In China, foreign investments may be direct or indirect. Under the direct investment model, Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures, wholly foreign-owned enterprises and foreign-funded companies limited by shares are most common. Other investment models include compensation trade, processing and assembling, and other methods.
(1) Sino-Foreign Equity Joint Ventures
Sino-foreign equity joint ventures are enterprises with simultaneous investments by foreign companies, enterprises,other economic organizations or individuals, and Chinese companies, enterprises or other economic organizations taking place within the territory of China. They are jointly invested and managed by the parties to the joint venture, who assume risk and share profits and losses in proportion to their respective contributions. Proportional contributions are stipulated at a fixed amount, with the investment proportion of the foreign player generally not less than 25%.
(2) Sino-Foreign Cooperative Joint Ventures
Sino-foreign cooperative joint ventures are enterprises jointly invested by foreign companies, enterprises, other economic organizations or individuals with Chinese companies, enterprises or other economic organizations within the territory of China or those with cooperation conditions. The rights and obligations of each party is fixed through a legal contract. Generally, to establish a Sino-foreign cooperative joint venture, all or most of the investment will be contributed by the foreign party, while the Chinese partner provides land, a factory, available equipment, facilities or sometimes, a fixed amount of capital.
(3) Wholly Foreign-Owned Enterprises
Wholly foreign-owned enterprises are enterprises where 100% of the investment is from foreign companies, enterprises, other economic organizations or individuals within the territory of China and operated according to Chinese law. Foreign-owned enterprises usually conform to a limited liability structure.
(4) Foreign-Funded Companies Limited by Shares
Foreign companies, enterprises, other economic organizations or individuals can jointly set up foreign-funded companies limited by shares with Chinese companies, enterprises or other economic organizations within the territory of China. All the capital of the company limited by shares can be divided into equal shares and shareholders shall undertake liability for the company to the extent of the shares they have subscribed; the company will be liable for its debts to the extent of all properties. Chinese and foreign shareholders will jointly hold shares of the company. In general, the shares bought and held by foreign shareholders account for more than 25% of the registered capital of the company. Companies limited by shares can be established by way of promotion or stock flotation and existing foreign-funded limited liability company may also apply for restructuring into a company limited by shares. Qualified foreign-funded enterprises can also apply for issuance of A and B shares and listing overseas.
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