1. Local Representative of Foreign Investors in China
UIA Congress in Budapest
30 October 2016
Jessica Fei, Partner,

2. A. INVESTMENT Vehicles under PRC Law
Three investment vehicles are available for foreign investors:
Equity Joint Venture ("EJV") (“合资经营企业”)
Cooperative Joint Venture ("CJV")(“合作经营企业”)
Wholly Foreign-Owned Enterprise ("WFOE") (“外商独资企业”)

3. A. INVESTMENT Vehicles under PRC Law
Features of Equity Joint Venture ("EJV") (“合资经营企业”)
Joint Chinese and foreign ownership
Joint management of the company
Profits and loss are shared in proportion to each party's capital contribution
Incorporated as a legal person, i.e. a limited liability company
Shares held by a foreign investor may be limited in certain sectors

4. A. INVESTMENT Vehicles under PRC Law
Examples of Sino-foreign EJV
BASF-YPC Company Limited:
Shareholding: Sinopec 50% BASF 50%
Board: Sinopec 5 directors (one is the Chair of the Board) + BASF 5 directors (one is the Vice Chair of the Board)
Management: Sinopec 3 managers (one is the Vice President) + BASF 3 managers (one is the President)
BP PetroChina Petroleum Co. Ltd
Shareholding: PetroChina 51% + BP 49%
Board: Petro-China 6 directors (one is the Chair of the Board) + BP 1 director as the Vice Chair of the Board

5. A. INVESTMENT Vehicles under PRC Law
Cooperative Joint Venture ("CJV")(“合作经营企业”)
More flexible than EJV as to registered capital, cooperative conditions, distribution of profits and liability and return of investment
Investors’ rights and obligations are determined by the CJV Contract and do not necessarily corresponds to their capitals invested into the CJV
Can be incorporated as a legal person (limited liability company) or a non-legal person entity (partnership)
Management mechanism:
Board of Director (if a limited liability company is established)
Joint Management: joint management committee
Entrusted Management

6. A. INVESTMENT Vehicles under PRC Law
Wholly Foreign-Owned Enterprise ("WFOE") (“外商独资企业”)
100% foreign ownership
Incorporated as a legal person: a limited liability company
Vehicle of choice in sectors free from restrictions on foreign investment

7. B. Restrictions on Foreign investment
Foreign shareholding is limited to 50% or under in the following sectors:
Value-added Telecom service
Manufacturing key parts of new energy automobile
Life insurance
Foreign shareholding is limited to 49% or under in the following sectors:
Basic telecom service
Securities company
Securities investment funds management company

8. C. Legal representative
Every company registered under the PRC law is required to designate a “legal representative” who
must be an individual
may be a foreign national
“represents” the company, instead of acting on the company’s behalf as an agent
has essential control over the company’s operation
could be subject to civil, administrative and/or criminal liabilities for the company’s misconduct

9. C. Legal representative
Responsibilities and risks as being the legal representative
Civil liability
liable for its action if made intentionally or by gross negligence (Article 150 of PRC Company Law)
Liable for the other director, supervisor and/or senior manager’s action as a joint tortfeasor (Article 13 of PRC Company Law)
Administrative liability
administrative discipline or fines may be imposed if the company commits certain misconduct (e.g. tax evasion, fraudulent transferring of the company assets etc.) (Article 49 of PRC General Principles of Civil Law)
Criminal liability
punished when the company commits certain crimes (e.g. commercial bribery crimes) (Article 29 of PRC Penal Code, 8th Amendment)

10. D. Local representative in china
Should a foreign investor have a local representative in China?
Does the investor intend to give a local person the authority to sign legal document without prior authorization?
Does the investor intend to give the local person power to control over the company’s business?
Is there any concern of avoiding civil, administrative, and/or criminal liabilities?

11. E. Local representative in China
Pros
Better connection with the local market
Better skills dealing with the local governmental authorities
Better understanding of the local culture
Better access to the local legal and financial services
Cons
Potential culture conflict between the foreign investor and the local representative
Potential risks of violating the law of the investor’s jurisdiction by the local representative in China
Trust needs to be built between the investor and the local representative