Foreign Invested Enterprises Registration Procedures
APPROVAL PHASE
(The procedures described below apply to registration of
Wholly Foreign Owned Enterprises, Sino-Foreign Equity Joint Ventures, Sino-Foreign Cooperative
Joint Ventures.)
The establishment of foreign investment enterprises consists
of three phases: (1) approval of the project proposal, feasibility
study report, Joint Venture Contract and Articles of Association;
(2) registration with the AIC; and (3) post-establishment
procedures.
APPROVAL PHASE
All foreign investment projects are subject to approval by
government authorities. The major legal documents involved
in this phase are the project proposal, feasibility study
report Joint Venture Contract and Articles of Association.
Relevant Chinese laws provide that a joint venture agreement
should also be executed and submitted to the Chinese government
authorities. However, as a practical matter, the joint venture
agreement has been abolished.
For joint venture projects relating to infrastructure construction,
the project proposal and feasibility study should be submitted
to the State Development Planning Committee or its local counterparts
for approval. For joint venture projects relating to technology
upgrade of exiting enterprises, the project proposal and .feasibility
study should be submitted to the State Economic and Trade
Commission or its local counterparts for approval.
The project proposal and feasibility study for other joint
venture projects and feasibility study for WFOEs should be
submitted to MOFTEC, other government agencies or their local
counterparts for approval. The Joint Venture Contract and
Articles of Association for all foreign investment projects
should be submitted to MOFTEC or its authorized agencies for
approval.
(1) Project Proposal
Project proposals are only required for joint venture projects.
WFOEs are not required to submit project proposals. The project
proposal should be prepared by the Chinese party. Project
proposals are usually compiled after the joint venture parties
have had a preliminary exchange of their intentions for setting
up a joint venture and have achieved a basic agreement. A
project proposal is mainly to discuss, from the macro perspective,
the necessity and possibility for the joint venture project.
In ordinary cases, a project proposal should be submitted
to the approval authority after the foreign party or parties
have been selected. However, if a project is deemed very advantageous
and profitable, in order to select better foreign investors,
a project proposal] may be submitted first to the approval
authority before a foreign party is selected.
Chinese law requires that the following contents should be
included in the project proposal which is subject to the approval
of the planning authority:
(i) General information regarding the Chinese party - Such
information should include the name of the Chinese party,
a general introduction to its operations, legal address, the
legal representative's name and position, the authority in
charge of the Chinese party;
(ii) The joint venture purpose - The joint venture purpose
should focus on the necessity and feasibility of earning foreign
exchange and technology import.
(iii) The joint venture party - The information regarding
the joint venture party includes the name of the foreign party,
its country of incorporation, legal address, the name, position
and nationality of the legal representative of the foreign
at venture party.
(iv) The business scope and business volume - The business
scope and business volume should focus on the necessity of
the project, the need for the products in domestic and foreign
markets and their manufacturing information, and the sales
-region of the products of the joint venture.
(v) Estimate of Investment - The investment for a project
consists of the fixed assets and the working capital for the
project.
(vi) Investment Methods and Sources of Capital - The capital
ratio of the joint venture parties and the capital contribution
methods should be specified in a project proposal application.
(vii) Manufacturing Technology and Major Equipment - The project
proposal should specify information regarding the equipment
and technology to be used by the joint venture. Important
technological economic data should also be set forth in the
project proposal.
(viii) The Amount of Requisite Major Raw Materials, Water,
Electricity, Gas and Transportation and Their Sources.
(ix) The Number of Personnel and Methods of Recruitment.
(x) Economic Benefits and Foreign Exchange Arrangements.
In addition to the above information, a project proposal
should also have the following attachments:
(i) Letter of Intent of the Joint Venture Parties;
(ii) The result of the investigation of creditworthiness of
the foreign party;
(iii) Preliminary survey and forecast report of the domestic
and international market needs, or the opinions of the relevant
responsible authorities for sales of the products;
(iv) Letter of Intent of the relevant authorities for major
raw materials, energy and transportation; and
(v) Letter of Intent of the relevant authorities regarding
arrangement of investment funds.
The above requirements are formulated based on the assumption
that a foreign party has been selected. If no foreign party
has been selected, the Chinese party may also submit a project
proposal for approval. The relevant information concerning
foreign parties may be submitted to the approval authority
after the foreign party is selected. If the planning authority
does not reply within one month after it receives the investigation
results of the creditworthiness of foreign parties, the approval
may be deemed to be tacit. Therefore, the Chinese parties
may start to work on the feasibility study of the project.
For foreign investment projects relating to the technology
upgrade of existing state-owned companies, the State Economic
and Trade Commission requires that the following information
must be included in the project proposal:
(i) The purpose, necessity and basis for the project;
(ii) The plan of products and the plan of assimilating imported
technology, preliminary assessment of the market demand and
preliminary opinions on the technology upgrade scales;
(iii) Information of resources, construction conditions and
preliminary analysis of the potential foreign party;
(iv) Estimate of total investment and financing methods;
(v) Major content of the technology upgrade and preliminary
arrangement of schedules; and
(vi) Preliminary estimate of economic benefits and social
benefits.
