Company Establishment – China

General approvals for setting up a foreign invested enterprise in
China 

For establishing a foreign invested enterprise (“FIE”) in China, the main
approval which would need to be obtained is the approval from the Ministry of Commerce
(“MOFCOM”), either at the central government level or its provincial or local counterpart
level depending on the industry sector involved and the amount that is being invested in the industry.

The National Development and Reform Commission of China (“NDRC”) and MOFCOM has issued the
Catalogue for Guidance of Foreign Investment Industry 2011 (“Catalogue”) which
groups industry sectors into the four categories of “encouraged”, “permitted”, “restricted” and
“prohibited”.

Industries in the “encouraged” or “permitted” categories where the total investment amount (i.e. the total
startup debt (shareholder loan) and equity (registered capital) contribution to the foreign invested
enterprise at its establishment) is below US$300 million, or industries in the “restricted” category where
the total investment amount is below US$50 million, would normally require approval from the provincial or
local MOFCOM level only, whereas other business which do not fulfill the above criteria would require
approval from the central MOFCOM. In general, there is a perception that the central MOFCOM is more
conservative  in granting approvals due to its national prominence and is less accommodating than its
provincial or local counterparts due to its high caseload.

There are no detailed criteria set out in PRC laws and regulations for MOFCOM to approve or reject the
establishment of a foreign invested enterprise, but in principle, MOFCOM approval can be expected to be
granted without incident as long as all paperwork are in order and investment in the relevant industry is
not “restricted”. MOFCOM may impose certain conditions and require amendments to submitted documents prior
to granting approval.

Generally, for establishment of a wholly foreign owned enterprise (WOFE) or sino-foreign
equity joint ventures, MOFCOM is required to either reject or issue a certificate of approval within 90 days
of receiving a completed application (from the time MOFCOM formally acknowledges receipt without identifying
faults), whereas, for establishment of a sino-foreign co-operative joint venture (CJV), the application
should be rejected or the certificate  of approval issued within 45 days from receiving the completed
application.

Other than MOFCOM approvals, other approvals may be required. For example, a project application report would
need to be submitted to the NDRC for pre-approval of large projects (e.g. where total investment amount is
above US$10,000 for “encouraged” or “permitted” industry categories), and subsequently to the State Council
(the cabinet of China) for final approval. Certain regulated industries would also require specific
approvals from applicable ministries or commissions, for example, establishment of banking and financing or
brokerage businesses would require approval from the China Banking Regulatory Commission; or establishment
of insurance and insurance brokerage businesses would require approval from the China Insurance Regulatory
Commission etc.

Following establishment, the FIE would be required to be registered with the following bodies in the first
month of establishment:

• State Administration of Industry of Commerce (SAIC) for issuance of business licence
• State Administration of Foreign Exchange (SAFE) for opening of foreign currency account and receive
  investment amount for conversion into RMB
• State Administration of Taxation (SAT) to obtain tax registration certificate
• General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) for obtaining an
  organisation code certificate