This content is from: Local Insights

China

On February 13 2004, the Ministry of Commerce (MOC) issued Provisions on the Establishment of Companies with an Investment Nature by Foreign Investors. The Provisions cover a relatively new trend in China foreign investment whereby many multinational companies are moving their regional headquarters to China.

An established investment company can apply for the status of regional headquarters. Under the Provisions, regional headquarters are allowed to freely import products manufactured by their parent company. However, this freedom does not extend to products manufactured by affiliated companies. With regard to China's commitments under its World Trade Organization accession accord whereby the retail and wholesale markets are to be fully accessible to foreign investment, this restriction will be a disappointment to multinational companies.

One of the functions of regional headquarters is to provide financial assistance to subsidiaries. An investment company under the Provisions may set up a group finance company to lend money to its subsidiaries, subject to approval from the China Banking Regulatory Commission. However, the Provisions are silent on whether the finance company will need to satisfy certain relatively stringent criteria under the Measures for the Administration of Enterprise Group Finance Companies.

The Provisions afford regional headquarters wider latitude to conduct business in China. But to some extent, the Provisions fall short of multinational companies' expectations of having complete freedom to buy and sell products in China. However, the new trend of multinational companies relocating their regional headquarters to China is still strong despite these shortcomings.

Carson Wen and Sharon Shi

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