If the project is less than US$30,000,000, the content of
the project proposal may be simplified. However, in any event,
the following information should be included in a project
proposal:
(i) A basic introduction of the Chinese party and the reasons
for the upgrade;
(ii) Major contents of the technology upgrade and technology
import;
(iii) Expected technological and economic results as a result
of the technology upgrade; and
(iv) Estimate of total investment and source of financing.
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(2) Feasibility Study Report
After the project proposal is approved, the Chinese and foreign
parties may carry out feasibility study research. Wholly foreign
owned enterprise projects do not need to prepare project proposals.
The foreign investors may directly prepare a feasibility study
report.
A feasibility study report should investigate and appraise
major factors of a project. It should cover economic issues
technology, financial issues, management structure, cooperation
conditions and other aspects in relation to the foreign investment
company to be established.
Chinese laws contain mandatory clauses that must be included
in a feasibility study report. For a joint venture project
subject to approval by the planning commission (the feasibility
study report for a WOFE should be submitted to MOFTEC or its
authorized government agencies together with the Articles
of Association and other documents), the following provisions
must be covered in the feasibility study report:
(a) The basic information of the project;
The basic information of a project consists of the following:
(i) The name, legal address, purpose, business scope and business
volume of the foreign investment company;
(ii) The name, incorporation location and legal address of
each joint venture party; the name, position and nationality
of the legal representative of each joint venture party; and
the authority in charge of the Chinese party;
(iii) The total amount of investment, registered capital of
the joint venture company (including the amount of self-owned
funds to be contributed by each investor, the capital ratio,
capital contribution method and schedule for capital contribution);
(iv) The joint venture term, the profit distribution method
and the ratio of loss sharing;
(v) Approval document for the project proposal;
(vi) The names of the people responsible for preparing the
feasibility study report; and
(vii) General introduction, conclusion, issues and suggestions
of the feasibility study report.
(b) The arrangement of manufacture of products and its basis;
A feasibility study report should set out the demand in both
domestic and international markets, the methods of market
survey, and the current manufacturing ability of the existing
plants and plants in construction China and overseas.
(c) The supply arrangement of raw materials, energy and transportation
and the basis for such arrangement;
(d) Site selection and its basis;
(e) Selection of equipment, technology and manufacturing process;
(f) Arrangement of production;
A feasibility study report should address the number of employee
sources of employees and the operational management of the
joint venture company;
(g) Prevention of environmental pollution, labor safety, hygiene
facilities and the basis for such;
(h) Construction methods, construction schedule and the basis
for such;
(i) Capital financing and its basis;
(j) Foreign exchange arrangement and its basis;
(k) Comprehensive analysis;
Comprehensive analysis comprises economic, technological,
financial and legal analyses.
(l) Major attachments
-(i) The business license of each joint venture party;
-(ii) Identification documents of the legal representative
of each joint venture party;
-(iii) The Balance Sheet and Profit and Loss Statement for
each joint venture party;
-(iv) Survey results of the demand in domestic and international
markets, a forecast report and the export ratio of the products
to be manufactured by the joint venture company;
-(v ) The opinion letters issued by relevant authorities for
arrangements of raw materials, auxiliary materials, components,
energy and transportation;
-(vi) Opinion of the relevant authorities relating to equipment
delivery;
-(vii) Opinions of the relevant authorities relating to using
the joint venture products to replace imported products;
-(viii) Opinions of the relevant authorities relating to financing;
-(ix) Opinion of the relevant authorities relating to site
selection;
-(x) Opinion of the relevant authorities relating to environmental
protection, fire control, labor safety, hygiene facilities
and earthquake;
-(xi) Opinion of the relevant authorities relating to foreign
exchange income and expenditure; and
-(xii) Opinion of the relevant authorities on evaluation or
preliminary review of the project.
The SDPC requires that except in special circumstances, a
decision should be made on whether or not to grant approval
for a feasibility s report within 90 days after the SDPC receives
all the documents meeting the statutory requirements. For
projects of over one US$100,000,000, the SDPC should forward
the documents to the State Council for approval within the
above time limit. If the submitted documents do not meet the
statutory requirements or the attachments are not complete,
the SDPC may request the applicant to submit additional documents.
Otherwise, the SDPC may reject the application by returning
all submitted documents. For the local development planning
commission, the approval time limit is also 90 days.
The State Economic and Trade Commission (SETC) requires that
a feasibility study report should be comprised of the following
information:
(1) Introduction to the project;
(2) Basic information regarding the Chinese party;
(3) Estimate of the demand in both domestic and foreign market,
the product level and production scale, and the prospect of
export;
(4) Supply of fuel, energy, raw materials, components and
public facilities;
(5) Several plans as to selection of technology and equipment;
(6) Selection of the best technology upgrade plan;
(7) Prevention of environmental pollution;
(8) Plans of production and personnel training;
(9) Schedule of the project;
(10) Investment estimate, financing, including repayment methods
and exchange risk estimate;
(11) Economic and social benefit evaluation and analysis;
and
(12) Agreements as to outside conditions for the project and
other written documents.
