Foreign Investment Guide China's Investment Environment

During the past 24 years when China implemented reform and opening to outside world, China has developed at a supernormal speed in absorbing foreign investment and has made great achievements attracting the world attention. Up to the end of 2002, China has ratified an accumulative total of 424196 foreign-invested enterprises with contracted investment of US$828.60 billion and US$447.966 billion have been put into use, thus China has become one of the countries that absorbed the most foreign investments. Since 1993, China has in many subsequent years turned into a country that attracted the most foreign investment among developing countries and also topped the world in absorbing foreign investment.

The fundamental reason why China has been obtaining so much foreign investment was merely that China has offered a favourable investment environment for the investors from all over the world to invest, manufacture and manage.

1. The increasingly optimized Chinese macro-economic environment provided realistic guarantee and broad prospects for foreign investment
 
During the past 20 years of reform and opening up, the national economy has been keeping a high-speed development with an average increase speed of two -digits , and has topped the countries all over the world. Since the latter period of the 1990s, the increasing speed though to certain extent dropped, still reached 7-8%, which was really commendable under the circumstance that the global economy increase slowed down. The Gross Domestic Product in 1997 was RMB7, 446.3 billion yuan, RMB7, 939.6 billion yuan in 1998, RMB8.205.4 billion yuan 1999, RMB8.940.4 billion yuan 2000, RMB9, 593.3 billion yuan in 2001 and RMB10.2398 trillion yuan in 2002 and become the sixth largest economic entity of the world.

China's economic development level was also improved with a high speed, the per capita GDP was nearly US$1,000, the people's living standard has been improving by a big margin and the problem of providing them with adequate food and clothing was settled, and some places and people have already took the lead in accession into the middle-advanced level.

Viewed from the increase of national economy and its development prospects, China also behaved tremendously well. The economic rate of increase during 1998-2001 was about 7.5%, which was still the highest in the world. The economic rate of increase of 2002 is 8% and is expected to be about 8% in the years to come. Meanwhile, the macro-economic environment was fairly stable. The government has, in recent years, energetically taken positive financial policies to stabilize exchange rate and reduce deposit interest rate so as to promote the development of economy; as a result, the residents' savings have been on constant rise and have exceeded RMB8 trillion yuan. From the perspective of factors of production, China's production costs consisting of labor force, raw materials and service and so on still possess powerful global competitiveness. The cost of payment is enormously under that of the developed countries and as well under that of most developing countries. China also increasingly elevates its economic opening degree. The total volume of export and import amounts US$620.8 billion in 2002, covering more than 40% of the proportion of GDP. Of which there is over US$325.6 billion of export, covering about 25% of the proportion of GDP, even more than that in many developed market economy countries. And foreign investment deposit amounts for more than US430 billion, covering about 1/3 of the GDP of the whole year; and an annual foreign investment of about US$50 billion has been absorbed, covering about 4% of the GDP. The above indicated that China's favorable macro-economic environment offers realistic conditions and reveals a broad prospect for foreign investment .

2. The outstanding improvement of hard environment for foreign investment guarantees foreign investment China, with vast territory, abundant resources, beautiful landscape, agreeable climate, is fit for various kinds and scales of foreign investment. The area of China's land is more than 9.6 million square km, and is only next to that of Russia and Canada. China is characterized by both the continental monsoon climate and complicated and diversified climate. Also China stretches from the south to the north the equator belt, torrid zone, sub-torrid zone, warm temperate zone, temperate zone and cold temperate zone, and there exists in these regions great discrepancies of natural conditions and evident diversities.

As to the natural resources, China possesses rich agricultural resources, various advanced planting and aquaculture industries with complete categorizes and perfect production system including agriculture, forestry, livestock and fishery. Dozens of mineral resources topping the world and huge storage of natural resources make China one of the few largest countries in the world with the most resources, which enable China to have great superiority in absorbing resource-seeking foreign investment. At the same time, rich natural resources just support various kinds of manufacturing or service industries for foreign investment.

In recent years, China's infrastructure has been greatly improved, and the infrastructure constructions like transport, telecommunication, water, electricity and gas supply, etc. have been basically matured, and the capacity and quality of energy, raw material and component supply were also obviously elevated, providing a favorable external production management conditions for foreign investment.

