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Modes of Foreign Investment


Chinese-Foreign Equity Jiont venture

    Equity joint ventures are enterprises established, with the permission of the Chinese government, by foreign companies, enterprises, other economic organizations or individuals together with Chinese companies, enterprises or other economic organizations within the territory of China, characterized by sharing investment, management, profits, risks and losses.A Chinese-foreign joint venture is a limited liability company with a Chinese legal person status. The parties to the venture shall undertake enterprise liabilities, and enjoy their right and interests in proportion to their contributions to the registered capital; their legal business operation shall be protected by the Chinese laws. The proportion of investment for the foreign party in an equity joint venture shall be,in general, not less than 25 percent of its registered capital. During the period of venture, no participant shall be allowed to reduce its registered capital. Each party to the venture may contribute funds as investment, or may contribute building, site, equipment, or other materials, industrial property, technical know-how ,right to use site,ect.,to be appraised as investment. The profit and other income which a participant receives as his shares, or interests may be remitted abroad freely, they may also be reinvested within the territory of China.

Chinese-Foreign Contractual Joint Venture

    Contractual joint ventures(or co- oprative enterprises) are economic entities jointly established by foreign companies,enterprises, other economic organizations or individuals and Chinese companies, enterprises, or other economic organizations with the permission of the Chinese government within the territory of China through enterprise contract made and agreed on by both parties. They are co - operative enterprises in the form of contractual joint venture. The parties to Chinese-foreign co-operative enterprises shall prescribe in their contract through consultation such matters as conditions, rights, obligations, distributions of earnings, sharing of risks and liabilities, the manner of operation and management and the ownership of property at the time of termination of the contractual joint venture and, therefore, the manner of operation for this kind of enterprises differs according to the different proportion of investment. A co-operative enterprise may acquire the status of a legal person, or it may not meet the qualification as a legal person. In a co-operative enterprise, the Chinese side is usually responsible for providing land use right, natural resources, labour, site and its facilities and, of course, part of the funds if possible; while the foreign side, in most cases, is mainly responsible for providing funds, technology and key equipment.

Wholly Foreign-Owned Enterprises

    wholly or solely foreign- owned enterprises are those established in China by foreign enterprises, other economic organizations or individuals exclusively with their own capital in accordance with the relevant Chinese laws. To estabish a wholly foreign-owned enterprise, the foreign investors must provide funds or equipment and the registered capital of the enterprise must match its operation scale and social economic responsibilities. In principle, all the products of a wholly foreign-owned enterprise must sell abroad;if part of its products are to sell on the Chinese market, it should be declared while applying for the establishment of the enterprise and approval must be obtained from competent authorities.

Processing and Assembling with Materials and Parts from Foreign Suppliers

    Processing and assembling are forms of co- operation by which foreign firms provide raw and auxiliary materials, components and spare parts to Chinese enterprises to process or assemble goods in accordance with the requirements of the foreign investors. In this cooperation form, all the goods are turned over to the foreigns investors for sales abroad, and the Chinese side charges processing fees. In this form, the foreign investors can provide equipment evaluated or not evaluated at a fixed price. Equipment evaluated at a fixed price will be compensated in installments with the processing and assembling costs and, after the price is fully paid, the equipment will belong to the Chinese side . If the equipment is not evaluated, its ownership rights belong to the foreign side and when the contract expires, it will be returned to the foreign investors

Compensation Trade

    Compensation trade is a trade form in which the principal and interest of the production technology and equipment provided by the foreign investors are paid back in installments with the products produced with the technology and equipment or with other products as decided by both parties within a time period agreed by both parties. The form in which the principal and interest of the technology and equipment are paid back with the products produced directly with the imported technology and equipment is called direct compensation and the one in which the buy -back poducts are other products of certain value as decided by both parties is called indirect compensation.

International Leasing

    Primarily there are three kinds; namely, financial lease, operating lease and comprehensive lease. Under the financial lease, it is actually long-term credit extended by a leasing company to its client; that is, the leasing company will first pay for the purchase of the equipment selected by the client and then lease it to the client. In the course of the use of the equipment, both parties shall not arbitrarily terminate the contract; the lessor shall retain the ownership of the equipment while the client shall possess the right to use; the client is responsible for the maintenance of the equipment and the leasing company shall collect rents from the client. Upon expiry of the lease, the client may require an extension of the lease or purchase the leased equipment at a negotiated price.

    Under the operating lease method, the leasing company will provide equipment needed by the client and be responsible for the maintenance and repair of such equipment while the client shall pay rents according to the lease contract and return the equipment upon termination of the lease.

    The comprehensive lease is a method whereby lease is combined with equity or contractual joint ventures or lease is combined with inward processing and compensation trade; however the method of combining lease with equity or contractual joint ventures shall be the portion outside the registered capital of the joint venture.

BOT

    The BOT method means that a constructor undertakes a certain industrial project or infrastructural facility, including its building, operating, maintenance and transfer; the constructor operates such a facility in a fixed term of period and is permitted to recover its investment, operating and maintenance expenses and other costs; upon the expiry of the specified term of period, the constructor shall transfer this project to the government of the place where the project is located.