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Procedures for establishing a foreign- funded enterprise in China
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1) Choice of Projects, Co- operation of Partners and Relevant Office Approval

The logical first step for foreign investors to take is to decide upon a project to undertake. Foreign investors have two options to choose from in this respect; they may chose a project proposed by enterprises or institutions across China or they may propose investment projects by themselves.

If the first option is taken, it should be noted that institutions and enterprises across China have proposed numerous projects, some of which have government approval and some that do not. It is therefore best to select those projects which have been officially approved in order to secure the approval of the relevant authorities.

The second option requires awareness as to whether the chosen project conforms to China's industrial policies, and whether the project belongs to a field which they are officially allowed to invest in.

In addition to this, attention should be paid to attaining reliable Chinese partners for investment. When applying for joint ventures or co-operative ventures, it is the responsibility of the Chinese partner to submit the application for the establishment of investment projects to the competent authorities for approval.

For wholly-owned foreign ventures, investors should seek assistance from the consultants who shall assist in the establishment of the presence in China.

(2) Submission of Feasibility Study Reports and Relevant Official Approval

Investors in a joint venture or a co- operative joint venture can only mount a feasibility study on a project once the application for establishment has been approved. A feasibility study report usually needs to contain the following 10 items:

1 Outline of implementation 2 Background and history of the project 3 Marketing and production capacity 4 Materials and inputs 5 Site location 6 Design of Project 7 Organisational costs 8 Construction arrangements 9 Financial and economic assessments 10 Foreign exchange equalisation and assessment of risks

Once again, in equity and co-operative joint ventures it is the Chinese partner to submit the feasibility report. However, the foreign party should maintain an effective channel of consultancy to screen through the papers and process. For investors in a wholly foreign- owned venture, the report should be submitted along with the application for establishment by consultants to the relevant local government authority.

(3) The Signing of Contracts and Charters of Association in addition to Relevant Official Approval Once the feasibility study is approved, the respective partners in equity or co-operative joint ventures can get down to the matter of addressing contracts, charters of association and other legal documents. Competent government authorities require these charters, contracts and documents to conform to the following principles:

1 The content must be complete, with specific terms and precise language used. The responsibilities of all parties must have been clearly defined 2 The rights and obligations of all the parties concerned with the contracts must have been provided on an equal footing 3 The content of the contracts and charters of association must conform to the relevant provisions of Chinese law and Regulations 4 Liabilities to third party should be limited to the amount of registered capital

It is possible to refer to standardised contracts and charters of association which have been prepared by the Chinese government for reference during the negotiation and drafting of contracts.

In the case of equity and co-operative joint ventures, it is the responsibility of the Chinese partner to submit the contracts and charters of association for approval by the competent authorities. When the charters are approved, the authorities will issue a certificate of approval for the foreign- funded enterprise.

In the case of wholly-owned foreign enterprises, a formal submission of the charters and other documents may be made after the initial application has been approved. Once again, certificates will be issued if this formal application is successful.

The Chinese government has recently moved to simplify matters for small ventures of all the varieties mentioned, allowing all the applications, feasibility reports and legal document to be submitted in unison.

(4) Registration

Two steps should be followed by foreign investors and their Chinese partners during the application stage:

1 The name of the foreign- funded enterprise must be registered after the establishment application is fully approved

2 The establishment of the foreign- funded enterprise must be registered after the contract and charter of association are fully approved.

The registration of the name of the venture serves to protect the use of the name. No party concerned with the project is allowed to use the name registered to conduct business before the registration of the venture itself is completed.

After the contract and charter of association have gained approval, foreign investors and their co- operation partners should proceed to apply for registration to the administrative authorities for industry and commerce within 30 days. A business licence will be issued to all parties when the registration is made and checked.

Once all this has been done, the procedure for the establishment of a foreign- funded enterprise in China is completed.

Time Limit for Operation and Enterprise Termination

The time limit for foreign investment enterprises is usually 20 years at the longest, and may be stipulated by investors through negotiation. Where a time limit is appointed, termination of the enterprise comes with the expiration of the time period.

Prolongation may be sought at least 180 days before the expiration date from the relevant approving authorities.


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