Guide to Investment

As for the establishment of a foreign-invested enterprise in China, the different modes of investment require different procedures. At the moment, there are three main procedures, briefly described as follows:

The Procedure for the Establishment of a Chinese-foreign Joint Venture or a Chinese-foreign Cooperative Enterprise

There are three steps for the establishment of a Chinese-foreign joint venture or a Chinese-foreign cooperative enterprise. The first step is that the Chinese partner shall submit a proposal for the joint venture or cooperative project with a foreign investor to the government department in charge at a higher level, and then submit it to the approving body for final approval after the department in charge examines and approves it. The purpose of the examination is to decide whether the proposed project meets the needs of the economic development of the country or the locality and whether there are the right conditions for the establishment of such a project with a foreign investor. This step only involves the proposal being submitted by the Chinese side, and has nothing to do with the foreign partner.

The second step is that if the project proposal is approved, the Chinese partner begins to search for a foreign partner and holds talks with any potential foreign partner on specific matters concerning the joint venture or cooperative venture. After the two sides reach agreement in principle, they jointly prepare an economic and technical feasibility study report and submit this to the approving body for final approval after the department in charge of the Chinese partner at a higher level has examined and approved it. The purpose of this step is to decide whether the economic and technical measures proposed in the feasibility study report are reasonable and reliable and whether the project will produce the anticipated economic results.

The third step is to hold discussions about signing a contract and formulating the articles of association for the joint venture or cooperative venture after the project feasibility study report. These are then submitted to the approving body for approval, after the government department in charge of the Chinese partner at a higher level has examined and approved them. The purpose of the approving body is to decide whether the contract and articles of association comply with the provisions of the Chinese law and whether they conform to the fundamental principles fixed in the approved project feasibility study report. The approving body will decide whether to approve them or not within three months starting from the day it receives the contract, articles of association and other documents required by Chinese laws. If it finds that the contract and articles of association do not comply with the provisions of the Chinese law or with the principle of equality and mutual benefit, or that they have changed some of the principles laid down in the feasibility study report, the approving organ will require the two parties to make changes through consultation. Only when the two parties have revised in the contract and articles of association, will the issuance of a certificate of approval for the Chinese-foreign joint venture or cooperative venture to be set up be possible.

The applicant shall register with the local administration for industry and commerce and receive the business license within one month of receiving the certificate of approval. The certificate of approval automatically becomes invalid if the applicant fails to register it within the time limit. The applicant shall open an account at the Bank of China or other banks and register with the local tax office for taxation on the strength of the business license.

The Procedure for the Establishment of a Wholly Foreign-Owned Enterprise

A foreign investor or a Chinese service organization for foreign invested enterprises, or another economic organization entrusted by it shall submit his or her application for the establishment of a wholly owned enterprise to the local administration for foreign investment where the foreign investor intends to set up the enterprise, feasibility study, the enterprise's articles of association, legal documents of proof for the applicant and documents of proof for their credibility. After these are examined and approved, they will be submitted to the approving body for examination and approval. The approving body will decide whether to approve the application or not within 90 days starting from the day it receives all the documents for the establishment of the enterprise. If the approving body finds the documents it receives are not complete or there is something improper with them, the body will require the applicant to make changes within a specific time limit. After the application for the establishment of a wholly foreign-owned enterprise is approved, the foreign investor shall register with the local administration for industry and commerce and receive a business license within 30 days after he or she receives the certificate of approval. The certificate of approval will become invalid automatically if the foreign investor fails to register with the administration for industry and commerce within 30 days starting from the day he or she receives the certificate of approval. The wholly foreign-owned enterprise shall open an account in the Bank of China or other banks and register with the local tax office for taxation within 30 days from the day the enterprise is established.

The Procedures for the Applications of a Foreign-Invested Enterprise

All Chinese provinces, autonomous regions, municipalities directly under the central government, cities directly under the provincial government and many open counties (or county-level cities) have special government departments/offices for planning, foreign trade and economic cooperation, industry and commerce, land and environmental protection. As the government organizations and division of labor among the departments may differ slightly from province to province, foreign investors may also find some differences in the procedures for the different places. Since some practice is different from region to region, as a whole, the work flow chart is suggested as follows:

1. Rough Procedures for wholly owned foreign enterprises for Sino-foreign joint venture or cooperative enterprises
   
   Tentative talks with potential partners Preparation of the project proposal Prepare a feasibility study report the articles of association a contract for the joint venture or cooperative enterprise Submit it to the concerned department in charge Copy to the department concerned Apply for the certificate of approval Register with the administration for industry and commerce for a business license Register with the tax office for taxation, and open account at a bank Start business
   
2. Explanations for the Procedures
   Different projects are subject to examination and approval at different levels. All projects are subject to examination and approval by the local authorized departments in charge or by the departments at a higher level.
   
   Capital construction project proposals and feasibility study reports are generally subject to examination and approval by the planning commissions, while technology transfer project proposals are generally subject to examination and approval by the economic and trade commissions. If there are special bodies in some localities, they are subject to examination and approval by the special bodies.
   
   The departments concerned refer to the planning, municipal work, environmental protection, land, labor, fire prevention, hygiene, water supply, power supply, gas supply, fuel supply, transport, and telecommunications departments and the financial institutions concerned. Since China is advancing rapidly in economic development and social progress, the formalities may be subject to change as time moves on.

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