3. The constantly perfecting soft environment for foreign investment has been all the more tally with the requirements of foreign investors

China is now implementing a socialist market economy and the government is carrying out marketization management on the economy and the market decides resource supply, commodity and service offer and price. Enterprises make their own management decisions, thus the framework of market economy system start to be initially established and which provides an appropriate production and management environment for foreign investment.

Firstly, China's political situation was stable and the people lived and worked in peace and contentment, which created necessary social conditions for attracting foreign investment.

Secondly, the initially established market economy system and the gradually perfected laws and rules created favorable legal environment for foreign investment.

Thirdly, with the raising of educational level and amplification of opening up degree, the people's diathesis improved, their greatly changed ideological ideas and dwindled discrepancies of languages, cultures and customs, have offered proper social environment for foreign investment.

Fourthly, the amount of labor force with improved diathesis was sufficient. The cost advantage caused by abundant cheap labor forces provided tremendous opportunities for foreign investors to invest on the labor-intensive industry, actually, over half of the foreign investment gathered in the labor-intensive industries. On the other hand, China also possessed related number of skilled labor forces that have accepted favorable training and education, and can meet the requirements of foreign investment on high-tech industries . In the fields of enterprise management, law service and accounting, etc, there was deficiency for the special sophisticated talents; however, this status is changing.

Fifthly, related foreign investment policies have also adapted to the requirements of market economy and international rules. Industrial policy has become an important way for China to control foreign investment. According to the development strategy of national economy and industrial development, China established comprehensive industrial policies for foreign investment to lead them to invest in target industry. The Chinese government in April 2002 issued the newly amended "Catalogue for the Guidance of Foreign Investment Industries," encouraged more foreign investment to flow into target industries, for example, agriculture, resource development, infrastructure construction, export and high-tech industry, however, the government has specifically prescribed industries those are not allowed to erect exclusive foreign-funded enterprises and the strategic industries and investment fields that the Chinese part must hold a controlling share. According to the commitments to WTO entry, the opening degree of the industries will be increased by a large margin. For example, telecom service industry is to shifted from the prohibited category into limitation category, and the geographical area and business scope of finance, insurance, commerce and foreign trade and so on will be further enlarged. The strategy of Western Development has already been carried out in order to develop regional economy harmoniously, and the government has enacted the "Advantageous Industries Catalogue for Foreign Investment in Middle and Eastern Regions" to practice preferential policies for foreign investment in these advantageous industries

As for foreign trade management, China has greatly reduced the customs, gradually called off the plan, quota and warrant management, ensuring the transparency of establishment and implementation of related policies. In addition, foreign exchange control will also be loosened step by step.

4. The Chinese government will further perfect the investment environment in the future

1) Continue to enhance the essential factors for a soft environment for investment Among the essential factors for attracting foreign investment in China, the soft environment is particularly important, and the most important is the marketization degree and foreign investment policies, including the construction of laws and systems, perfection of socialist market economy, establishment and implementation of policies and encouraging foreign investment measures, etc.

In consideration of China's unique national conditions, and under the circumstances of given macro-economic essential factors and hard investment environment, the soft environment essential factors have decisive impact on the scale and quality of foreign investment. Enhancement of the soft environment essential factor is a systematic project and is essential to accelerate the process of domestic marketization construction. Foreign investment is the production of market economy and market economy in return is a must for its existence and development. The Chinese government has already completely straightened out and amended related laws and rules and policy-based documents according to the requirements of market economy and the commitments to WTO agreement, also has enabled laws and rules and policies to be established openly, impartially, and transparently. At the same time, the government has ameliorated the investment management approval, improved the service efficiency and reduced approval linkage by taking the opportunity of transforming governmental function.

2) Further improve the quality of macro-economy essential factors and amplify the market opening degree One of the measures is to pay equal attention to the intension and extension styled economic increase, give priority to the intension style, thus to enlarge the market scale, improve economic development level, exhibit a favorable increasing prospect, and to amplify the input of foreign capital and as well to make effective use of it; a second measure is to further amplify the market opening degree. Pioneering under the present circumstances new investment fields and reducing the cost of foreign capital input has already become a crying need for attracting new foreign investment. It includes freshly open or amplify certain fields, for example, finance, insurance, telecommunications and circulation and so on; loosen the share right restriction on foreign investment in certain fields, for example, commerce, foreign trade, automobile, chemical industry and certain development projects like energy, infrastructures and mineral resources, etc.

