Translation from Chinese of the organizational and legal forms of Chinese enterprises and company names. Firms in China Organizational and legal forms of legal entities in China
Translation from Chinese
organizational and legal forms of Chinese enterprises
and company names.
1. Types of organizational and legal forms of Chinese enterprises.
The legislation of the PRC formulates the types of legal entities:
Company;
Government body;
Public association;
Non-production institution.
Classification of Chinese enterprises.
(a) by type of ownership and method of investment:
Enterprises of national ownership;
Collectively owned enterprises;
Sino-foreign joint ventures;
Sino-foreign cooperative enterprises;
Foreign enterprises.
(b) by organizational and legal form:
Enterprises-companies;
Businesses that are not companies.
2. Rules for registering names of Chinese companies.
In accordance with Art. 2 of the Law of the People's Republic of China "On Companies", the category "companies" includes limited liability companies and joint-stock limited liability companies registered in accordance with the law in the territory of the People's Republic of China.
Business name.
The name of the enterprise shall indicate the administrative-territorial name at its location (except for enterprises with foreign investment).
Art. 8. The Law of the People's Republic of China "On Companies" indicates the need to indicate the name of the enterprise in Chinese characters (in national autonomous regions, the national script is used along with hieroglyphs).
If an enterprise uses names in a foreign language, the name in the foreign language must match the name in Chinese and be registered with the authorized registration authority.
Art. 10 of the Law of the People's Republic of China "On Companies" indicates that the name of the company must consist of two or more hieroglyphs. In the name of private enterprises it is allowed to use the surname and first name of the founder.
3. Rules for translating the names of organizational and legal forms of Chinese enterprises.
Basic translation rules:
Abbreviations for forms of ownership should be transliterated. Translation using foreign abbreviations is unacceptable;
Abbreviations of foreign forms of ownership when translated into Russian should be preserved in the original language;
The names of Chinese companies when translated into Russian should either be transcribed or preserved in the original language (in some cases, with the transcription option indicated in brackets);
The names of Russian companies should be transcribed (in some cases, the translation may be indicated in brackets).
Transliteration.
The names of the organizational and legal forms of Chinese enterprises are not translated, but are transliterated - transmitted with the greatest accuracy using signs of another writing system, in which each character of one writing system is transmitted by the same sign of another writing system.
Transliteration involves the transmission of words in the original language, in letters of the language into which the translation is being carried out.
When translating business names from Chinese, using the English version of the company name is incorrect.
English-language names of Chinese companies do not correspond to registered Chinese names, representing a "pseudonym" used by banks in international transactions.
If the contracts only mention English analogues of the names of Chinese enterprises and their Russian-language transcriptions, then this is tantamount to concluding a transaction with a company that is not officially registered.
The absence of registered names of PRC companies in Chinese in the translated documents makes it impossible to file a claim in the courts of the PRC if disputes arise.
Owners of foreign enterprises are recommended to request a certificate of registration of the enterprise as a legal entity from their Chinese partners.
When translating the names of enterprises from Chinese, the original name of the company is used with all the attributes specified in the statutory documents of the company.
Example of translation of a company name:
南昌海博进出口贸易苟限公司
Nanchang Haibo Import&Eport trade Co.ltd
In Russian translation: Nanchang Haibo company.
(Nanchang is a city in China, on the Ganjiang River. The administrative center of Jiangxi Province).
Abbreviations found in company names: Corp., Co., Ltd. and others can be omitted in translation.
In translations into Russian intended for official use and subsequent notarization, the words indicating the form of ownership must be preserved.
The organizational and legal form of Chinese enterprises is not interpreted in Russian translation and is not adapted to the organizational legal realities of the Russian Federation.
The use of templates such as LLC, Co.LTD and others in Russian translation to indicate the organizational and legal forms of Chinese enterprises is an incorrect translation option. The forms of ownership of organizations and companies in the PRC, as a rule, are not translated into Russian due to the existence of significant differences in the structure of the organizational and legal forms of different countries.
The organizational and legal form of Chinese enterprises is indicated when translating registration documents, notarial acts, and legal contracts.
