CHINA
China Lu Yi and Sophie Han, Paul Hastings
1. Overview of FDI in the jurisdiction
1.1. Which countries are the principal sources of FDI into your jurisdiction? Despite substantial fluctuations in the Asian and global economies, China has attracted more FDI than any other developing country. In 2012 it attracted $121 billion of FDI, second only to the US, with the total value of China’s inward FDI stock at the end of 2012 estimated at $830 billion.
Overall, on the basis of realised FDI value as of 2012, the major sources of inward FDI into China is from the following countries and regions: Hong Kong 43.78%; British Virgin Islands (BVI) 9.56%; Japan 6.45%; US 5.19%; Singapore 4.38%; Taiwan 4.22%; and South Korea 3.91%.
In recent years, countries and regions from Southeast Asia such as Hong Kong, Macau, Taiwan Province, Japan, the Philippines, Thailand, Singapore and South Korea, have been the major FDI force into China. In 2012, Hong Kong alone accounted for 54.15% of the whole FDI inflow to China. There are also signs that multinational companies from developed countries are placing larger projects in China, and the number of projects from high-growth economies continues to increase.
1.2. What are the key sectors in your jurisdiction which attract, or the government is seeking to attract, FDI? The Chinese government is focused on high-quality investment projects that generate longterm economic value and that increase employment. Data from the Ministry of Commerce’s (MOC) 2013 Statistics on FDI in China (published on October 14 2013) indicates that the key sectors attracting FDI include manufacturing, real estate, leasing and business services, and retail.
Sector
Manufacturing Real estate Leasing and business services Retail Transportation, warehousing, post and telecommunication Agriculture, forestry, animal husbandry and fishery Scientific research and technical services
No of enterprises 494,715 51,318 43,671 70,897 10,054
22,009 14,682
Share %
64.80 6.72 5.72 9.29 1.32
2.88 1.92
Contractual FDI value 16,309.87 4,396.33 1,603.57 1,306.67 793.35
640.12 585.36
Share %
57.57 15.52 5.66 4.61 2.80
2.26 2.07
1.3. Is the government generally supportive of FDI? Which government, and regional, bodies are responsible for driving FDI in your jurisdiction? The Chinese government is fully supportive of FDI, and MOC and its local counterparts are mainly responsible for driving FDI.
2. Investment vehicle
2.1. What are the most common legal entities and [pass-through] vehicles used for FDI in your jurisdiction, and how long do they take to become operational? FDI in China typically takes the form of foreign-invested enterprises, which are structured as Sino-foreign equity joint ventures (EJVs), Sino-foreign cooperative joint ventures (CJVs) or wholly foreign-owned enterprises (WFOEs). Large foreign investors can also establish holding companies in China, which offer platforms for them to further invest and establish multiple subsidiaries throughout China. Non-legal entities typically include representative offices of foreign entities. Partnership is also available as an investment vehicle. Among all these legal entities, WFOE is the most popular one in recent years.
It generally takes two to three months to establish a WFOE, and another one to two months for the WFOE to become fully operational (for instance, it completes the tax registration and can issue official invoices to customers). The one-to-three month period for establishment could be shorter or significantly longer, depending on a number of factors, primarily its business, amount of total investment, the efficiency of the foreign investor itself, and the responsiveness of the relevant approval and registration authorities. It typically takes a much longer period of time to form a Sino-foreign joint venture and most time will be spent on negotiations between the joint venture partners and the preparation of the joint venture contract.
2.2. What are the key requirements for establishment and operation of these vehicles which are relevant to FDI? Key requirements for establishment and operation of a foreign invested enterprise (FIE) include, among other things, the following:
(a) The business scope of an FIE is required to be approved by MOC or its local branches, and registered with the State Administration for Industry and Commerce (SAIC) or its local branches.
The business scope will be set forth in the FIE’s articles of association, shown on its business licence, and will limit the business activities that the FIE may legally undertake. Accordingly, it is important that the investors carefully consider all business activities to be undertaken by the FIE, and ensure that the proposed scope is broad enough to encompass such business activities.
(b) Foreign investors are required to inject capital into the FIEs, and such injection must meet the minimum amount requirement. For example, to establish a sole-shareholder WFOE, the minimum capital requirement is Rmb100,000 ($16,419). In practice, the capital injection plan should be commensurate with the proposed business plan, and substantiated by projections in the feasibility study report of the FIE, one of the documents to be submitted to the MOC or its local branch for approval. Capital may be contributed in cash or in kind, while at least 30% of the registered capital should be in cash. When capital is contributed in instalments, the first instalment must be not less than 20% of the registered capital or the minimum capital requirement, and must be paid within three months from the date the business licence is issued. The deadline for completing the contribution is generally two years from the date the business licence is issued.
(c) An FIE is required to form a board of directors. In case of a mid-size FIE, the board of directors often consists of three board members, including one board chairman, who concurrently may serve as the legal representative of the
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