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Thursday, 11 June 2015
4 Major Types of Foreign Investment Set-up in China (1)
how to establish a business in China, foreign investors must be aware of
and define their long-term and medium-term objectives. There are various corporate set-up
options available, such as equity joint ventures, cooperative joint ventures,
wholly foreign-owned enterprises and representative offices. Each form has its own legal
requirements, benefits and advantages.
Below is a brief description of each one:
Equity joint venture
are enterprises established in China as a result of joint investment with
foreign individuals, firms and/or Chinese economic organizations, based on the
principle of equality and mutual benefit, and subject to approval by the
EJV takes the form of a limited liability company with the status of a Chinese
legal entity. It requires joint contributions of both parties in investment,
operation, share of profits, risk and losses, in strict proportion to the
amount of investment contributed by the respective parties. In general, the
level of investment offered by the foreign investor should be at least 25
percent. Investment can be in the form of cash, real estate, industrial
property, equipment and technology, but these types of investment need to count
as different shares in the investment.
Contractual joint venture
enterprises (CJV - also known as cooperative joint ventures)
for the EJV, CJVs are established in China as a result of joint investment or
cooperation with foreign individuals, firms and/or Chinese economic organizations, based on the principle of equity and mutual benefit, and subject to approval by
the Chinese government.
a CJV has more flexibility in terms of contractual freedom and structure; that
is, profits and losses are distributed between the Chinese party and the foreign
investor in accordance with specific contractual provisions, as opposed to their
respective equity interests in the C JV.
contributions to both EJV and CJV can be in cash or in kind, such as buildings,
machinery, materials, and know-how. For a CJV, the parties can decide how the
value of their contributions should be determined, whereas for an EJV, this
evaluation process normally needs an independent third party to assess the
“market price” of the contributions.
CJV project usually involves the foreign partner providing most or all of the
funds and technology as well as key machinery, whilst the Chinese partner
contributes land, facilities, natural resources and perhaps a limited amount of
funding. However, China’s economic
environment has changed. Land has become a rare resource and Chinese companies
are not short of money; therefore nowadays forming a CJV has become far less
(To be continued...)
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