Foreign Direct Investment in China

By Phillip Donald Grub; Jian Hai Lin | Go to book overview

7
Investment Negotiation and Approval Procedures

China's complex bureaucracy can pose formidable problems for foreign companies attempting to make successful investments even within the SEZs and open cities. First, foreign investors face problems including how to make initial contacts with the Chinese and how and where to find potential joint venture partners. Second, they must start their investment with a Chinese partner unless they plan to initiate a wholly foreign-owned enterprise.

Often it may take months or even years to produce an investment proposal and feasibility study for a project. An investor needs to obtain all necessary approvals for a project from the Chinese authorities, so that the investor can officially start operations as soon as the other preparatory work is completed. The channels and procedures to follow in setting up a foreign joint venture are shown in Figure 7.1. For wholly foreign-owned ventures, see Figure 7.2.

The time period required for this approval process depends on the size and complexity of the investment project, the skill and efficiency of the Chinese partner, and the interest shown by the Chinese authorities responsible for foreign investment. Equally significant are the reputation, preparation, willingness, and degree of commitment by the foreign investor. In general, the smaller the size and complexity of the project, as well as the degree to which it meets one of China's major development goals, the shorter this process tends to be. Also, this process may be expedited with an efficient and well-recognized Chinese partner and if the foreign investor has a strong international reputation that is easily recognized by the Chinese officials.

In the past few years, foreign investors have often complained about

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