Partnerships in China: The sweet and the sour

Whether it was because of the Beijing Olympics or the economic meltdown, China has changed and is continuing to change dramatically. Before the Olympics, getting a Chinese visa and staying for extended periods of time was fairly easy.

You would run into people who had been in the country for years using temporary student and/or business visas. The subtext being they were working without permits and definitely not paying taxes.

If you were bringing in funds and you wanted to start a business or invest in one, other than the usual hoops which have been described before, the welcome matt was laid out.
Since the Olympics, there has been a weather change, and visas are an issue, and if they find you have been working or operating a business illegally in China, expect to be escorted to the airport.
If you want to start or invest in a business, especially in the developed eastern areas of Beijing, Shanghai, Guangzhou and Shenzen, expect a lot more questions, and in some cases, outright rejection. Industries with heavy environmental impacts or low-tech manufacturing, which would compete with local businesses, are not as welcome as they once were.
If you are brining in employees from overseas, you also might find it difficult if their functions could be filled by a Chinese worker.
Why is this happening? Because China can afford to be pickier about what and who comes in. With large domestic markets and strong current growth, going to China is not just about costs anymore. It’s about growth. The days of “take what you can get” have been replaced by “take only what you want.” That is not to imply that China is not pursuing Foreign Direct Investment (FDI) aggressively. It is, but in a much more targeted manner. High-tech, strategic, high-value and process industries are in demand.
New initiatives
One of the recent changes you should be watching, if you are thinking about being in China, is a new law which will allow foreign investors to set up partnerships.
On March 1, 2010, State Council Order No. 567 (Administration Measures for Establishment of Partnership Enterprise by Foreign Enterprises or Individuals in the People’s Republic of China) will come into effect, allowing foreigners to set up Foreign Invested Partnerships (FIP’s). The measure will apply to foreign, Hong Kong, Macau and Taiwan companies and individuals. A FIP is what it sounds like. It will allow foreign companies and individuals to set up partnerships in China. Previously, only domestic individuals and entities registered in China could form partnerships. Although a foreign entity could set up a Joint Cooperation or Equity Venture, these tended to be complex formal arrangements which required the advance approval of the Ministry of Foreign Trade and Economic Co-operation (MOFCOM). The approval process itself, depending on the licenses and area, could take months. The new partnership laws seem to be an effort to create a streamlined business structure which will give foreign companies some options when entering China. It will also avoid the need to set up a holding company outside China when there is more than one party involved. The governments stated goal is to encourage foreign investment in particular from entities or individuals possessing advanced technology and management experience.
In addition to Sino-foreign Equity Joint Ventures, Sino-foreign Cooperative Joint Ventures, and Wholly Foreign Owned Enterprises, foreign enterprises or individuals will be allowed to form Foreign Invested Partnerships, either between: two or more foreign enterprises or individuals; or one or more foreign enterprises and/or individuals, with one or more PRC enterprises and/or individuals.
FIPs will be governed by the Partnership Enterprise Law (2007) and shall follow applicable industry investment policies, such as: the foreign investment catalogue, procedures for investment approval, finances, accounting, tax, foreign exchange, customs, exit and entry, capital contributions and administration.
General principles
The Circular sets out general principles only, relevant governmental authorities, such as National Development and Reform Commission, Ministry of Commerce, State Administration for Industry and Commerce and State Administration of Foreign Exchange, may issue further regulations or restrictions.
The Circular does not spell out the exact procedures for registering an FIP, which will be developed by the agency authorized by State Administration for Industry and Commerce (SAIC) for forming, regulating and dissolving FIP’s. Foreign companies or individuals may assign an agent to register an FIP with the local branch of SAIC where they plan to have their offices.
The difference and advantages this new form of business structure will have, especially compared to a Wholly Owned Foreign Entity (WOFE), will depend upon the hopefully soon-to-be-released procedure and guidelines, but if you are looking for a less cumbersome way of working in China this may be worth watching.

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