China: Facilitating Foreign Direct Investment: The Latest Developments And Their Implications

Last Updated: 21 November 2006
Article by Fei Guoping

Upon its promulgation, there are discrepancies between China’s new Company Law and the existing foreign investment legal regime. There also lies uncertainty over the application of the new Company Law to foreign invested enterprises (FIEs). On April 24, 2006, State Administration for Industry and Commerce, together with Ministry of Commerce, General Administration of Customs, and State Administration of Foreign Exchanges, issued Suggestions on Implementation of Several Issues regarding Applicable Law of Examination, Approval, Registration and Administration for Foreign invested Enterprises (Suggestions). These suggestions make the applicability of the new Company Law and other recently issued laws and regulations to FIEs more clear. A new FIE legal regime is emerging together with the previously issued Regulations for the Administration of Company Registration of the People’s Republic of China (Regulations) and Provisions for the Administration of Registration of the Registered Capital of Companies (Provisions), among other applicable laws and regulations. This article updates our previously circulated publication, namely China’s New Company Law: What Lies ahead for the WFOEs? and deliberates on the latest developments and their implications.

Capital Contributions

As we have suggested in the abovementioned publication, there is inconsistency between the new Company Law and the laws regulating FIEs, in regards to the types of capital contributions and their ratios. This disparity is addressed by the Suggestions. Foreign investors are permitted to contribute capital in forms other than cash, tangible assets, intellectual property rights, or land use rights to FIEs provided that such non-monetary contributions are appraised, valued, and certified in accordance with relevant provisions. Another significant development is that cash raised by a FIE’s shareholder in the shareholder’s own name, such as loans, can be treated as this shareholder’s own fund. After verification and issuance of certain certificates by a lawfully established investment verification institution, such cash may serve as the said shareholder’s capital contribution to the FIE.

It is also notable that, for a Chinese foreign equity joint venture, which is always in the form of a limited liability company as required by relevant regulation, the value of the non-monetary contribution which is in a form in accordance with the provisions of PRC Law on Chinese-Foreign equity Joint Ventures can be decided through negotiations among all the parties to the joint venture. This will surely give investors leeway while making investments. But in the case of land use rights contribution, appraisal and valuation of such contribution is not subject to the negotiation.

For contribution ratios, there is also a breakthrough. The restriction imposed by FIEs laws, namely that contributions in the form of intellectual property rights cannot exceed 20% of the total capital subscribed by shareholders has been removed. Non-cash capital contributions subscribed by shareholders can be to a maximum value of 70% of the total registered capital. This is in line with developments brought about by the new Company Law to those domestic companies. Foreign investors may utilize this provision to maximize their superiority over their Chinese counterparts in the area of technology.

Contributions Scheme

In the past, foreign investors were generally permitted to contribute their registered capital over a period of up to three years. Under the Regulations, this period of three years has been reduced to two years, except in the case of a foreign invested investment company the period can be up to five years.

Specifically, investors may opt for a capital contribution in one full lump sum, in which case such capital shall be payable within six months of the establishment of the FIE; or investors may contribute capitals subscribed by them over two years with an initial capital contribution not less than 15% of all the subscribed capital or RMB 30,000, whichever is higher, and payable within three months of establishing the FIE.

Obviously, there are still several differences when comparing this treatment of foreign investors to that received by domestic ones. The initial capital contribution made by foreign investors can be less than that made by shareholders to a non-FIE domestic enterprises, namely 20% of the registered capital. In addition, foreign investors will continue to enjoy the privilege that FIEs are permitted to get business licenses and commence operation before the initial capital contributions are fully made.

Foreign-invested SSLLC

After the promulgation of the new PRC company law, the introduction of a single shareholder limited liability company (SSLLC) is receiving more and more attention from foreign investors. This is because a dominant number of FIEs established in recent years are SSLLCs. Among other things, investors are concerned about a requirement that the registered capital of a SSLLC must be contributed in one full lump sum. The applicability of the new Company Law’s provisions which are aimed at SSLLCs to FIEs is now clarified.

The minimum registered capital of a foreign invested SSLLC is RMB 100,000. Meanwhile, it is explicitly stipulated in the Suggestions that the investor of such a FIE is not subject to this one lump sum provision and has the options, in this regard, as those investors to other FIEs do. However, the difference is that when the single shareholder chooses to make contribution in instalments, the initial capital contribution cannot be less than RMB 100,000. It is also suggested that a foreign natural person may invest in and establish several SSLLCs within China provided that all the other requirements for SSLLCs are fulfilled. Nevertheless, such SSLLCs invested in and established by foreign natural persons are forbidden to invest in and establish a new SSLLC.

For those foreign-invested SSLLCs established before January 1, 2006, they can continue to maintain the status quo despite these new requirements which are now in force, although if the foreign investors decide to alter registered capitals or make an external investment then the new requirements will apply.

Representative Office and Branch Company

The Suggestions stipulate that a FIE, while setting up a representative office within a Chinese territory other than where the FIE is registered, is no longer required to apply for registration with the company registration authority at the level of either the municipality or county where the representative office is located. For those already registered representative offices, the company registry will not accept an application for the alteration or extension of the representative office’s business license. Upon the expiry of a representative office’s term, the FIE which is behind such a representative office can apply for the cancellation of the representative office’s registration with the company registry or, as demanded by business operation requirements, apply for the establishment of a branch which will be involved in future business activity. Such existing representative offices may continue to operate without registration when the term expires.

However, it must be remembered that a representative office is forbidden to do business, failing to abide by which will result in an investigation and punishment by a competent company registry. If the parent FIE chooses to do business through such a subsidiary then a branch company is among one of the choices.

Another development which shall be noted is that, for the establishment of a branch company, the FIE can go directly to the company registry within whose jurisdiction the contemplated branch is located. A previously required document which is issued by the registry of the parent company for the purpose of the registration of the branch is no longer needed, thus making the registration process more efficient.


After years of practice, privileges enjoyed by foreign investors for years while doing business in China are beginning to be shared by their Chinese counterparts. A new type of FDI legal framework is evolving, which will certainly not lead to discrimination against foreign investors. Rather, Chinese regulators are becoming more mature and are ready to make foreign direct investment activities more effective and efficient.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.