The abbreviation LLC (limited liability company) has been introduced into the practice of drawing up legal documents.
The presence of the word 有限公司 in the Chinese text implies the necessary presence of the name of the organizational form of the enterprise: LLC or LLC.
For the form of enterprise 股份有限公司 (Joint Stock Limited Liability Company), the abbreviation JK (Joint Stock Company) is permitted.
Transcription.
Transcription involves the transfer of sounds and words of the source language by means of:
Spelling of another language (practical transcription);
System of special symbols (phonetic transcription).
In translation practice, the “practical transcription” method is mainly used.
In order to improve the correct interpretation of the company name, it is practiced to include the original name in parentheses after its Russian translation.
Punctuation.
The names of Chinese companies in the English version are indicated in brackets and in italics.
Quotes are used to denote corporate or symbolic names.
Quotation marks are used to indicate the names of commercial organizations of the People's Republic of China in Russian, for example: Xugong Corporation.
4. Business translation from/to Chinese.
Thesaurus "Constituent documents of a Chinese company."
Company, firm - 公司
Joint Stock Limited Liability Company - 股份有限公司
Corporation - 集团
Certificate of right to operate - 营业执照
Certificate of organization code - 组织机构代码证
Taxpayer Registration Certificate - 税务登记证
Certificate of Statistical Registration - 统计登记证
Certificate of financial registration of an enterprise with foreign capital - 外商投资企业财政登记证
License for the right to operate an enterprise with foreign capital - 外商投资企业批准证书.
Registration number - 编号
Company name - 公司名称 (...Co., Ltd.)
Permission to open a bank account - 银行开户许可证
Address - 住所
Legal representative - 法人代表
Field of activity - 营业范围
Validity period - 营业期限
Founding date - 成立日期
Certificate of registration of the declaration of the shipper or consignee of export and import goods of the PRC Customs Service - 海关进出口货物收发货人报关注册登记证书
Foreign Trade Operator Registration Sheet - 对外贸易经营者备案登记表
Official seal of state enterprises, enterprises with state share capital - 国有企业、国营股份制企业
Seals of collective and individual property enterprises, private enterprises - 集体所有制企业 , 个体、私营企业
Seals of limited liability companies - 有限责任公司
Seals of joint stock limited liability companies - 股份有限公司
Special seals for contracts - 合同专用章
Special commercial seals - 业务专用章
Special seal for receipts - 发票专用章
Special financial seal - 财务专用章
Electronic port - 电子口岸 (the name of the electronic state system of the PRC, created to monitor compliance with laws. A platform for combining and differentiating information flows about export-import transactions, capital movements, flows of goods between various ministries and committees of the State Council.
Currently, the Chinese electronic port is integrated into a common network with customs, control, tax and other government services).
ATM - 自动取款机
banking sector liabilities - 银行部门负债
letter of credit - 信用证
joint stock bank - 股份银行
depreciation charges - 使用物品的磨损费
to cancel a contract - 撤销契约
arbitration - 仲裁
audit - 征售调查
balance sheet for the current year - 本年度平衡
banknote circulation - 钞票流通
bank card - 银行卡
bank letter of credit - 空白信用证
non-cash payments - 非现金结算
application form for opening an account - 开户申请表
foreign exchange sales - 售汇
currency calculation - 结汇
maintaining bank accounts - 银行账务处理
conduct commercial negotiations - 洽谈生意
to compensate for damage - 金损失
take effect immediately after signing - 签字后立即生效
go beyond the scope of the agreement - 超出合同委托业务
letter of guarantee - 保涵
deposit account - 定期存款账户
deposits of individuals - 自然人的存款
share, quota - 份额
subsidiary company -子公司
legal interest - 法定利息
procurement of technology - 引进技术
fill out the form - 填表格
foreign currency - 外币
capital amounted to - 资本占
client - 客户
clearing settlements - 汇差的清算
commercial terms - 商业条件
consulting - 咨询服务
correspondent account in foreign currency - 代理行外币帐户
license for the right to engage in foreign currency transactions - 权进行外汇业务的许可证
international payments - 国际结算
cash payment - 付现