3) Further perfect the essential factors of hard environment for investment

The improvement of the Chinese hard environment for investment has made great headways, and the bottleneck to economic development by infrastructures including transport, communications and energy etc has been essentially eliminated. Therefore, as for the essential factors of hard investment environment, the most pivotal is to accelerate the marketization reform on essential factors supply, to speed up the combination of domestic market and international market, to integrate the quality and price level of service offer, energy utilization, raw material and component part supply with the international market, and to completely release the appealing of hard environmental essential factors to foreign investment.

After China's entry into the WTO, the reform and opening up has entered a new development stage and China will open to the outside world in an all-round, multi-layered and wide-ranging way. In November 2002, the 16th National Congress of the Communist Party of China (CPC) was held and the new central collective leadership was generated, which maintained the stability of national political situation and the continuality of various guidelines and policies, also safeguarded China's reform and opening up to advance smoothly. China has already put forward the grand development goal of building a well-off society in an all-round way. To realize the goal, absorbing foreign investment will exert an important irreplaceable role. Also, foreign investment will acquire better development. 
 
Investment Guidelines in China

1. Prepare to Invest in China

If your company is ready for investing in China, You need firstly to know the China market situation and learn about the investment policies by Chinese government. The Chinese government has divided its industrial projects for investment into four categories classified as encouraged, permitted, restricted and prohibited. They are indicated in the Industry Category Guide for Foreign Investors. Secondly, the scale of the investment amount is also worth noting. For large investment projects of USD 30million or above, the approval authority rests on central government (State Council ministries); for projects under USD30million, in the unrestricted category or quota free, or license free, the approval authority goes to local government departments.

2. Find out Responsible Authorities

The State Development and Reform Commission and the Ministry of Commerce are responsible for review and approval of projects with total investment of USD30million or above or other projects that require special approval.

However, The local development offices and commercial departments of Provinces, Autonomous Regions, Municipalities are responsible for review and approval of the following projects:

1. Projects with total investment under USD30million and in the unrestricted category;
2. Projects under USD30million, but in restricted category which have to be filed to the State Council ministries or upper level offices; Projects involving quota issue or license matters have to go through applications to the departments of the Ministry of Commerce for consent
3. Projects with USD30 million or above in the encouraged category, but with no future side effects, which have to be filed in the State Council ministries.

3. Learn about Procedures for Project Set-up

For Joint Ventures with Equity or Contractual partners

ProjectProposal
FeasibilityStudy
Contract
Articles ofAssociation
Certificateof approval
BusinessLicense

How many steps?

First step: Prepare and apply for project proposal

On the knowledge of both partners' business area and financial status, the Chinese side is supposed to produce a project proposal to be submitted to the State or local development and reform department, or the technological renovation department for examination and approval. If approved, the Chinese side shall go to register the joint venture for protecting the company name and trademark.

Second step: Prepare and apply for feasibility study

Once the first step is finished, you and your Chinese partner are supposed to work jointly on a feasibility study which involves markets, capital, planned site, craftsmanship, technology, facilities, environment protection, raw material sales and purchases, economic yielding, proportion of local currency and foreign currency injection, infrastructure…etc. to be submitted to the State or local Development and Reform department, or the Technological Renovation department for examination and approval. Concurrently both you and your Chinese partner can prepare to discuss and sign a contract and other legal documents such as articles of associations.

Third step: Obtain a certificate of approval

After the feasibility study is approved, you can submit the signed contract and the articles of associations to the Ministry of Commerce or local trade and economic bureaus for examination and approval. Once the approval is granted, a certificate of approval for the joint venture is issued.

Forth step: Apply for Business License

Starting from the date of receiving the certificate of approval for the set-up of a joint venture, you and your Chinese partner shall apply to the industrial and commercial department for registration to get a business license. The date of the license is the date of the establishment of the joint venture.

