Investing Into China - The
Regulatory Environment:
A Tale of Two Phases
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My Co-Presenter and Other Contributors
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China: The Old And The New
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China: A civilisation older than 4,000 years
2,100 BC - Start of the First Chinese imperial
dynasty
1912 - End of the last imperial dynasty (Xing)
of China
1912 – 1949 - The Republic of China
1927 – 1949 - Chinese civil war
1949 to present - The People’s Republic of China –
Mainland China
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China: A civilisation older than 4,000 years
(cont.)
1949 to present - Taiwan - The Republic of China (regarded by the
PRC as its 23rd province)
1978 onwards - Significant economic reforms in PRC
2012 - Xi Jinping elected general secretary of
the CCP.
Large scale economic reforms
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Hong Kong
UK colony from 1841 until 1997
1997 onwards - Special Administrative Region of PRC
“One country, two systems” – Hong Kong retains:
• Its capitalist economic system
• Own currency (HK dollar)
• Legal system (uses English common law)
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Macau
Portuguese colony until 1999
1999 onwards – SAR of PRC
“One country, two systems” applies
Uses Portuguese civil law system
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PRC
Population: Approx 1.4billion
Time zones: 5
Legal system: Adapted continental European civil law systems with:
• Strong local Chinese legal characteristics.
• Strong socialist elements.
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South Africans will recognise this:
• Exchange control
• Labour law highly protective of employees
• Local ownership requirements
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Challenges (Perceived or Real) and Upside
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Challenges (Perceived or Real)
• Restrictive foreign investment approval systems
(nationwide “negative” list)
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Challenges (Perceived or Real)
• Restrictive foreign investment approval systems
(nationwide “negative” list)
• Concerns about IP protection
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Challenges (Perceived or Real)
• Restrictive foreign investment approval systems
(nationwide “negative” list)
• Concerns about IP protection
• Compulsory technology transfer
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Upside
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Upside
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Upside
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What do you want to do?
Trading Trading
with X in
China China
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Foreign Investment Categories
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Popular Foreign Investment Structures
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Popular Foreign Investment Structures
1. Representative Office
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Popular Foreign Investment Structures
2. WFOE (wholly foreign owned enterprise)
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Popular Foreign Investment Structures
3. Joint Venture with Chinese partner
• “Restricted sectors” – compulsory to use JV
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The Current Phase:
Pre-Approval and
Business Licence
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STEP 1 - PRE-APPROVAL OF BUSINESS
Ministry of Commerce
Approval: In case of Restricted sectors
Notification: In case of Permitted and
Encouraged sectors
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STEP 2 – REGISTER AND BUSINESS LICENCE
• State Administration for Industry and Commerce
• Includes Permitted and Encouraged sectors
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The Pending New Phase - New Foreign Investment
Law
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New Foreign Investment Law
• Passed 3 March 2019
• Takes effect 1 January 2020
• Applies to WFOEs and JVs (and to investors from HK, Macau and Taiwan)
• “Umbrella Law” – detail in implementation regulations
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New Foreign Investment Law (cont.)
If not on “Negative List”, won’t need:
• pre-approval by Ministry of Commence;
• “foreigner” business licence from with Administration of Industry and Commerce
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New Foreign Investment Law (cont.)
• Chinese JV partners may not “appropriate” IP and technology
• Government officials may not force “technology transfers”
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Quick Word About Hong Kong
• No capital flow restrictions in Hong Kong
• Stock Exchange of Hong Kong:
• Main Board and Growth Enterprise Market Board
• Largest IPO (new listings) market / exchange in 2018 by funds raised
• 40% of investors on the exchange are non-Hong Kong
• Ease of starting a company / business
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The Bottom Line
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The Bottom Line
• Get specialist help to find your way
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The Bottom Line - It is much more than just a language
challenge
issue
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Useful Contacts
In South Africa
Kai-Lie Chen Attorneys
(Rivonia, Gauteng)
Ref: Kai-Lie Chen
082 807 8832
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Useful Contacts
In South Africa
Knowles Husain Lindsay Inc. Attorneys
(Sandton, Gauteng and Cape Town)
Ref: Francois Terblanche or Nosipho Mkhize
[email protected] or [email protected]
011 669 6096 or 011 669 6120
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Useful Contacts
In South Africa
For commercial and practical guidance on Hong Kong
Conrad Hendry
Regional Manager Southern Africa
Hong Kong Trade Development Council
Illovo, Gauteng
+(27)10-5907974
+(27) 83 3016013
www.hktdctrade.com
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Useful Contact In Hong Kong
For legal advice on Hong Kong law
Hong Kong (also in Beijing, Shanghai and Yangon)
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Useful Contact In the PRC
For legal advice on the PRC’s law
(More than 24 offices throughout the PRC and abroad)
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