handbook related to foreign investment in China…


[1] News Release of National Assimilation of FDI From January to October 2018, the Ministry of Commerce: http://english.mofcom.gov.cn/article/statistic/foreigninvestment/201812/20181202815485.shtml

-> This article may be of interest to you : https://www.leaf-legal.com/handbook/mergers-acquisitions/investment-options-mergers-and-acquisitions-ma-operations-in-china/

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