Legal Articles
The Types of Foreign Investment Enterprises
in the People's Republic of China
By Wang Xuanjun
THIS IS TO GIVE a summary introduction to the main types of Foreign Investment Enterprises existing in the People's Republic of China ("PRC" or "China") in order to
sever the investors who are interested in China. PRC Foreign Investment Enterprises
(PRCFIEs) in this article means the enterprises that are those established by Chinese
("PRC's") and foreign or sole foreign investors in accordance with the provisions of Chinese
law and that comply with the policy of absorbing foreign direct investment by the PRC as host
country (capital import country).
The first type of PRCFIEs is Sino-foreign Joint Equity Enterprises which appeared after
opening policy was adopted by Chinese government in 1979, then are followed by Sole
Foreign Investment Enterprise and Sino-foreign Co-operative Enterprises. New types of
PRCFIEs like Foreign Investment Companies Limited by Shares, Investment-type Companies
by Foreign Business Investment, BOT, etc. appeared in recent years.
(1) Sino-foreign Joint Equity Enterprises ("Joint Ventures")
Joint Ventures is one of main types of PRCFIEs. Joint Ventures are enterprises co-established,
co-invested, co-operated by foreign enterprises, companies and other economic entities or
individuals (foreign participants), within the territory of the PRC, with Chinese companies,
enterprises or other economic entities (Chinese participants), in accordance with the principles
of equality and mutual benefit and subject to approval by the Chinese government. The
foreign and Chinese participants shall share Joint Ventures' profits and bear Joint Ventures'
risks and losses. Joint Ventures shall take the form of a limited liability company. The
proportion of investment contributed by one or more foreign participant(s) as its share of the
registered capital of a Joint Venture shall in general be not less than 25 percent.
(2) Sino-foreign Co-operative Enterprises (Co-operative Enterprises)
Co-operative Enterprises are also named contractual operative enterprises. When Chinese and
foreign partners establish a co-operative enterprise, provisions on such items as investment or
terms for co-operator, distribution of earnings or products, sharing of risk and losses, method
of business management and the ownership of property on the expiration of the contract term
shall be prescribed in the co-operative enterprises contract in accordance with the provisions of
Chinese law. Convenience and flexibility are the characteristics of this type of
PRCFIE, therefore it is easier for co-operative partners to reach an agreement. A co-operative enterprise
which complies with the provisions of Chinese law for a legal person shall acquire the status of
a Chinese legal person.
General practice of co-operation is that investment or terms of co-operation provided by
foreign partners is in the form of cash, equipment and technology and by Chinese partners is
in the form of land-use rights, labour and related services.
(3) Sole Foreign Investment Enterprises
Sole Foreign Investment Enterprises are those enterprises established within Chinese territory,
in accordance with the relevant Chinese laws, with capital provided totally by foreign
investors. It does not include branches in China of foreign enterprises or other economic
entities. It is a Chinese entity with registration in the territory of China and is governed and
protected by Chinese laws.
Enterprises established exclusively with foreign capital must benefit the development of
Chinese national economy and utilize advanced technology and equipment or export all, or the
majority of, their products. Sole Foreign Investment Enterprises are prohibited from or
restricted in certain business in accordance with the Guideline Catalogue of Foreign Investment
Industries which is compiled and updated by the State Planning Commission in conjunction
with the relevant departments under the State Council of the PRC.
(4) Foreign Investment Enterprises Limited by Shares
Foreign Investment Enterprises Limited by Shares shall refer to enterprises with corporate
status whose total capital is composed of the equivalent value of stock, whose shareholders
assume an amount of liability equal to the amount of shares purchased, which offsets its total
assets against responsibility assumed for the company debts, and whose company shares are
jointly held by Sino-foreign shareholders and shares purchased and held by foreign
shareholders constitute more than 25 percent of the company's registered capital.
The company may adopt the promotional method or share float method for its establishment.
The registered capital of a company shall be the total amount of paid-up share capital
registered by the company with the registration authority. The minimum amount of registered
capital of a company shall be RMB 30,000,000.00.
(5) Investment-type Companies (Investment Companies)
Investment-type Companies, which can also be named Holding Companies, shall refer to those
companies established in China by sole foreign-funded business or by businesses jointly
founded with Chinese investors to engage in direct investment. An investment company shall
have registered capital of not less than US$ 30 million. The business scope of an investment
company shall be restrictedly limited to the scope provided by the Chinese laws.
(6) BOT
BOT, an abbreviation of Built-Operate-Transfer, is one type of private business investment
utilized by a government to build infrastructures such as projects for highways, railways,
power stations, etc. Up to now, BOT has been gradually utilized by the Chinese government
to encourage foreign investment in the area of infrastructure projects. Commitment by a
government is the key point of BOT, but the commitment or security by the Chinese
government shall not be obtained easily.
Kind Suggestion:
All investors who are to invest in China, are suggested to retain a sound law firm to check and
confirm all points related to the legal affairs before material decisions are made.
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