The China Venture
The China Venture The China Venture
Incentives for Foreign Investors: In general: Reduced corporate tax (15 - 24% instead of normally 30%) No additional income tax (normally 3 - 10% of the corporate tax) No industry or trade taxes levied on export products In addition for Sino-foreign production joint ventures: No corporate tax for the first two years with profits 50% tax reduction for the following 3 respectively 5 years Additional incentives for the reinvestment of profits for foreign investors: 40% reimbursement of the already paid corporate tax on the reinvested portion of the profit for minimum 5 following years 100% reimbursement possible in case the reinvestment is used to found a high-tech enterprise for export purposes only Customs: Liberation from customs (and liberation from industry and commerce tax) for the import of raw materials as well as manufacturing equipment for joint ventures (this regulation was cancelled for the coastal regions per April 1 st 1996) Other incentives: Cheap rents for land use Good access to public infrastructure Flexible Government administration TABLE 3-2: Incentives for foreign investors 86 3.2.4.2 Loans and Guarantees by the State Currently, financing for foreign-investment projects in China is generally provided partially by foreign investors and partially through borrowing from overseas banks with suitable guarantees provided by the Chinese parties. Such external debt is monitored by the State Administration of Exchange (SAEC). The Bank of China may provide several types of loans to foreign-investment enterprises, including fixed asset loans, working capital loans, and loans secured with cash deposits. Foreign companies may also apply for RMB loans to be secured by their own foreign-exchange reserves, including foreign exchange borrowed from abroad. To control the loan guarantee activities of Chinese entities, the Ministry of Foreign Trade and Economic Co-operation (MOFTEC) has produced a list of Chinese and foreign entities that are authorised to make financial guarantees to PRC investment projects. The Government has co-operative relationships with the World Bank and is a member of the Asia Development Bank. In addition, China has been granted low -interest loans by many state-owned banks of different countries, and these loans may be used to finance investment projects in China. 87 86 China - Wirtschaftspartner zwischen Wunsch und Wirklichkeit, Reisach et al., 1997, p. 60. 87 Doing Business in China, Ernst and Young, 1994. 68
3.2.4.3 Legal Framework for Foreign Investment China’s various types of law and accounting firms are extremely important and indispensable to foreign investment since a foreign business’s investment in a Chinese enterprise is governed by Chinese law, as are investment and operational activities. The state council initiates and oversees the legislative process, with the assistance and input of the appropriate Government departments, organisations, and other relevant institutions. Laws subsequently are voted on by the NPC or its standing committee. Since the beginning of Deng’s open door policy, China has begun to develop a legal framework to benefit investors and to facilitate foreign investment. Much of the enacted legislation is broadly written, and China is gradually filling in the details. The Chinese economy is developing more rapidly than its legal system. In addition, Chinese law is often inaccessible since some laws are published only in Chinese, and many internal regulations are not published at all. 88 Since the fostering of foreign investment today is one of the ultimate goals, China places great importance on establishing, also in respect of law, a calculable environment for foreign capital. As long as China wants to maintain its image as a magnet for world -wide investment streams into its country, there will be some degree of dependability. This could mean, as Spinoza said, "Everyone has as much right as he has power“. Due to the relatively underdeveloped legal system, detailed written contracts are crucial in order to forestall misunderstandings and to fill existing gaps. Concerning accounting, for all foreign companies (including WFOE’s) accounting rules and re gulations have to be followed according to Chinese rules and in the Chinese language. Legal basis is the Accounting Regulations Application to Sino-Foreign Equity Joint Ventures of the years 1985/1992 respectively to Sino-Foreign Investment Enterprises of July 1992. 89 3.2.4.4 Legal Provisions Concerning Land Use The main policies, laws, and regulations concerning land use by FIE’s are the Law of the PRC on Land Administration and the Law of the PRC on Chinese-Foreign Equity JV. Land-use by FIE’s means the use of land necessary for the construction, operation, and production of their projects as well as the development and management of tracts of land by such enterprises. The 88 Doing Business in China, Ernst and Young, 1994. 89 China - Wirtschaftspartner zwischen Wunsch und Wirklichkeit, Reisach et al., 1997, p.133. 69
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3.2.4.3 Legal Framework for Foreign Investment<br />
<strong>China</strong>’s various types of law and accounting firms are extremely important and indispensable<br />
to foreign investment since a foreign business’s investment in a Chinese enterprise is<br />
governed by Chinese law, as are investment and operational activities. <strong>The</strong> state council<br />
initiates and oversees the legislative process, with the assistance and input of the appropriate<br />
Government departments, organisations, and other relevant institutions. Laws subsequently<br />
are voted on by the NPC or its standing committee.<br />
Since the beginning of Deng’s open door policy, <strong>China</strong> has begun to develop a legal<br />
framework to benefit investors and to facilitate foreign investment. Much of the enacted<br />
legislation is broadly written, and <strong>China</strong> is gradually filling in the details. <strong>The</strong> Chinese<br />
economy is developing more rapidly than its legal system. In addition, Chinese law is often<br />
inaccessible since some laws are published only in Chinese, and many internal regulations are<br />
not published at all. 88<br />
Since the fostering of foreign investment today is one of the ultimate goals, <strong>China</strong> places great<br />
importance on establishing, also in respect of law, a calculable environment for foreign<br />
capital. As long as <strong>China</strong> wants to maintain its image as a magnet for world -wide investment<br />
streams into its country, there will be some degree of dependability. This could mean, as<br />
Spinoza said, "Everyone has as much right as he has power“.<br />
Due to the relatively underdeveloped legal system, detailed written contracts are crucial in<br />
order to forestall misunderstandings and to fill existing gaps. Concerning accounting, for all<br />
foreign companies (including WFOE’s) accounting rules and re gulations have to be followed<br />
according to Chinese rules and in the Chinese language. Legal basis is the Accounting<br />
Regulations Application to Sino-Foreign Equity Joint <strong>Venture</strong>s of the years 1985/1992<br />
respectively to Sino-Foreign Investment Enterprises of July 1992. 89<br />
3.2.4.4 Legal Provisions Concerning Land Use<br />
<strong>The</strong> main policies, laws, and regulations concerning land use by FIE’s are the Law of the PRC<br />
on Land Administration and the Law of the PRC on Chinese-Foreign Equity JV. Land-use by<br />
FIE’s means the use of land necessary for the construction, operation, and production of their<br />
projects as well as the development and management of tracts of land by such enterprises. <strong>The</strong><br />
88 Doing Business in <strong>China</strong>, Ernst and Young, 1994.<br />
89 <strong>China</strong> - Wirtschaftspartner zwischen Wunsch und Wirklichkeit, Reisach et al., 1997, p.133.<br />
69
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