(1) Main modes of foreign investment.
There are several kinds of foreign investment as stated
in the following. But the most common modes are Joint-venture,
Cooperation and Wholly Foreign Investment.
Joint-venture Enterprise
A Joint-venture enterprise is a kind of enterprise with
foreign investment. It is set up by foreign companies, enterprises,
other economic organizations or individuals together with
domestic ones upon approval by the Chinese government. The
main characteristic is that the parties invest and manage
the enterprise together, and share the profit or loss together.
It is a corporation of limited liability and the investors
should share profit or burden debt according to their proportion
of investment. The legal activities of these enterprises
will be protected by the laws of China. In a joint-venture
enterprise, the proportion of foreign investment could not
be less than 25% of the total. Investors could hand in their
capitals by cash, buildings, workshops, equipment, materials,
industrial property right, proprietary technologies as well
as land usufruct. Foreign investors can remit their legal
incomes out of China or they can reinvest them domestically.
Cooperation
A cooperative enterprise is a kind of contractual enterprise
held by foreign companies, enterprises, other economic organizations
or individuals together with domestic ones according to
the contract they have signed. In the contract, the parties
should stipulate the conditions to provide, rights and obligations,
share of profit or loss, manner of management and the division
of properties when the enterprise ends. It is quite different
from a joint-venture enterprise. In a cooperative enterprise,
the Chinese parties usually provide their cooperative condition
by offering land, natural resources, labor and existing
workshops and facilities and part of fund as well, while
the foreign parties by supplying cash, technology and equipment.
Wholly Foreign Investment
A wholly foreign invested enterprise is a kind of enterprise
solely invested by foreign companies, enterprises, other
economic organizations or individuals in China upon approval
by the Chinese government. It is also known as 'Foreign
Capital Enterprise'. In these enterprises, foreign investors
should invest in the ways of cash or equipment and the registered
capital should be complied with the business scope and economic
liability. In principle, the products of wholly foreign
invested enterprises shall be totally exported. If necessary,
foreign investors should report clearly the proportion of
products to be sold domestically for the approval by the
authority department when they apply for the projects.
Processing and assembling with supplied materials
Processing and assembling with supplied materials is a kind
of business that foreign investors provide raw materials,
parts and accessories or drawings, to be assembled or processed
by Chinese enterprises. Finished products are to be handed
over to the foreign party for export while the processors
collect the processing fees. Sometimes the consignors freely
provide equipment and sometimes provide them with a certain
price. The processing party will return the price of equipment
by deducting from the processing fees.
Compensation trade
In compensation trade, foreign investors provide funds,
equipment, technology or raw materials to Chinese parties
on the basis of credit and buy a certain quantity of the
products. The Chinese parties will return foreign investment
by direct or indirect compensation. They will return the
principle and interest of foreign investment through the
products produced by the equipment provided or through other
products appointed by the foreign parties.
International lease
The main modes of lease applied by Guangdong province are
financing lease, operation lease and comprehensive lease.
Financing lease is that the leasing party gives a long-term
credit to the other party. In this kind of business, the
leasing party will buy and rent the equipment to the user.
The leasing contract could not be broken down during operation.
The leasing party remains the ownership of the equipment
while the user has the right of usage and is in charge of
the maintenance of them. The user could continue to rent
the equipment or buy them at a negotiated price.
Operation lease is that the leasing company provides the
equipment to the other party and be responsible for the
maintenance of them. The user will return the equipment
when the term of leasing ends.
Comprehensive lease is a kind of business that leasing is
going with joint-venture, cooperation, processing and assembling
and compensation trade. But the combination of leasing with
joint-venture and cooperation should be with the funds excluding
the registered capital of the enterprises.
BOT(Build-Operate-Transfer)
BOT is that the foreign party builds up an appointed project
or an infrastructure, operate it and maintain it, and
then transfer it to the consignor. The builder is allowed
to reclaim its investment during the term of operation
and should transfer the project to the consigning government.
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Investment guide
