The China Venture

Government approval. Foreign investors may remit abroad profits earned from the enterprise
or other legitimate income. 100
After a survey of the "Delegation of German Industry and Commerce (1995)“, a WFOE is
preferred by foreign investors under the following conditions:
• the produced products target a narrowly limited customer base (which the Western
enterprise knows and to which it alone can also provide services without a Chinese partner.
• the head enterprise is deeply rooted in the Western culture and would like to transfer its
corporate culture exactly on a one -to-one basis
• the enterprise produces in the high-tech-area and would like to exercise maximum control
over production processes and products
• the enterprise operates in a surroundings (location) within China, in which the legal and
administrative infrastructure is relative advanced, efficient, and reliable (this point makes it
especially clear why so many purely foreign companies are found in the coastal regions).
• it concerns a small and medium sized enterprise
3.2.5.4 Chinese Holding Companies
Chinese authorities finally have approved the formation of Chinese Holding Companies
(CHC) by foreign investors. CHC’s are corporate arrangements under which a foreign
investor forms a wholly owned subsidiary in China for the sole purpose of holding investment
interests, including equity joint ventures and WFOE’s. So far no published regulations
concerning the approval of CHC’s exist, and CHC’s are approved on a case -by-case basis by
MOFTEC. The minimum capital investment of a CHC must be at least US$ 30 million.
CHC's enjoy a number of tax and other advantages as for e.g. employ local PRC nationals in
its own name without going through authorised employment agencies or act as an agent for
sourcing raw materials a nd for export sales of finished goods from its subsidiaries, etc. 101
100 Doing Business in China, Ernst & Young, 1994, p. 45.
101 Doing Business in China, Ernst & Young, 1994, p. 46 and China - Wirtschaftspartner zwischen
Wunsch und Wirklichkeit, Reisach et al., 1997.
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