When a sourcing project gets to a certain size, it often makes sense to set up a permanent presence on-the-ground in China to help manage the supply chain. This series of blog posts covers some of the key areas of consideration when it comes to setting up in China.
Alternative Investment Structures
These are other means by which a foreign investor can enter the PRC market:
1) Foreign invested partnerships (“FIP”) An FIP refers to partnership businesses established by 2 or more foreign enterprises or individuals, or established by foreign enterprises or individuals together with National, legal person and other organizations in China. According to the law (Measures for the Administration on the Establishment of Partnership Business by Foreign Enterprises or Individuals in China, promulgated at 1 March, 2010), there is no minimum registered capital nor approval by MOFCOM required. However, regulations from relevant authorized agencies, such as taxation, SAFE, etc. are still expected and few FIPs has been established.
2) Branch offices: Foreign investors may establish branch offices, but currently there are only regulations permitting foreign banks to establish branch offices. A branch office will not be recognized as a separate legal person from the foreign parent, which means that the foreign parent will be liable for all debts and liabilities incurred by the branch office in the PRC. Branch offices may conduct business in PRC.
3) Cooperation: Parties who do not wish to set up directly in the PRC may choose to cooperate with a Chinese party either through a manufacturing contract or a processing/trade arrangement.
Such relationships need to be carefully managed with special consideration given to IP Issues and any necessary approvals.
Written for CSIC by Sophie Mao
China based lawyer at www.AsiaBridgeLaw.com