tax barrier - 关税壁垒
break a contract - 发生违约
break the law - 违反立法
national currency - 本币际 (本国货币)
to incur losses - 吃亏
account number - 帐户号码
bank account number - 银行账 (帐)号
taxable amount - 课税金额
foreign currency exchange - 外币兑换
exchange rate; exchange rate -兑换率
exchange office -兑换站
apply to the arbitration commission (court) - 争议由仲裁机构 (法庭)予以审理
mandatory payment - 必须执行的缴款
view the price list - 查阅价目表
bank operation - 银行业务
transfer operation - 汇兑业务
open correspondent accounts in US dollars - 开美元代理帐户
open an account in your own currency - 开立本币帐户
open a bank account - 开一个银行账户
industry bank - 部门专业银行
transfer money from an account - 转账
transfer agent - 代理兑付
payment documents - 支付文件
pay commission - 手续费
pay taxes - 缴纳关说
apply for registration - 申请注册
signatures of authorized persons - 权人签字
confirmed guarantee - 确认保证
recipient of funds - 收款人
receiving account statements - 收账确认
suffer material damage - 过失造
replenishment of accounts - 增加账户
order (collection) - 托收
preliminary agreement - 事先商定
to make a claim - 提出索赔
make a calculation - 办理结算
settlement transactions - 结算业务
clearing bank - 结算银行
license validity period - 许可证有效期
cargo insurance - 货物运输保险
insurance compensation - 保险赔偿金
accounts in US dollars - 美元帐户
tariff - 收费表准
current bank account - 活期存款账户
transnational company - 跨国公司
sustainable trade surplus - 稳定的市场须差
constituent documents - 机构建立的文件
bank branch - 银行分行
payment form - 结算方式
force majeure - 不可抗力
legal address - 法定地址
5. Examples of translation of company names and trademarks using Chinese:
In most cases, the names of Chinese companies and trademarks of the products they produce have no translation, being a euphonious combination written in letters according to the perception of the company’s creator.
In Chinese business practice, it is customary to assign two names to a company:
Registration;
Allegorical (a figurative name of a company is written in hieroglyphs and often carries an encrypted message from the founder of the company, which can be decoded through various specialized thesauri, such as: “Great China and the Great Creator of the company”, “The Greatness of the Celestial Empire as a reflection of the greatness of the organizer of the enterprise”, "Chinese brand creators as an allegory of China's giants", "Chthonic forces of China in the service of heroic Chinese entrepreneurs."
Transcription. Phonetic transliteration.
(selection of the closest sounding name).
When translating into Chinese, foreign companies use the tactic of creating a name that creates neutral or positive emotions.
One example: localizing the name of the Coca-Cola company using phonetic consonance: “ko-ka-ko-la”.
1928 - the beginning of the company's trade expansion in China.
A drink with a similar composition did not exist in the Chinese picture of the world.
The task of the marketing department employees of the Coca-Cola company was to find three hieroglyphs with the closest sound to the name “Coca-Cola”.
The average level of native Chinese speakers involves the use of more than 40,000 different characters, the pronunciation of about 200 of which ultimately results in the desired phrase, in a spelling acceptable for the Chinese language picture of the world: “ko-ka-ko-la”.
Despite the activities of the research department of the Coca-Cola company, Chinese consumers themselves created the necessary combinations of letters, the pronunciation of which formed the name of the drink.
Modern form of localization of the name "Coca-Cola" in the Chinese market:
可口可乐 with the approximate linguistic-cultural equivalent of “delicious joy”, “let your mouth rejoice” or “mouth full of happiness”.
An example of phonetic tracing in the localization of names in the computer field:
Intel 英特尔 [in te er] - a variant translation of “heroic achievements especially for you.”
The "Phonetic transliteration" method when translating the names of car manufacturers and the models they produce. The transliterated names do not make sense, but focus the audience’s attention on the image of “noble foreign origin”:
Tiguan 途观 Túguān (VW model).
Santana 桑塔纳 Sāng tǎ nà ("Santana" is a VW model in China based on the Volkswagen Passat B2).
