A look at fund use by foreign-invested investment companies

With a view to promoting investment in China by foreign investors and bringing in advanced foreign technologies and management expertise, the then Ministry of Foreign Economic Relations and Trade issued the Interim Provisions for the Investment in and Establishment of Investment Companies by Foreign Investors in 1995, permitting foreign investors to establish investment companies in China in accordance with relevant Chinese laws and regulations. The issuance of these provisions opened “foreign-invested investment companies” as a new avenue for foreign investors to participate in domestic investment.

Pursuant to the Provisions of the Ministry of Commerce (MOFCOM) for the Investment in and Establishment of Investment Companies by Foreign Investors (order No. 22, 2004), the term “foreign-invested investment company” means a company established in China by a foreign investor, either in the form of a wholly foreign-owned enterprise or of an equity joint venture with a Chinese investor, which engages in direct investment. The differences in acquisitions by foreign-invested investment companies and by ordinary foreign-invested enterprises are:

1. With respect to the acquiring entity, both foreign-invested investment companies and foreign-invested enterprises are enterprise legal persons established in China and, based on the principle of the place of registration, have PRC legal personality. However, China has special policies for foreign-invested investment companies, e.g. when a foreign-invested investment company invests in and establishes an enterprise in China, it is required to obtain separate approval in line with the authority for the approval and the procedure for the approval of foreign-invested enterprises; and when a foreign-invested investment company acquires a domestic enterprise, it is deemed a foreign investor and the regulations for the acquisition of domestic enterprises by foreign investors apply.

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   Sun Yunzhu is a partner and Zhong Ming is an associate at Concord & Partners

   

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