China has a variety of special investment zones. They include special economic zones (SEZs), economic and technological development zones (ETDZs), coastal open areas, export processing zones (EPZs), free trade zones and high-end new technology industry development zones.
Foreign investors should consider establishing their business entity in one of these special investment zones. Many zones have introduced relatively sophisticated investment approval offices that offer efficient and transparent establishment of operations, in addition to ‘one-stop shopping’ for government approvals. This can help greatly during the set-up phase of an operation.
Moreover, such zones often take advantage of their experimental status and permit FIEs to conduct a broader range of business activities than are permitted elsewhere in China. In addition, FIEs often enjoy special tax holidays and concessions that are more favorable than those in other parts of the country.
After determining the official status of the investment field, the next logical step for investors is to choose the appropriate investment vehicle for their China strategy. The most common and popular investment vehicles for foreign investors ate Sino-foreign joint ventures (JVs) and wholly foreign-owned enterprises (WFOEs).
Foreign investors should note that there is a different legal basis for JVs and WFOEs. The relevant law for JVs is the Law of the PRC on Joint Ventures Using Chinese and Foreign Investment, promulgated in July 1979. The fundamental legal basis for WFOEs is the Law of the PRC, adopted in December 1993.
However, before establishing their presence in China via an FIE, many foreign investors first test the local market by setting up a representative office.