Polo 波罗 Bōluó (VW model).
Audi
Mazda 马自达 Ma3zi4da2 - “the horse moves forward on its own.”
Nissan 尼桑Ni2sang1
Volvo 沃尔沃 Wo4`er3wo4
Cadillac 卡迪拉克
Maserati 玛莎拉蒂 Mǎ suō lā dì
Ferrari 法拉利Fǎlālì
Bentley 本特利 Běn té lì / bīnlì
An example of transcribing the name of a telecommunications company.
Motorola 摩托罗拉 .
Siemens 西门子 .
Ericsson 爱立信 .
Hieroglyphic clichés.
They are used in the names of products and goods produced in Japan and Korea and supplied to China, where they are read according to the norms of Chinese phonetics.
Semantic translation.
This method of localizing the names of foreign companies and trademarks of their products on the Chinese market involves the use of widely used words from the Chinese language that can be translated by almost all native Chinese speakers of any literacy level.
An example of language localization of a name through semantic translation: the company name Opel 欧宝 with the meaning “European Treasure”.
Microsoft name localization form for the Chinese market - 微软公司 (wēiruǎn gōngsī):
The meaning of the character 微 is “small, micro”;
The meaning of the hieroglyph 软 is "soft" in a single composition of the hieroglyphs 软件 - "software product".
In preparation for the introduction of Tide washing powder to the Chinese market, a version of the name 汰渍 was considered. The final version of the name was compiled by speakers of the Chinese language picture of the world and expressed a combination of hieroglyphs with the most complete correspondence to the purpose of the product:
The meaning of the character 汰 is “to select”;
The meaning of the character 渍 is “to get dirty.”
The combined spelling 汰渍 conveys the meaning - “to remove dirt.”
Examples of semantic localization of names of foreign companies and their products:
Audi 奥迪 - "the innermost essence of progress."
Porsche 保时捷 - “to protect +time+speed.”
BMW 宝马 - “precious horse”, “horse that brings treasures”.
Mercedes-Benz 梅赛德斯 - 奔驰, - “to rush, to run quickly.”
Nokia 诺基亚 - "promise, basis, Asia."
Sprite 雪碧 - "emerald ice".
7-up 七喜 - "seven, happiness."
Samsung 三星 - "three stars".
Apple 蘋果電腦 - "apple".
Nokia 诺基亚 - "truly foundation."
McDonald's 麥當勞 - “to become +labor force”, “wheat+serves”.
M&M's (peanut dragees) - "chocolate-covered beans."
Pepsi-Cola 百士可乐 - bǎishì “business, activity” and kělè “cola”, “drink”.
Fanta 芬达
Nestle 雀巢 - "sparrow's nest".
Maxwell 麦氏maishi
Lipton 立顿 lidun
AverMedia
Yuan (yuan) - “circle, movement, circulation”;
gang (gan) - “correctness, stability.”
Translation of the company name: “right circle” (yin-yang circle).
Kworld
Guan Huan queji "technological".
The first hieroglyph is Guan - “wide, widespread”
The second hieroglyph is Huan - “territory”, “World”.
The translation gives the meaning "huge, wide world."
Galaxy
Hong Kong company GALAXY. Product: VGA on NVIDIA chips.
In Mandarin.
Hieroglyph Ying - "reflection, reflection, influence"
The hieroglyph Chi means “rapid, rapid spread.”
Translation of the company name: “rapidly spreading its influence.”
Cooler Master
Xun Kai.
Xun - "information"
Kai - "winner, triumphant".
In Chinese, the company name sounds significant. The euphonious first part expresses the scope of the company's activities, and the second - its unshakable success.
Kingmax
Manufacturer of RAM and flash memory modules.
Shen Chuan.
Sheng - "successful, victorious, famous"
Chuang - “to achieve, to achieve.”
HTC
Manufacturer of mobile phones.
Hong Da [Hong Da] - “who has achieved greatness and glory.”
Silicon Power
- "broad-minded, promising, with brilliant prospects."
