China possesses 9.6 million km2 of land, 1.4 billion of population, and 1/5 of the market shares in the world. Since 1949 when the new China was founded, China’s international status has been greatly improved. So far, three mature economic zones including the Yangtze River Delta Region, Pearl River Delta Region, and Beijing-Tianjin Region have been formed in China, attracting a number of investors in the world. It has become a trend to study the Chinese culture, invest in and set up offices in China, and take some market shares in China. We hereby provide the following explanation so that investors and entrepreneurs in the world can better understand the nation and so as to bring convenience to their investment in China. China is located in East Asia and west bank of the Pacific Ocean. The nation possesses 9.6 million km2 of land area, over 18,000 km of coastal line along the eastern and southern land, and about 4.7 million km2 of water area of inner sea and side sea. There’re small and large islands distributed on the sea area, among which Taiwan Island is the largest, with 35798 km2. China borders 14 countries and neighbor eight countries by sea. According to provincial-level administrative region division, China has four municipalities, 23 provinces, five autonomous regions, and two special administrative regions. The capital is Beijing.

Chinese enterprises can be classified into many types according to different standards:
According to the setup modes: shareholding company limited, company limited, and cooperative company; according to investors: solely foreign-funded enterprise, Sino-foreign joint venture, Sino-foreign cooperative enterprise, and solely Sino-funded enterprise; according to the risks to be undertaken: unlimited liability (such as cooperative company) and limited liability (such as limited liability company); other types of organs: branch, foreign representative office, office, and individual organ.

Chinese enterprises - solely foreign-funded enterprise
A solely foreign-funded enterprise is set up by foreign investors (including those from Hong Kong, Macao and Taiwan) in the Chinese mainland in accordance with the “Law of Foreign-Funded Enterprises of PRC”. All capitals of the enterprises are invested by foreign investors. Foreign enterprises (overseas-invested enterprises) refer to those that are located outside of China. A majority of shares of a foreign enterprise is held by overseas investors (including those from Hong Kong, Macao, and Taiwan).

Chinese enterprises - Foreign representative office
A solely foreign-funded enterprise is set up by foreign investors (including those from Hong Kong, Macao and Taiwan) in the Chinese mainland in accordance with the “Law of Foreign-Funded Enterprises of PRC”. Generally speaking, a foreign representative office cannot do business or issue an invoice.

Chinese enterprises - Sino-foreign joint venture
According to laws on joint venture, the foreign party shall at least inject 25% of the registered capital, without upper limit, except when the Chinese party is required to inject minimum investment by Chinese laws (such as limited industries). The registered capital of a Sino-foreign joint venture should exceed RMB 1 million, of a foreign enterprise should not be lower than RMB 1 million, and of a company located in tax reserved zone should not be lower than RMB 2 million. Both parties may inject their capital respectively by means of cash, equipment, industrial property rights, or other means. Generally speaking, the Chinese party shall provide cash, and land development/access rights; the foreign party shall provide cash, construction materials, science and technology, and equipment. All the investments must be approved by the relevant organs in China, and for which reports are issued by a qualified CPA firm in China. The company shall be managed by both parties together. The Board of Directors shall consist of at least three members, and the Board has the decision right for important issues of the company. Both parties shall be responsible for the appointment of directors. The structure of directors shall be decided based on the investment proportion of both parties. According to the laws on joint venture in China, the Chairman of the Board can be elected from both parties. If Chairman is elected from one party, Deputy Chairman can be elected from the other.

Chinese enterprises - solely Sino-funded enterprise
A solely Sino-funded enterprise refers to that operating in China whose entire capital comes from the Chinese mainland; 100% of the capital is injected by a legal person or a natural person above the age of 18.

Shareholders and legal representative
According to China’s corporate law, only natural person or legal person above the age of 18 can become the shareholder of a company. A company in China must have a legal representative. According to the Articles of Association, only the Chairman of the Board, Executive Director or Manager can become the legal representative, and the process must be registered.

Company’s name must match the registered capital
Company’s name must be identical. Verification is required if the industry is related to the registered capital. Generally speaking, the company shall provide three names to the Industrial and Commercial Bureau for the registration. The name mode of a solely Sino-funded company is: “region + code number (trade number) + industry (or features of the industry) + company limited”; if the name contains “province”, it shall be approved by the provincial-level Industrial and Commercial Bureau; if the name contains “China”, it must be approved by the State Industrial and Commercial Bureau.

Registered capital must be verified

The amount of registered capital is specified based on the types of companies, and the minimum amount is RMB 30000. Please refer to the requirements for each industry of local government for details. A solely foreign-funded enterprise: the registered capital of the overseas company from which the capital is injected and of the company registered in China should exceed RMB 1 million, and the capital must be paid in and verified. Joint venture: adopt strict legal capital system for the registered capital (funds), and the capital can be paid in and verified in installments. Foreign-funded enterprise: the registered capital can be paid in and verified in installments, and the deadline shall follow that specified by the Articles of Association and the examination and approval organ. Sino-foreign joint venture: the foreign party shall hold at least 25% of the shares. Both parties shall specify the deadline of paid-in capital in the contract, and paid in their respective capital in accordance with the deadline. The amount of the capital injected in the first installment shall not be lower than 15% of the paid-in capital of each party.

Limited business scope

The business scope of a company is limited, and will be specified on the Business License. If the amount of registered capital is comparatively high, the business scope can be extended correspondingly. Since China’s entry into the WTO, the Chinese government is gradually extending the business scope, and any businesses allowed by laws and regulations can be operated. But special industries must go through earlier examination and approval.

In China, special industries shall go through earlier examination and approval
Any company applying for the following businesses must apply for special permit to relevant organs, also known as earlier approval. These businesses include: gas station, product oil storage, slaughter, education, religious group, auction industry, pawn industry, stamp making industry, parking lot, lawyer, accounting services, booking agent, talents intermediary service, jobs introduction, overseas study, investment and immigration, construction, decoration, engineering, company qualification, freight on road, net bar, publication and printing, cosmetics, drugs, food production and operation, travel agency, medical institutes, drug and instrument, safety and protection products operation, pesticide, insurance, and banking industry.

Each company must have independent business area
Each company located in China must have independent business area. Before application, the company must provide the stamped House Leasing Contract or the property rights certificate of the enterprise or shareholders. Some industries must be examined and approved by firefighting and environmental protection departments. China has strict requirements for the business operation area. Each company must be located in an independent commercial office building. In the application, the company must submit the Office Building Leasing Contract signed and stamped by the owner or Property Ownership Certificate issued by the State Bureau of Land and Resources.

Basic account and non-basic account

Any company located in China must open a basic account, which is for routine collection of transferred capital and cash. A non-basic account is the affiliated account to the basic account, such as tax paying account and capital increase account. The non-basic account is not for cash withdraw, but for cash deposit or transfer. A company can possess many non-basic accounts and only one basic account. A solely Sino-funded enterprise shall first open an (temporary) account and then receive the Business License; a foreign-funded enterprise shall first receive the Business License and then open the account. Any company located in China usually use financial stamp and designated private stamp to handle bank business. Refer to the Bank Account Opening Statement for details.

Application for import and export rights
In China, a company has to apply for the import and export rights. With such rights, the company may handle customs declaration independently, and directly import and export the products meeting regulations. Generally speaking, a foreign-funded company in China can only import and export the products produced by the company itself. But since March 1st 2006, this rule is loosened and a foreign-funded company may also apply for the same import and export rights as a solely Sino-funded company.

Annual check
In China, a company must receive annual check, and the specific time shall meet the requirement of the local government.

Monthly tax declaration and annual audit