Page 86 - 2020 White Paper on the Business Environment in China
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0 White Paper on the Business Environment in China
joint ventures, and wholly owned foreign liquidation income, and the like, of foreign
enterprises, need only undergo adjustments investors, that are made or obtained in mainland
justified in this law before December 31, 2025. China, may be freely transferred to or out of
mainland China in RMB or foreign exchange
Section 8. Influence of the Foreign pursuant to law. In fact, this article has facilitated
Investment Law on Foreign Investment further participation of foreign capital in the
Fund operation of funds. In the current implementation,
for a foreign-invested enterprise that wants
The current laws and regulations in China to invest its capital, the Notice on Reform of the
impose strict restrictions on foreign investors’ Management Manners for Foreign Exchange Capital
participation in establishment of investment funds of Foreign-invested Enterprises issued by the State
with foreign currency. Administration of Foreign Exchange ([2015] No.
19 Document of Foreign Exchange) specified that
Based on the Foreign Investment Law, Articles 2 foreign-invested enterprises may conduct 100
and 4, a system of pre-entry national treatment percent voluntary settlement for foreign exchange
together with restricted investment provided capital in banks according to its actual operational
in the negative list shall be implemented for needs. However, in fact, the subject, “foreign-
indirect investment activities conducted by invested equity investment enterprises” are often
foreign investors within China. The Foreign recognized by the foreign exchange departments
Investment Law does not define the term “indirect and banks in various locations as pilot enterprises
investment.” However, in light of the attitude for equity investment that has obtained QFLP
of current government departments, it is likely qualification. For a foreign-invested enterprise that
they will permit the establishment of foreign wants to invest its own income or profits, although
investment funds provided they are transparently theoretically the profits and income generated
supervised in its relevant equity structures and by a foreign-invested enterprise in operation in
with components of its foreign investment. China may be used freely, in accordance with the
The Opinions on Trial of Foreign-invested Equity Interim Provisions on Investment by Foreign-invested
Investment Enterprises in Shanghai, Article 24 has Enterprises in China, Article 5, foreign-invested
made a breakthrough provision, stating that enterprises must meet all conditions they paid
Qualified Foreign Limited Partners (QFLP), as the their registered capital pursuant to regulation,
General Partner (GP) of their investment funds, commence to operate profitably pursuant to
will not cause the nature of the fund be changed law, and are free of illegal business activities. The
into a foreign investment fund, and funds for Foreign Investment Law, Article 32, provides that
such enterprises are not restricted in practice. taxes, accounting and foreign exchange matters of
Therefore, it is expected that, in the future, foreign foreign-invested enterprises shall still be subject
investment funds shall also be subject to Special to law, administrative regulations and the relevant
Management Measures for Foreign Investment provisions. This in fact, leaves room to explain
Admission (Negative List) (2018 Edition) that is ongoing applications of the existing foreign
currently in force, and may not be invested in exchange policies for foreign-invested enterprises.
prohibited industries. If invested in restricted
industries, the funds must comply with special Conclusion
management measures for foreign investment
access and must be approved by the relevant The Foreign Investment Law and Implementation
commercial departments. Regulations will make substantial inroads in
providing fair and local treatment for foreign
From the perspective of foreign exchange investments in China. However, it is only a first
control, the Foreign Investment Law, Article 21 major step in giving foreign investors local
provides that capital contributions, profits, treatment. The very term “foreign invested
capital gains, income from asset disposal, enterprises” should be unnecessary. In most
royalties of intellectual property, compensation industries, a corporation or other commercial
or indemnification obtained pursuant to law,
86
joint ventures, and wholly owned foreign liquidation income, and the like, of foreign
enterprises, need only undergo adjustments investors, that are made or obtained in mainland
justified in this law before December 31, 2025. China, may be freely transferred to or out of
mainland China in RMB or foreign exchange
Section 8. Influence of the Foreign pursuant to law. In fact, this article has facilitated
Investment Law on Foreign Investment further participation of foreign capital in the
Fund operation of funds. In the current implementation,
for a foreign-invested enterprise that wants
The current laws and regulations in China to invest its capital, the Notice on Reform of the
impose strict restrictions on foreign investors’ Management Manners for Foreign Exchange Capital
participation in establishment of investment funds of Foreign-invested Enterprises issued by the State
with foreign currency. Administration of Foreign Exchange ([2015] No.
19 Document of Foreign Exchange) specified that
Based on the Foreign Investment Law, Articles 2 foreign-invested enterprises may conduct 100
and 4, a system of pre-entry national treatment percent voluntary settlement for foreign exchange
together with restricted investment provided capital in banks according to its actual operational
in the negative list shall be implemented for needs. However, in fact, the subject, “foreign-
indirect investment activities conducted by invested equity investment enterprises” are often
foreign investors within China. The Foreign recognized by the foreign exchange departments
Investment Law does not define the term “indirect and banks in various locations as pilot enterprises
investment.” However, in light of the attitude for equity investment that has obtained QFLP
of current government departments, it is likely qualification. For a foreign-invested enterprise that
they will permit the establishment of foreign wants to invest its own income or profits, although
investment funds provided they are transparently theoretically the profits and income generated
supervised in its relevant equity structures and by a foreign-invested enterprise in operation in
with components of its foreign investment. China may be used freely, in accordance with the
The Opinions on Trial of Foreign-invested Equity Interim Provisions on Investment by Foreign-invested
Investment Enterprises in Shanghai, Article 24 has Enterprises in China, Article 5, foreign-invested
made a breakthrough provision, stating that enterprises must meet all conditions they paid
Qualified Foreign Limited Partners (QFLP), as the their registered capital pursuant to regulation,
General Partner (GP) of their investment funds, commence to operate profitably pursuant to
will not cause the nature of the fund be changed law, and are free of illegal business activities. The
into a foreign investment fund, and funds for Foreign Investment Law, Article 32, provides that
such enterprises are not restricted in practice. taxes, accounting and foreign exchange matters of
Therefore, it is expected that, in the future, foreign foreign-invested enterprises shall still be subject
investment funds shall also be subject to Special to law, administrative regulations and the relevant
Management Measures for Foreign Investment provisions. This in fact, leaves room to explain
Admission (Negative List) (2018 Edition) that is ongoing applications of the existing foreign
currently in force, and may not be invested in exchange policies for foreign-invested enterprises.
prohibited industries. If invested in restricted
industries, the funds must comply with special Conclusion
management measures for foreign investment
access and must be approved by the relevant The Foreign Investment Law and Implementation
commercial departments. Regulations will make substantial inroads in
providing fair and local treatment for foreign
From the perspective of foreign exchange investments in China. However, it is only a first
control, the Foreign Investment Law, Article 21 major step in giving foreign investors local
provides that capital contributions, profits, treatment. The very term “foreign invested
capital gains, income from asset disposal, enterprises” should be unnecessary. In most
royalties of intellectual property, compensation industries, a corporation or other commercial
or indemnification obtained pursuant to law,
86