Sapphire
Hong Kong video card manufacturer.
[Lan Bao] - "sapphire" (precious stone).
Complete coincidence of Chinese, English and Russian names.
Zotac
Su Tai is a “true natural luminary”.
The hieroglyph Tai means “unshakable confidence in one’s actions.”
Mitac
Manufacturer of platforms for laptop computers.
Shen Da - “reaching the divine,” “reaching Buddhahood.”
Shen - “god, spirit, absolute”;
Yes - “to achieve”.
Iwill
Manufacturer of server motherboards.
Iwill Aiwei - “rock”, “colossality”, “steadfastness”, “strength”.
The hieroglyph Ai is an example of transliteration. It sounds identical to the English version of the first syllable, without carrying any semantic load.
The character Wei is used primarily to denote geographical places “steep bank, ridge, difficult terrain.”
In this context, the word wei wei is taken as a basis, meaning “mountain of unattainable height.” Translation of Iwill - “rock” (enormousness, steadfastness, strength).
Jetway
Manufacturer of motherboards and video cards.
Jetway Jie Bo is “swift, a winner, creating a wave, influencing the environment.”
The meaning of the hieroglyph Jie is “promising, impetuous, victorious”;
The meaning of the hieroglyph Bo is “movement” (movement as a physical phenomenon formed in living nature - waves, vibrations).
Biostar
Ying tai - “Outstanding from all”, “best of the best”.
Hieroglyph Ying - “stands out against the background”;
Hieroglyph Tai - "steadfastness, calmness."
ABBYY
Technologies in the field of text recognition.
泰比
泰 - "calmness, peace, joy." The first character in the Chinese name ABBYY is also used in the name of the famous Chinese mountain Tai Shan (泰山 - Tai Shan).
Hieroglyph 比 was chosen to match the pronunciation of the second part of the name "ABBYY".
The Chinese name connects the future of ABBYY with great prospects in the Chinese market, comparable to the height of Taishan.
Chery Automobile Corporation.
In Chinese, the name of the enterprise sounds like [Ki Rui] - “special blessing”.
In the English version - "Cheery".
An error was made during transliteration, which the company management decided not to correct. The company's logo is an abbreviation of the letters C, A, C, formed from the full name of the company - Chery Automobile Corporation.
Huawei Technologies Co. Ltd.
Telecommunications sector.
Hieroglyph Hua - "China" or "excellent";
The character Wei means "achievement".
BBK Electronics LTD.
Original pronunciation of the company name: [Bu Bu Gao].
Meaning: “ever higher”, “step by step”, “constant growth”.
MSI
- "Little Star".
Hieroglyph Way - "small"
Hieroglyph Shin - "star".
Coincidence of English and Chinese meanings.
ASUS
Pronunciation of the company name in Chinese: .
Hieroglyph Hua - “China”, “Chinese”, “Chinese”;
Hieroglyph Shooo - "big".
Translation of the company name: “Great China”, “Great People of China”.
Gigabyte
The hieroglyph Ti is a stylized, modified word "Tech" or "Technology",
Hieroglyph T`ia - “good, excellent”.
Variant translation of the title: "Superior technologies."
These symbols are depicted on the covers of Gigabyte laptops.
Leadtek.
Pronunciation in Chinese: .
Hieroglyph Li - “beautiful”;
Hieroglyph Tai - Taiwan (Taiwan).
Translation of the title: "Beautiful Taiwan".
Epox
In original - .
Hieroglyph Pan - “big stone”;
Hieroglyph In` - “hero”, “great warrior”.
Variant translation of the title: "The Steadfast Great Warrior."
Chaintech
Pronunciation in Chinese: .
The hieroglyph Chan` - “take”, “receive” with many meanings depending on the context;
Hieroglyph Chi - “start”, “beginning”, “opening”.
Variant translation of the name: “Sprinter”, “who took the start”.
PowerColor
Original name .
Hieroglyph Han - “power”, “strength”;
The hieroglyph Shin` has no meaning, but is consonant with the Chinese words “message”, “message”, “communication”.
Possible translation of the title: “Powerful message”, “excellent connection”.