For Wholly-Foreign-Owned Enterprises

If you or your company wishes to set up a branch or a subsidiary or a totally new company in China which is 100% owned by yourself or by your company, you can entrust a qualified agency to fulfill all the procedures of application and approval of a foreign enterprise in China. The procedures are simple: to fill up the application form for setting up a foreign enterprise in China; to submit the articles of association and relevant legal documents to a local trade and economic department. Observed by the rules on Foreign Invested Enterprises, the local authority office is to grant ( or not grant ) an approval. If granted, the local authority is to issue a certificate for the wholly foreign-owned enterprise. The registration and license are proceeded with the certificate. When a business license is received, you have to go through relevant registrations, such as opening up a bank account for both Chinese and foreign currencies, tax registration, customs registration, foreign currency registration, business inspection and recruitment procedures.

4. How about Investment Environment in China?

Since 1979 when the Law on Chinese-Foreign Equity Joint Ventures was first introduced in China, the work of utilizing foreign investment as an important subject of opening up to the outside world initiated as China's fundamental principle.

Over the past 24 years, Chinese macro economic environment provided realistic guarantee and broad prospects for foreign investment. The national economy in the early period, increased by two digits, in the later period of the 1990s, the growing speed still reached at 7-8% each year. The GDP in 1997 stood at RMB 7,446.3 billion in 2000 at RMB 9,593.3 billion and in 2002 at RMB 10. 2398 trillion.
The facilities of hard environment in China has been greatly improved or upgraded. The infrastructure constructions like transport, telecommunication, water, electricity and gas supply, etc. have been completely renovated.

Along with the favorable production management conditions, the soft environment for easy access to investment requirement has gradually been amended to its perfect. A one-stop service for examination and approval has been introduced in many local government organizations: offices of different functional departments are co-working to speed up the procedures. The laws and regulations have been reinforced to adapt to comfortable legal environment. Since China's access to the WTO, the commitments to the WTO entry, the opening degree of the industries are attached great importance.                        
  
5. How Many Investment Forms Available in China?

What kind of investment forms is available in China? Which form is fit for you or your company? If you read carefully, you can make a right choice of it. In China, The absorption means of foreign capital are basically divided into direct investment, foreign Government Loans, UN organizations and other sources. The direct investment forms, which are popularly operated in China, include Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures, wholly foreign-owned enterprises, joint exploitation, foreign-funded share holding companies, joint development, compensation trade and processing and assembling, etc.

6. Any Legal Aspects to Comply with?

To improve the legal environment and to create a unified, consistent and steady, pragmatic and feasible investment environment, the legal system is geared to open, just and transparent principle. Since 1979, the legal framework has gradually been structured and completed and constituted a set of sophisticated legal system.

7. Try to Enjoy Maximum Privileges and Preferences

If you or your company decides to invest in China, the first and foremost importance is to know as much as you can the preferential policies available in China, so that you can enjoy the preferential treatment at maximum level.

China has provided a number of preferential policies to stimulate overseas investment. For encouraged industries, such as infrastructure facilities, apart from the preferential terms, you can even expand your business scope; for the purpose of promoting the economic development in middle and west China, the geographical policies are introduced to apply to different regions. Tax and Tariff preferences are the core issue that companies concern most. For foreign invested companies, the taxes may include corporate income tax, personal income tax, turnover taxes (value-added tax, consumption tax and business tax), land tax, stamp duty, vehicle and vessel tax, urban real estate tax, etc.; for import and export, tariff and import-stage value-added tax may involved.

8. Where to Invest? To Find a Good Place to Start with

Along with China's opening door policy going on adopted in 1979, the opening zones with different orientations and functions have been extended down to various regions which include special economic zones ((Shenzhen, Zhuhai, Xianmen, Shantou and New Area of Pudong in Shanghai), national economic & technological development zones (ETDZ), national free trade zones (FTZ), national hi-tech industrial development zones (HIDZ), national Taiwanese investment zones (TIZ), national border & economic cooperation zones (BECZ), national export processing zones (EPZ), national tourist and holiday resort (THR). You or your company may make a research and lock in a particular zone to test your choice.

Please let us know if you have any question, do not hesitate to contact our professional consultants will reply to you as soon as possible, 
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