2004/05/15

Reprinted from Coudert Brothers' China Newsletter

Regulations on the Establishment of Investment Companies with Foreign Investment 2004 (the Amended Regulations)

Issued: February 13, 2004 

Effective: March 13, 2004

Issuing Authority: Ministry of Commerce (MOFCOM)

Main Contents: Compared with the previous version of these regulations, the most significant changes introduced in the Amended Regulations are certain provisions regarding the regional headquarters of a multinational company.  

Investment companies (also known as holding companies) which meet the following conditions may now apply for recognition as a regional headquarters (RH) of a multinational company:

(i) the paid in registered capital of the investment company is not less than US$100 million; or its paid in registered capital is not less than US$50 million, the total asset value of the enterprises it has invested in is not less than 3 billion yuan in the year prior to the application, and the total amount of its total profits are not less than 100 million yuan;

(ii) at least US$30 million of the registered capital of an investment company shall be capital contributions to the newly established foreign-investment enterprises (FIE) it invests in, or contributions to capital that have not been fully paid in, or increases in capital of FIEs already invested in and established by the investment company parent or affiliated companies, or used to invest in the establishment of a research and development institution, or used to purchase shareholder equity in a Chinese company;

(iii) the investment company has established more than two research and development institutions in accordance with relevant regulations (of which at least one is a legal person entity).

The business scope of an RH is much broader than that of a common investment company: it is permitted to engage in businesses such as the import and domestic sales of products of the multinational company, outsourced services business on behalf of domestic and foreign companies, logistics and delivery services, overseas engineering contracting business and overseas investment, and other businesses approved by MOFCOM and other competent authorities.