Benefits of Doing Business in China, Foreign Investment in China

Doing Business in PRC

Overview

Wang & Wang handles a wide variety of investment, corporate, business transactions, intellectual property licensing, software licensing and distribution matters related to doing businesses in China. We have bilingual attorneys with years of experience and strong expertise in U.S. Law, China Law and International Law in these practice areas.

I. Foreign Investment in China

According to the Foreign Investment Guidance, foreign investment in China is classified into four categories: encouraged investment, permitted investment, restricted investment and prohibited investment. After China's re-entry into WTO in December 2002, many laws are currently being amended to meet China's WTO obligations to further liberalize industries such as telecommunication, legal services, real estate, advertising, management consulting and so on. In addition, foreign companies may now own sizable minorities of various enterprises previously foreclosed to them, such as logistics, warehousing, retailing, wholesale distribution, insurance and banking. A few examples are:

China To Gradually Open its Banking Market. China's central bank announced permission would be granted to foreign invested financial institutions to conduct limited operations in China, with increasing liberalizations in coming years. Please visit our News Page for more details.

Foreign Ownership of Telecom Enterprises loosened. Starting from January 2002, foreign ownership of "value-added telecommunications business" is now permitted up to 30%, and will increase to 49% of such a business by the end of 2002. Under China's WTO obligations, foreign ownership, up to 50%, by 2003 is required. In the direct Telecom market, foreign investors are allowed to own up to 25% of the shares of joint ventures engaged in mobile voice and data services in Shanghai, Guangzhou, Beijing, and among these cities in 2002. The proportion will increase to 35 % by the end of 2002, and eventually reach 49% by 2003.

Insurance Market Opening to Foreign Competition. China's State Council promulgated "Administrative Regulations for Foreign Insurance Companies" as a means to achieve China's WTO obligations. From December 11, 2001, foreign non-life insurance companies can establish branch companies or hold up to 51% of the shares of joint ventures. Shares owned by the foreign investor to a life insurance joint venture shall not exceed 50%. In insurance brokerage joint ventures, the proportion of foreign ownership can reach 50%. At present, foreign investment is limited to the major markets of Shanghai, Guangzhou, Dalian, Shenzhen, and Foshan. Within three years after China's WTO accession, there will be no geographic restrictions.

There are three major forms of foreign investment in China, including equity joint venture enterprises, contractual joint venture enterprises and wholly foreign-owned enterprises. In addition, the establishment of branches by foreign enterprises is limitless, unless otherwise indicated in specific sub-sectors, as the laws and regulations on branches of foreign enterprises are under formulation. Representative offices of foreign enterprises are permitted to be established in China, but they shall not engage in any profit-making activities. A foreign invested enterprise can be in form of a limited company or a company limited by shares in China.

The primary procedures for setting up a foreign invested company, branch, or representative office include applying for approval by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and registration with the Administration of Industry and Commerce.

There are various tax benefits for foreign investment in China. The State Tax Administration of China stated that with China's entry into the WTO, China will apply the general tax law to foreign invested enterprises and annul tax preferences granted to foreign invested enterprises. The new tax law is expected to be promulgated by the end of 2003. With China's entry into WTO, foreign invested enterprises will be treated as local enterprises according to the principle of national treatment. Therefore, some previous restrictions on foreign companies will be cancelled, as well as certain preferential treatment. However, China will maintain tax preferences applicable for certain foreign invested enterprises for a relatively long period after WTO. There will be more tax benefits for foreign investment in western areas of China, capital construction or high technology industries.

II. Corporate/Business Transactions

The firm handles general corporate matters, including but not limited to incorporation, corporate changes (i.e. Amendment to AOI, change of directors, capital increase) and registration, corporate restructure, merger & acquisition, sale of major assets or businesses, stock listing, stock option and employment.

We handle general business transactions, including but not limited to sales, services, asset transfer, intellectual property and technology licensing, leasing, banking, e-commerce-related transactions.

III. Intellectual Property and Technology Licensing

The firm handles intellectual property and technology licensing matters, including licensing of patent, know-how, trademark, copyright, software and other intellectual properties.