I am arriving in Nanchang on a night flight from Shanghai. At night, from the plane, Nanchang reminds me of a big theme park: a great spectacle of coloured lights. The banks of the Ganjiang, the river that crosses the city, are glowing with illuminations. The bridges over the Ganjiang are also lit up. The skyscrapers of Nanchang’s financial centre are framed by red and yellow lights. On the top of these buildings, the names of banks and insurance companies are flashing on and off. The plane, in the meantime, is weaving left and right in search of the landing strip.
A WFOE is a Chinese limited liability company, wholly owned by one or more foreign investors. This is an investment vehicle often favored by foreign investors because it is (or is supposed to be) under their full control as there is no local partner. Furthermore, its preparation and establishment procedure does not involve all the lengthy negotiations that a sino-foreign joint venture usually takes.
The procedure for the setting up of a WFOE involves principally:
The drivers of e-commerce development are, among others:
- its convenience (i.e. the possibility to do online shopping at home or (often) at the office);
Despite a legal framework that has been in existence for more than twenty years, foreign investors still have some difficulty grasping the management control requirements of a sino-foreign joint venture in China.
The main misunderstanding is the assumption that holding the majority of the equity automatically grants control over the joint venture.
The other day I was discussing with some young European entrepreneurs the regulatory steps for the opening of a restaurant in China. One of the main issues is that the investor has to lease the restaurant premises before commencing the setting up process of the company engaged in the restaurant business.
Therefore, it is crucial that the chosen premises are suitable (in term of regulatory requirements) for a restaurant. Otherwise, the risk for the investor is being trapped (after having paid, for instance, a two months’ deposit and three months’ rent in advance) in the lease agreement of a location that cannot be used for a restaurant.
The latest catalog on foreign investment in China, the most important policy document in the field of China foreign investments (entered into force on 31 January 2012), removed franchising from the category of investments subject to restrictions. Franchising is now a “permitted” investment.
This new legislation is certainly a further sign of openness to foreign investors in the sector, including multinational companies, as well as small and medium-sized enterprises. Continue reading
In China, franchising involves a company (franchisor) granting the use of certain intellectual property rights and business resources to another company (franchisee), by contract. The franchisee conducts its business activities using the intellectual property rights and business resources licensed by the franchisor. The franchisee pays a fee to the franchisor as consideration for the use of the intellectual property rights and, in general, the use of a business model for selling goods or providing services.
In China, for companies (and even for people) the time to move is often unexpected. For instance, the local government may give notice to a company to move within six months. There could be many reasons for this sort of notice. However, it is often due to the intended construction of a public building or residential project on the land where the company is currently located. Such situations are fairly common because of the continued expansion of urban areas in China.
In China, local governments often offer tax incentives and other incentives to attract investors. These incentives are subject to limitations and, at times, may involve “hidden costs” for the investor. These limitations or “hidden costs” are not usually disclosed to the investor. The following ten points should be kept in mind upon evaluating the investment incentives in China.
The new China Foreign Investment Catalogue (外商投资产业指导目录) was published on 29 December 2011. The new Catalogue will come into force on 30 January 2012 and will replace the 2007 Catalogue. The new Catalogue (like the previous ones) was issued by the National Development and Reform Commission (NDRC) and the Ministry of Commerce. The Catalogue classifies foreign investments in China into three categories: encouraged, restricted and prohibited investments. Investments not included in any of these three categories are to be considered permitted.
Encouraged investments are favored by, among other things, a fast track approval process. On the other hand, restricted investments are subject to additional limitations or requirements.