AOpen
Original name: .
Tuen - “to do”, “to build”, “to erect”;
Gi(Ti) - "basics".
Translation of the title: "Build the foundations."
ACER
Sound: .
Translation: "Big Basics."
BenQ
Sound: .
Min` - "tomorrow";
Gi(Ti) - "basics".
Translation: "Tomorrow's Basics."
Albatron
Sound: .
Translation: "Green Cloud".
Foxconn
The company has two names in Chinese.
Sound:
Translation: "big sea".
Used in relation to a company's financial group.
Second name: Fu Shi Kon - Chinese transliteration of the English version of Foxconn.
VIA
Chipset manufacturer (Taiwan).
Sound: .
Translation: Power God or Almighty God - “Lord Almighty.”
According to one hypothesis, the choice of name was influenced by the religious beliefs of the company's leaders.
Glacialtech.
Original in Chinese: .
Hieroglyph Yang - "sea";
Shin - "metal", "money".
Translation option: “sea that cools metal” or “sea of money.”
X-Micro.
Original in Chinese: .
Translation: "Giant".
Support and development of small business is one of the priorities of today's economic policy in many advanced foreign countries.
China's National Economic Development Program envisages focusing on the development of 11 key sectors over 15 years (2006-2020), including the telecommunications and IT industries.
China's service industry has developed at a rapid pace in recent years. The new period of industrialization should be a turn from resource-intensive production to a high-tech and knowledge-intensive resource-saving method of production with a significant improvement in the environmental situation in the country.
The Chinese government considers small and medium-sized enterprises to be a critical driver of economic growth, market revitalization and job opportunities. Over the past 20 years, the small business sector has become an integral part of the Chinese economy and is now vigorously creating a huge number of jobs and mastering new innovative technologies.
The government is improving the system of public procurement in this sector, training qualified and enterprising specialists, and providing assistance in developing foreign markets. In 2005, the “Law on Stimulating the Development of Small and Medium-Sized Enterprises” was adopted, which is designed to maximally equalize the rights of these enterprises with large companies, especially in terms of access to modern technology, market information and financing. Of particular practical importance are the provisions on the establishment of the “State Fund for the Development of Small and Medium Enterprises” (financed from the central budget), on the state’s protection of the legitimate income of small enterprises and their investors from attacks by any persons and organizations, on tax benefits for enterprises providing a significant number of workers places for the unemployed and disabled. The law provides for the admission of this sector of the economy to many profitable sectors, and only some key sectors of the economy will remain under state control. Here are some features of Chinese small business and its main economic indicators in 2010 (Fig. 10)
Figure 10 - Main indicators of small businesses in China for 2010
In 2010, the rapid development of small businesses was noted, their profitability increased, there were more than 4.3 million small and medium-sized enterprises and 27.9 million individual enterprises in the country, employing over 75% of the employed urban population.
This accounted for 99% of the total number of enterprises in the country, accounting for almost 60% of GDP and 74.7% of the added value of industrial products.
The SME sector accounts for 65% of patents, 15% of technical innovations and more than 80% of new products in China.
At the same time, almost 99% of enterprises fall into the category of small enterprises with up to 100 employees, and only 0.6% belong to medium-sized enterprises with between 101 and 999 employees.
In 2010, China's exports and imports of new and high technology products amounted to $218.25 billion and $197.71 billion, an increase of 31.8 and 22.5%, respectively, with the main growth coming from the small and medium enterprises.
The total volume of goods and services in 2009 reached 2.3 trillion. dollars. This brought China to fourth place in the world after the USA, Germany, Japan, ahead of England, France, Italy and Canada. In 2010, China's GDP reached 2.7 trillion. dollars, or more than 2 thousand dollars per resident.
A huge contribution to this dynamic growth was made by Chinese small businesses, which developed rapidly along with the overall economic growth of the country. There are currently over 40 million medium and small enterprises in China, which have become the driving force of China's economic development.
