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Forms of Foreign Investment

  The Chinese-foreign equity joint venture, China-foreign contractual joint venture, and the wholly foreign-owned enterprise are the three main forms of foreign investment in China. Other investment forms include the joint stock limited company with foreign Investment, foreign investment company, joint exploitation, BOT, etc.

  1. Chinese-Foreign Equity Joint Venture

  Chinese-foreign equity joint ventures are enterprises jointly set up within the Chinese territory by foreign companies, enterprises, other economic entities or individuals on one side and Chinese companies, enterprises or other economic entities on the other side. An equity joint venture shall be invested and operated jointly by both foreign and Chinese investors, who shall share the profits, risks and losses in proportion to their respective shares in the registered capital.

  Chinese-foreign equity joint ventures are limited liability companies and have the status of a Chinese legal person.

  In a Chinese-foreign equity joint venture, the proportion of the investment contributed by the foreign party shall in general not be less than 25% of the total registered capital. The partners can pay their capital contribution in cash, in kind such as buildings, workshops, machinery, materials, or with industrial property right, patented technology, and land use right.

  The profits and other legal interests that foreign investors have shared can be remitted out or reinvested in China.

  2. Chinese-Foreign Contractual Joint Venture

  Chinese-foreign contractual joint ventures, also called Chinese-foreign cooperative joint ventures, are enterprises jointly established within the Chinese territory by foreign companies, enterprises, other economic entities or individuals and Chinese companies, enterprises or other economic entities, according to their conditions for cooperation.

  The parties to a contractual joint venture shall prescribe in their contract such matters as the conditions for cooperation, rights, obligations, incomes distribution, responsibilities for risks and debts, the manners of management and the ownership of the property at the time of the termination of the contractual joint venture. When establishing a China-foreign contractual joint venture, the foreign party usually provides all or a major part of the capital, technology, and key equipment, while the Chinese party contributes the right to use the land, factory buildings, machines and facilities, and in some cases a certain amount of capital as well.

  Chinese-foreign contractual joint ventures may or may not have the status of a legal person.

  3. Wholly Foreign-owned Enterprise

  Wholly Foreign-Owned Enterprises are invested entirely by foreign companies, enterprises, other economic entities or individuals within the Chinese territory in accordance with the related Chinese laws.

  Wholly foreign-owned enterprises take the form of limited liability companies, and do not include the Chinese branches of foreign companies or other economic organizations.

  4. Joint Stock Limited Company with Foreign Investment

  Joint stock limited companies with foreign Investment are companies set up within the Chinese territory by foreign companies, enterprises, or other economic organizations with Chinese companies, enterprises or other economic organizations on the principle of equality and mutual benefit and through subscribing for a certain proportion of stock.

  The principal of a joint stock limited company with foreign Investment is made up of equal amounts of stocks. Every stockholder would take certain responsibility for the company in accordance with his amount of stocks, and the company is responsible for debts with all its estate. The company is one of the forms of enterprises with foreign investment and shall be governed by the relevant laws and regulations of the state concerning enterprises with foreign investment.

  5. Foreign Investment Company

  Foreign investment companies are Chinese-foreign equity joint ventures or wholly foreign-owned enterprises within the Chinese territory that deal with direct investment. They take the form of limited liability companies.

  The foreign investor who applies to establish a foreign investment company must have a good credit and substantial economic strength, and have already established foreign-invested enterprise(s) within the territory of China, and the amount of the investor's actually paid-in capital contribution to the registered capital thereof must exceed US $30 million.

  Upon the approval of the Chinese government, a Foreign Invested Holding Company enjoys a broader scope of business than other foreign-invested companies in an attempt to encourage overseas companies to carry out their series of investment plans in China. At present the foreign invested Holding Company can invest in the fields of industry, agriculture, infrastructure and energy that the country encourages and permits.

  6. Chinese-foreign Joint Exploitation

  Chinese-foreign joint exploitation means that a Chinese company and a foreign company sign a venture contract to carry out a joint exploration on inland and offshore petroleum, and mineral resources. It is a widely used form of economic cooperation in the field of natural resources exploration throughout the world. The main features of the joint exploration are high risks, high input, and high return. Joint exploitation is usually carried out in three phases: exploration, development and production.

  7. BOT

  The form of BOT is that the investor takes charge of certain industrial or infrastructure project in China, taking responsibility for its construction, operation, maintenance and transfer. The investor, within an agreed period, will own, run, and maintain the facilities, and will recoup investment and make reasonable profit by collecting use or service charges. At the termination of the contract, the ownership of the project will be transferred to the local government. In China, BOT is primarily adopted in developing infrastructure project such as freeways, powerhouses, sewage plants, etc.

 
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