The SETC fails to expressly provide for the specific time
limit for approval of feasibility study reports. However,
because the SETC is responsible for approval of technology
upgrade projects and the project proposal and feasibility
study report are prepared by the Chinese parties, the Chinese
parties may use their relationships with the SETC or its local
counterparts to shorten the approval period.
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(3) Joint Venture Contract and Articles of Association
The joint venture contracts and Articles of Association are
usually approved by MOFTEC. MOFTEC has issued statutory provisions
regulating the examination and approval of joint venture contracts
and Articles of Association. MOFTEC and its local counterparts
should follow the following principles when examining and
reviewing a foreign investment project:
(i) Whether or not the Joint Venture Contracts and Articles
of Association comply with Chinese law;
(ii) Whether or not the Joint Venture Contracts and Articles
of Association comply with the feasibility study reports and
relevant approval documents; and
(iii) Whether or not the principles of equality and mutual
benefit are adhered to.
According to regulations, the MOFTEC and its local counterparts
should examine the following key points of a foreign investment
project:
(i) The validity of the Joint Venture Contract and Articles
of Association;
In particular, the approval authority must review whether
or not the Joint Venture Contract and Articles of Association
include signature date and location, whether the signatories
of the Joint Venture Contract and Articles of Association
are the legal representatives of the contracting parties or
authorized agents of the legal representatives.
(ii) Whether or not the Joint Venture Contract and Articles
of Association contain all required provisions $ whether or
not the documents submitted are complete;
(iii) Whether or not the Joint Venture Contract and Articles
of Association involve any governmental activities and provisions
binding a third party;
(iv) Whether or not the approval procedures have been completed
for projects subject to special government approvals;
In China, projects subject to special government approval
consist of (a) foreign investment projects in restricted industries,
(b) projects requiring import of machinery and equipment,
the import of which is restricted by the government, and (c)
the export of the finished products which require export permits.
(v) Whether or not the business scope is clear and specific;
whether or not the wording is accurate and standard;
(vi) The capital contribution ratio, the ratio between the
total amount of investment and the registered capital, capital
contribution methods and capital contribution schedule;
(vii) Whether or not the technology transfer complies with
the Administrative Regulations on Technology Import Contracts
and the feasibility study report;
(viii) Whether the Joint Venture Contract and Articles of
Association contain clear and specific provisions concerning
the purchase of equipment and raw materials, the export and
domestic sales ratio of the finished products, the methods
of sales, the pricing principles and obligations;
(ix) Whether the foreign exchange balance method is feasible;
(x) The salaries and benefits of the Chinese and foreign employees;
(xi) The composition and authorities of the Board of Directors,
the procedures to convene Board meetings, the operational
and management organizations;
(xii) Dispute resolution and penalty for a breach of contract;
(xiii) Termination, dissolution of the FIE; disposal of assets
upon liquidation; and
(xiv) Whether the Joint Venture Contract and Articles of Association
and their attachments are standard and comply with the requirements
under Chinese law.
If MOFTEC or its local counterparts approve a foreign investment
project, an approval letter will be issued. The approval letter
usually consists of the following information:
(i) The names of the FIE and the parties to the FIE;
(ii) Business scope and production scale of the FIE;
(iii) Total amount of investment, the amount of the registered
capital, the capital contribution ratio and capital contribution
methods, the profit distribution principles (applicable only
to CJVs);
(iv) Operation period;
(v) Confirmation of the list of equipment to be imported;
and
(vi) Other issues that the approval authority needs to address.
The Chinese version of the documents submitted for government
approval should prevail over other language versions. The
investors should be responsible for the consistency of the
various versions in different languages. In practice, many
foreign investors negotiate with the Chinese parties over
which version should be the prevailing version. From the perspective
of the approval authority, no matter what the contract provides,
the Chinese version should be the prevailing version.
Technology transfer agreements and contracted operation agreements
should be submitted to the approval authority for approval
either as separate documents or as attachments to the Joint
Venture Contract. Loan agreements, equipment purchase agreements
that involve no technology transfer, factory lease agreements,
land use agreements and land grant contracts do not need to
be submitted to the approval authority for approval.
The time limit for approval of Joint Venture Contracts and
Articles of Association varies for different types of FIEs.
(1) For an EJV, the law requires that the approval authority
should decide whether or not to grant approval within 3 days
after receiving all documents. If the approval authority determines
that the submitted documents do not meet the requirements,
the approval authority should require the applying parties
to revise the documents within a specific time limit. In the
event that the applicant fails to revise the application documents,
the approval authority should not grant any approval.
(2) For a CJV, the approval authority should decide whether
or not to grant approval within 45 days after the approval
authority receives all documents that meet the requirements.
(3) For a WOFE, the approval authority should decide on whether
or not to grant an approval within 90 days after the approval
authority receives all documents that meet the requirements.
(4) For a FICLBS, MOFTEC should decide whether or not to grant
approval within 45 days after MOFTEC receives all the application
documents that comply with requirements.
See also: FIE Registration Phase; FIE Post-registration Phase
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