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[ESTABLISHING A BUSINESS ENTITY IN CHINA]
ESTABLISHING A BUSINESS ENTITY IN CHINA In general, foreign funds are not freely movable into China. There is a long history of exercising comprehensive control over foreign investment since China opened its door in the early 1980s. As the economy continues to grow, China has been gradually loosening the substantive and procedural requirements on foreign investments and carefully assessing the water for national treatment for foreign investors in the past decade. On January 1, 2020, the Foreign Investment Law came into force, which marked a new height of the Chinese government’s supportive attitude towards foreign investment. It abolished the pre- approval scheme for foreign investments in existence for over forty years and officially effected a regime of “national treatment plus negative list” for foreign investment. 1 Foreign Investment Supervisory Scheme The so- called “national treatment plus negative list” scheme is designed to offer national treatment for most foreign investments; and foreign investors enjoy the same treatment as set forth for all other businesses with only domestic investors, except for those falling within a “negative list” as published from time to time by the relevant authorities. The currently effective “negative list” refers to the 2022 Negative List for Market Access promulgated jointly by the National Development and Reform Commission and the Ministry of Commerce of the PRC 12 . The establishment of business in China by foreign investors is supervised by multiple regulatory bodies. The State Administration for Market Regulation and its local counterparts (collectively, the “ AMR ”) are
the business registration authorities responsible for administering and registering all kinds of businesses in China; while the establishment of a foreign- invested business is also subject to the special regulation by the Ministry of Commerce or its local counterparts (collectively, “ MOFCOM ”) on the admission of foreign investment, and the State Administration of Foreign Exchange and its local counterparts (collectively, “ SAFE ”) on foreign exchange control. Additionally, if a business involves investment in real estate assets or infrastructure in China, filling with or approval by the National Development and Reform Commission or its local counterparts (collectively, the “ NDRC ”) is required. 2 Legal Structure Choices Before learning more about the procedural requirements, the first step that a foreign investor normally faces is to choose a legal structure that works best for its proposed business. Foreign investors generally have the option of three types of business vehicles: the resident representative office, the company, and the partnership. 1) Resident Representative Office of a Foreign Enterprise (“ RO ”) Some foreign investors may choose to register an RO as their first presence in China. An RO cannot directly operate business and is mainly set up for liaison and other non-business activities. It has no legal personality, and its liabilities are borne by its foreign parent enterprise. As such, it fits those foreign investors who have not decided to commit to a long-term establishment in China.
12 Published and became effective on March 12, 2022.
ILN Corporate Group – Establishing a Business Entity Series
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