Since the China's entry of WTO, Chinese govenment has pay a close attention on the absorption of foreign investment. Here has a short introduction about that.
Outline
China's absorption of foreign investment is an important content of China's fundamental principle of opening up to the outside world, and also an important component of Deng Xiaoping Theory, and is one of the great practices of building up socialist economy with Chinese characteristics.
The Third Session of the Eleventh Central Committee of the Party in 1978 confirmed over again the ideological line of emancipating the mind and seeking truth from facts, and realized the historical transformation of key work for the entire Party. It also established the basic line of focusing on the central task of economic construction, and made up the great decision of reform and opening up to the outside world.
The Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures, was promulgated by the National People's Congress in 1979, then the work of utilizing foreign capital as an important content of opening up to the outside world initiated as China's fundamental principle. After twenty years of great efforts, the scale of absorbing foreign capital increasingly expanded as well as the level was increasingly upgraded when China's law and managerial system on foreign investment have been gradually perfected. The achievements won the whole world's attention, which effectively promoted the continuous, fast and healthy development of national economy.
Basic Means
The foreign investments are basically divided into direct investment and other means of investment. The direct investment, which is widely adopted, includes Sino-foreign joint ventures, joint exploitation and exclusively foreign-owned enterprises, foreign-funded share-holding companies and joint development. The other means of investment includes compensation trade and processing and assembling.
1. Sino-foreign joint ventures
Sino-foreign joint ventures are also known as share-holding corporations. They are formed in China with joint capitals by foreign companies, enterprises, other economic organizations and individuals with Chinese companies, enterprises, other economic organizations and individuals.
The main feature is that the joint parties invest together, operate together, take risk according to the ratio of their capitals and take responsibility of losses and profits. The capitals from different parties are translated into the ratios of capitals, and in general the capital from foreign party should not be lower than 25%.
The Sino-foreign joint ventures are among the first forms of China's absorption of foreign direct investment and they account for the biggest part. At present they are still a great part in the absorption of foreign investments.
2. Cooperative businesses
Cooperative business is also called contractual cooperation businesses. They are formed in China with joint capitals or terms of cooperation by foreign companies, enterprises, other economic organizations and individuals with Chinese companies, enterprises, other economic organizations and individuals. The rights and obligations of different parties are embedded in the contract. To establish a cooperative business, the foreign party, generally speaking, supplies all or most of the capital while Chinese party supplies land, factory buildings, and useful facilities, and also some supply a certain amount of capital, too.
3. Exclusively foreign-owned enterprises
Exclusively foreign-owned enterprises, which are totally invested by foreign party in China by foreign companies, enterprises, other economic organizations and individuals in accordance with laws of China. According to the law of foreign-funded enterprises, the establishment of foreign enterprises should benefit the development of our national economy and agree with at least one of the following criteria: the enterprises must adopt international advanced technology and facility; all or most of the products must be export-oriented. The foreign funded enterprises often take the form of limited liability.
4.Joint exploitation
Joint exploitation is the abbreviation of maritime and overland oil joint exploitation. It is a widely adopted measure of economic cooperation in the international natural resources field. The striking features are high risk, high investment and high reward. The joint development is often divided into three steps: exploitation, development and production. Compared with the other three means mentioned above, joint cooperation accounts for a small ratio.
5.Foreign-funded share-holding companies
Foreign companies, enterprises, other economic organizations and individuals can form foreign funded share-holding companies in China with Chinese companies, enterprises, and other economic organizations. The total capital of the share-holding company is formed by equal shares，shareholders will take due responsibilities for the company according to shares purchased; company will take responsibilities for all its debts through all its assets and the Chinese and foreign shareholders will hold the shares of the company.
Among them, the shares purchased and held by foreign investors account for more than 25% of the total registered capital of the company. Limited company can be founded either by means of starting-up or raising, and the limited liability company invested by the foreigners can also apply to turn into share-holding companies. The qualified enterprises can also apply to issue A & B share and list abroad.
6. New types of foreign investment
While expanding areas and opening-up domestic market, China is also exploring and expanding actively its new types of utilizing foreign investment such as BOT, investment company and so on. Since multinational merger and acquisition has become the major type of international direct investment, Chinese government is now researching and enacting related policies so as to facilitate the foreigners to invest in China by means of merger and acquisition.
