Holding (investment) companies

HCs are governed by The Provisional Regulations for the Investment and Operation of Investment Companies by Foreign Investors and by the 1996 “2001 explanations of and supplements to the Provisional Regulations . The impetus for this vehicle came from the foreign investment community which wanted a format that would allow certain facilities that were not present under the other formats. This investment format is a FIE limited liability company, either wholly -owned or joint ventured, without the right to manufacture. It allows integration and rationalization of a parent's China investment structure, direct hiring of PRC staff, centralization of PRC project shareholdings, human resources, sales, marketing and technical services and procurement. It does not allow direct intra- group lending or consolidated accounting.

Although having an HC raises the profile and prestige of the parent company within China, an HC has not been allowed to be engaged in trading services, production, or buying A shares (reserved for PRC legal persons) of listed PRC companies. With WTO accession , HCs are expected to be utilized in trading and financing investments (without participation of the People's Bank of China) as it opens up to FIEs. Because of the trading restrictions, therefore, an HC is not a replacement for a representative office in locales employing a strict interpretation of the HC laws and regulations.

The requirements for establishing an HC are stringent: the foreign investor's asset value must be at least US$400 million; the parent must have established at least one FIE with at least US$10 million of the foreign investor's investment; and have at least three FIE projects which have received project approval (in this case, the lixiang approval) or have set up at least 10 manufacturing or construction FIEs in which it has invested at least US$30 million. Like many PRC regulations, the HC Regulations are selectively applied by MOFTEC, which is given the discretion to ignore certain requirements for establishing an HC.

MOFTEC retains control and supervision over HCs. The primary documentation to be submitted for HC application includes:

• proposal;

• feasibility study;

• joint venture contract, if applicable ; or

• application form, if a WFOE;

• articles of association.