Select Page

The establishment of operations in Hong Kong and Shenzhen

The establishment of operations in Hong Kong and Shenzhen

Shenzhen

12. Introduction

Shenzhen is the only city in the PRC that borders Hong Kong, giving it an unique regional geographical advantage in terms of logistics. Shenzhen is currently the headquarters to 58 out of the top 500 foreign invested enterprises in the PRC and 11 out of the nation’s top 50 enterprises have set up businesses including Epson Engineering (SZ) Ltd., Ricoh Industry (SZ) Ltd., and Huaqiang Sanyo Electronics Ltd.. Up to 2001, there were 1860 projects involving foreign investment, with a total investment of US$ 4 billion.

In 2002, foreign investment in Shenzhen has increased by 36.1% as compared to 2001 to reach a total amount of US$5.186 billion, of which direct foreign investment comprises US$3.191 billion.

Foreign investment covers a wide range of industries such as electronics, foodstuffs, textile and garments, pharmaceuticals, metals and plastics, real estate, finance, transport and catering businesses. The respective share of paid-in foreign investment in the primary, secondary and tertiary industries is 0.2%, 63.77% and 36.5%. The annual increase in actual use of foreign capital amounted to 45.9% in 2001.

Many foreign invested operations have enjoyed excellent performance and handsome returns by establishing in Shenzhen. Evidently, many other enterprises have followed suit in augmenting investments and expanding businesses in Shenzhen.

The majority of foreign investment has been focusing on the high-tech and manufacturing sectors. Shenzhen will continue to target foreign investments in these sectors in 2003.

13. Forms Of Operation

Generally speaking, the majority of foreign investment in Shenzhen (like everywhere else in the PRC) is in the form of direct investment, by way of:

  • sino-foreign equity joint ventures;
  • sino-foreign contractual and co-operative joint ventures; or
  • wholly foreign-owned enterprises (each referred to as “Foreign Investment Enterprise”, and collectively referred to as “Foreign Investment Enterprises”).

Additionally, foreign investors often set up representative offices and branch offices in Shenzhen.

Foreign Investment Enterprises

14. Laws And Rules

Set out below is a list of laws, rules and regulations, at both the national and local level, which are relevant when establishing a Foreign Investment Enterprise in Shenzhen as well as to its operations thereafter. Together, these national and local laws and rules provide a legal framework establishing the independent operational rights of Foreign Investment Enterprises and to protect the legitimate rights and interests of both domestic and overseas investors in the PRC.

14.1 Basic Laws for Establishing a Foreign Investment Enterprise

The three basic laws, promulgated at the national PRC level, that one must consider in order to establish a Foreign Investment Enterprise in Shenzhen (as with everywhere in the PRC) are namely:

  1. the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures (the “PRC Equity Joint Venture Law”) – for the establishment of Chinese-Foreign Equity Joint Ventures;
  2. the Law of the People’s Republic of China on Chinese-Foreign Contractual Joint Ventures (the “PRC Contractual Joint Venture Law”)- for the establishment of Chinese-Foreign Contractual Joint Ventures; and
  3. the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises (the “PRC Wholly Foreign-Owned Enterprise Law”) – for the establishment of Wholly Foreign-Owned Enterprises.

14.2 Implementing Rules And Other Laws Relevant To Establishing a Foreign Investment Enterprise

There are also detailed national rules for the implementation of these basic laws and to regulate incidental matters after having established Foreign Investment Enterprises, e.g. taxation and liquidation procedures:

  1. Rules For the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures (12/1990);
  2. Rules For the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Cooperative Joint Ventures (8/1995);
  3. Rules For the Implementation of the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises;
  4. The Company Law of the People’s Republic of China;
  5. The Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises;
  6. Interim Provisions for Guiding Foreign Investment;
  7. Industrial Catalogue for Foreign Investment;
  8. Interim Provisions Concerning the Investment within China of Foreign-invested Enterprises;
  9. Provisions Regarding the Merger and Separation of Foreign-invested Enterprises;
  10. Provisions on the Contribution of Capital by Parties To Chinese-Foreign Equity Joint Ventures (8/1988);
  11. Interim Provisions For the Duration of Chinese-Foreign Equity Joint Ventures (10/1990);
  12. Provisional Regulations on the Establishment of Foreign-Funded Joint Stock Companies Limited (1/1995); and
  13. Liquidation Measures for Enterprises with Foreign Investment.

Additionally, the PRC State government has also issued a “Directory of Industries for Foreign Investment” in order to provide guidance and approval of foreign-funded projects by giving four classifications of industries for foreign investment, namely industries which are encouraged; permitted; restricted; or forbidden.

Complementing the above national basic laws and rules, there are also local rules and policies for setting up Foreign Investment Enterprises pertinent to Shenzhen which are outlined below where appropriate.

14.3 Laws Affecting Operations of Foreign Investment Enterprises

Once approved and established, all of the Foreign Investment Enterprises (apart from the unlimited liability type of contractual joint ventures) are considered Chinese legal entities and as such must abide by all PRC laws, decrees, rules and regulations. These include the PRC Labour Law, the Unfair Competition Law, the Product Liability Law, the Advertising Law and various environmental protection laws. Given their Chinese legal entity status, Foreign Investment Enterprises (apart from the unlimited liability type of contractual joint ventures) are allowed to hire Chinese nationals as employees and are able to purchase land use rights on their own account (unlike representative offices which are not able to purchase land use rights on their own account).

Specific laws, many of which are applicable to one or more types of Foreign Investment Enterprises, have also been promulgated by the PRC government in relation to more specific areas of the law, such as taxation, business registration, accounting, foreign exchange, equity requirements and registered capital. These laws have been enacted with a view to increasing international economic co-operation and technological exchange between the Chinese parties and the Overseas Corporations. Through the various legislation, the Government protects the investments of Overseas Corporations, the profits due to them, and their other lawful rights and interests, pursuant to their government approved agreements, contracts and articles of association.

Skills

Posted on

2003-04-21