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September 4, 2009

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Home » Business » Economy

Beacon to attract investment

CHINA plans new rules to allow foreign companies to set up local units in the form of a locally registered partnership, in a landmark move to attract investment, a draft proposal seen by Reuters showed yesterday.
The new rules are expected to mainly affect foreign investment, law and accounting firms. But foreign companies that want to form local partnerships must seek approval from the Ministry of Commerce, the document said.
This is a very positive move by the government, said one long-time foreign institutional investor in China. "But I just feel it's not enough."
For foreign invested partnership companies in China, some restrictions for deal making will remain.
"It's interesting that foreigners cannot avoid the Ministry of Commerce and the National Development and Reform Commission approval processes (to make deals in China) by setting up through these foreign-invested partnerships," said Maurice Hoo, a Paul Hastings lawyer.
The NDRC is China's top economic planning agency.
The ministry, NDRC and other relevant government bodies have been studying and drafting the new rules for foreign-invested partnerships in China for more than a year.
The document seen by Reuters yesterday is a copy of the final draft, which some lawyers and financial industry sources said would be issued soon.
Foreign investment firms can now only register in China as a representative office of its parent company or as an advisory service provider, rather than as a partnership.
The rules offer a new path for foreign investment in China.
One benefit of the new rules is that foreign private equity firms can more easily raise local yuan funds to invest in Chinese enterprises in the name of its local partnership, according to lawyers.
But some private equity firms briefed on the new rules were disappointed that foreign partnerships still require approval from the Chinese authorities, said industry sources, who declined to be identified due to the sensitive nature of the matter.
"It requires approval from the commerce ministry and its local branch offices, so it's more restrictive than forming local partnerships," said Hoo.
Chinese firms and Chinese nationals who want to set up a partnership need only submit tax and commercial registrations at the local government level, which can be done in a matter of weeks.


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