China Investment Law

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Chinese investment law is targeted to one thing: Chinese interest. Investing in China can be a difficult process if the project proposed does not come under the targeted investment areas the government has laid out. The investment in the People's Republic must be dedicated to the interests of Chinese industry and social development.

Types

China has laid down the specific areas where investment is encouraged. These include high technology sectors, and especially those sectors dealing with energy, transportation or environmental protection. Improved methods of agriculture and raw materials extraction are also encouraged. Areas of investment that cause substantial environmental damage or very large scale farming enterprises are prohibited by state law.

Features

Investment in China must be approved by the local authorities, especially if the initial investment is under $30 million. Higher than that, the federal authorities must be in direct charge of approving the project. Feasibility studies must be submitted to the relevant authorities, as well as all relevant financial statements. Articles of Incorporation may be applied for once the feasibility study has been passed.

Benefits

If a foreign investor seeks to invest in China, certain areas will receive preferential treatment and tax breaks. High technology and energy related fields are given special treatment. They are exempt from any tariff laws and, in general, do not pay (or pay a reduced rate) the Value Added Tax (VAT) during production. Some specifically strategic areas of technology are exempt from business taxes for a time set by special arrangement.

Geography

The Chinese government has made equally attractive investment packages for those interested in investing in the underdeveloped and underpopulated parts of western and central China. It is clear that China seeks to build these areas up. Investing in these areas is given preferential treatment and has fewer business regulations. Energy and transport areas are especially encouraged, and are subject to a 15 percent income tax once the introductory rates have expired. Land bought and permitted to revert back to forest or grass is exempt from taxation. In these areas, the Chinese government is looking for water conservation projects, tourism and mining projects.

Function

It is clear that the Chinese investment laws are aimed at targeted areas of investment, types of investment that support the economic and strategic aims of the Chinese state. The Chinese government is also interested in smaller investment packages, since they are wary of large projects that might remove sovereignty from the state and government. Projects over $30 million are given a more stringent set of regulations to pass, though it might be possible to avoid these if the larger projects were targeted to the more underdeveloped areas of the country. This would have to be worked out at the provincial level.

References

• China: Formalities for Investing
• China: What Projects are Encouraged?
• China: Benefits for High Technology Items
• China: Investment in Western and Central China