Forms of Business Entities

1. Joint Venture
Joint venture is allowed to carry out manufacturing and sales operation in China. It is permitted to sell products through its own sales network.

1.1 Equity Joint Venture
Company, with limited liability, set up by a Chinese company and a foreign participant is an equity joint venture. The parties share profits and losses in proportion to their respective contributions to joint venture's registered capital. Starting from 2001, equity joint venture are governed by the Law of the PRC on Joint Ventures Using Chinese and Foreign Investment.

1.2 Co-operative Joint Venture
The Law of the PRC on Chinese-Foreign Contractual Co-operative Enterprises governs co-operative joint ventures. A co-operative joint venture is similar to an equity joint venture in many respects, and many of the same regulations apply. However, principal features that distinguish a co-operative joint venture from an equity joint venture include the following:

• A co-operative joint venture does not have to be a legal entity.
• The concept of registered capital is less clear than in the case of an equity joint venture.
• Participants of a co-operative joint venture are allowed to share profit on agreed basis, not necessarily in proportion to capital contribution.
• During the term of the venture, the foreign participant in a cooperative joint venture may recover its investment, provided that the joint venture contract specifies that all fixed assets will become the property of the Chinese participant at the end of the joint venture.

2. Wholly Foreign-owned Enterprise
Under the 1986 Law of the PRC on Foreign-Capital Enterprise, foreign companies are allowed established wholly foreign-owned enterprises (WFOEs).  The above Law has been revised in 2000.

WFOE is treated as Chinese limited liability entity wholly owned by a foreign investor and is not a branch of a foreign company. However, in accordance with state policies and the Foreign Investment Catalogue, WFOEs are excluded in certain industries.

3. Representative Offices
Representative offices are normally set up to carry out liaison work of its parent office overseas. Special tax rules are applied to representative offices.

Registration Requirements
Foreign investors must obtain various government approvals to undertake investment projects in China. These include the approval of Ministry of Commerce (MOFCOM), and that of the ministries responsible for supervising the industry to which the project belongs.

1. Joint Ventures
The foreign investor and its Chinese partner must apply to MOFCOM, or one of its local branches (the "approval authorities"), for approval to set up a joint venture. The law requires MOFCOM to decide within three months whether to grant approval. If the joint venture is approved, it must be registered within one month with the State Administration for Industry and Commerce (SAIC) to obtain a licence to start business. An equity joint venture is regarded as having been officially established after this licence is issued.

2. Wholly Foreign-owned Enterprises
The approval and registration requirements to establish a wholly foreign-owned enterprise (WFOE) are similar as those for joint ventures, except that there is no joint venture contract.

3. Foreign Representative Offices
Representative offices are normally set up to carry out liaison work for the parent office overseas. The decision by MOFCOM or one of its local branches (the "approval authorities") should be issued within 30 days from the submission of the required documents. If the application is approved, the foreign company will obtain an approval certificate from MOFCOM or its affiliates.

Required National Participation
When China launched its economic reform programmes in 1978, foreign investors were required to form joint ventures with local Chinese enterprises. This requirement has been relaxed over the years; today, foreign companies are permitted to have a majority interest in joint ventures or to establish WFOEs in certain sectors.

Generally, no specific percentage of local participation in Sino-foreign joint ventures is required. Exceptions exist for certain industries in accordance with specific government policies.

Foreign Exchange Control
The renminbi is supervised by the People's Bank of China (PBOC). The exchange rate is based on the market demand and supply through the inter-bank foreign exchange market. The PBOC announces the exchange rate each day and may intervene in the market in order to stabilize the rate. Despite global pressure to let its currency rise in value, China maintained a close peg in 2004 at Rmb8.28:US$1, which is where it has been since 1994.

At present, the renminbi is still not a freely convertible currency. However, China has made a significant move toward free convertibility by lifting controls over current account items. In December 2001, it committed not to place any restrictions on current account items unless the International Monetary Fund (IMF) is in agreement. China is the first country to include IMF regulations into the WTO Protocols.

Taxation
Taxation occurs at the national, provincial and municipal levels. Resident companies and individuals are taxed on worldwide profits/income (with a credit for foreign tax). Most Chinese-source income of non-residents is taxed. VAT applies to most transactions in goods and the business tax to most services.

Intellectual Property Rights
To protect intellectual property rights, China has been working to develop a legal framework for the past two decades. In compliance with WTO requirements, China is expected to come up with a more comprehensive legal framework and an improved law enforcement system.

Trademark - trademark registration is subject to Trademark Law and the Implementing Regulations of the Trademark Law. Foreign-invested enterprises (FIEs) may apply for trademark registration in China either directly or through trademark agents.

Patent -patent registration is subject to both Patent Law and the Implementing Regulations of the Patent Law. The State Intellectual Property Office is responsible for patent work nationwide. FIEs applying for patents may either submit their applications directly or appoint designated patent agents.

Staff Recruitment
Under the Labour Law, all enterprise must sign labour contracts with each individual labour. The contract forms the basis of labour relation between the enterprise and the employee. All mandatory terms and conditions to be included in a labour contract are stated in the Labour Law and other relevant regulations.