For companies that want to expand overseas, an assortment of investment vehicles are at their disposal, depending on their business strategies, financial means, human resources, familiarity with the foreign market, and the legal environment of the host country. A manufacturer may just want to export its products, in which case, it will have to commit the least amount of resources and assume the least amount of risk. At the other end of the spectrum, the manufacturer may want to establish a wholly owned subsidiary in the foreign country, which will engage in production, distribution, and warranty services. In that case, the manufacturer will have to commit abundant resources and will be likely to encounter the greatest amount of risk. Taking the middle course, the manufacturer may find a local partner to form a joint venture, with the local partner taking responsibilities for sale and distribution while it concentrates on production. In such a case, the manufacturer will share control, profits, and risks with the local partner.
Since China opened its door to the outside world in 1979, there have been five major vehicles for foreign investors to do business in China: representative office, branch, Sino-foreign equity joint venture, Sino-foreign cooperative joint venture, and wholly foreign-owned enterprise. Without the status of Chinese legal persons, the first two investment vehicles are preparatory in nature and involve a relatively limited scope and amount of business activities. The latter three types of business entities, which are collectively referred to as foreign investment enterprises () (FIEs), are Chinese legal persons and the core instruments for foreign direct investment in China. In recent years, China has also allowed foreign investors to establish foreign companies limited by shares. This relatively new investment vehicle has been gaining popularity among foreign investors. Accordingly, this chapter aims to highlight the important legal provisions on these six investment vehicles.
Over the years, China has enacted an array of laws, administrative regulations, and government rules on representative office, branch, and FIEs in order to attract foreign capital, technology, and management expertise. Apart from these general legal norms, the State Council and government ministries or departments have also enacted industry-specific regulations and rules, while governments of provinces, autonomous regions, municipalities directly
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Publication information: Book title: Law and Investment in China: The Legal and Business Environments after China's WTO Accession. Contributors: Vai Io Lo - Author, Xiaowen Tian - Author. Publisher: RoutledgeCurzon. Place of publication: London. Publication year: 2005. Page number: 58.
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