Data on the development of China's economy and the dynamics of MP are presented below. (Fig. 11)
Figure 11 - Main indicators of the development of small enterprises in China
In 2010, they produced 55% of the country's GDP, taxes paid by small enterprises to the state are 46%; their share among Chinese organizations is about 99%. Currently, these enterprises account for 75% of patented developments and 82% of the total number of jobs in the country.
This means that the third doubling of a key indicator of economic power occurred not in ten, but in just six years. Thus, over the 30 years since the beginning of the reforms, China’s economic potential has increased 15 times, its foreign trade turnover has grown almost 80 times (from 21 to 1600 billion dollars) with an average growth rate of 16%. In terms of its share in world trade, which reached 9%, and in gold and foreign exchange reserves, which reached 1 trillion. dollars, China is ahead of Japan. This comes against the backdrop of impressive growth in foreign direct investment. During the years of reforms, 570 thousand enterprises with foreign capital were created in the country for a total amount of 670 billion dollars. Taxes from foreign entrepreneurs alone make it possible to finance budget expenditures on education and health care.
The structure of active SME entities by organizational and legal forms is dominated by entities operating in the form of an individual - these are individual entrepreneurs, the number of which is 27,953,124 units or 62.9% of the total number of active SME entities. The number of peasant farms was 18.5%. The share of legal entities of small businesses is 18% of legal entities of medium-sized businesses 0.6%. (Fig. 12)
Figure 12 - Structure of organizational and legal forms, in%
As a result of a number of measures taken to support small businesses in the country, the dynamics of the number of enterprises has increased over several years. They occupy leading positions in many industries. Small and medium-sized enterprises have become an important source of China's economic growth and their numbers are growing. According to statistics, small and medium-sized enterprises make up 99.3% of the total number of enterprises in the country (Table 2)
Table 2 - Growth in the number of small and medium-sized enterprises (SMEs), 10 thousand units.
The main conductor of state economic policy in the country is the National Development and Reform Commission (NDRC). One of the most important areas of its activity is the creation of conditions for the dynamic development of small businesses. For this purpose, it includes the “Department of Small and Medium Enterprises” and the “Chinese Center for Business Coordination and Cooperation” (CCBCC) was formed. SSVSS is a special agency for servicing small businesses and at the same time provides economic and technological cooperation between national and foreign organizations for the support and development of entrepreneurship.
The main functions of the SWSSS are: research into the role, status and needs of the sector; collecting information and formulating proposals to develop policies that promote its development; assistance in creating a comprehensive system for providing services for small and medium-sized businesses; organization of trade fairs, exhibitions and assistance in business negotiations; training, information services, consulting and business diagnostics. SSVSS has developed a number of permanent government programs to support small and medium-sized enterprises.
In order to quickly develop this sector, many conferences are organized to exchange information and experience of the most successful enterprises with the participation of various countries and international organizations. SSWSS regularly holds international exhibitions, at which, from 1990 to 2005 alone, more than 950 international projects for the development of small businesses in China were signed totaling $6.2 billion. Now SSWSS is creating a national network of agencies for comprehensive support and service small businesses.
In order to ensure comprehensive and timely information
To serve the population of the country and all government bodies on all issues of SME activities, by decision of the Government in 2001, a state non-profit information service (CSMEO) was created. The activities of CSMEO are supported by the SME Development Department at the NDRC. The CSMEO website presents 58 main headings and 180 thematic sections containing up to 1000 different messages, which attracts more than 200 thousand visits daily.
More than 10 thousand different agencies and intermediary companies take part in the work of CSMEO, which contribute to the development of business relations between enterprises, initiate fairs and inform about the most important initiatives of the Government and authorities of all levels concerning the activities of small businesses.
The information network serves all regions of the country, covering cities and most rural settlements. This allows timely reporting on changes in existing and introduction of new legal acts, on trends in the country’s socio-economic development, and also informs about the state and ways of development of small and medium-sized enterprises in the country and abroad. CSMEO provides data on supplies and needs of local and foreign markets, characterizes the highest quality products produced by small and medium-sized enterprises.
In order to further expand the information network and to coordinate the activities of CSMEO in terms of creating a high-quality three-level nationwide system of information services for small businesses, the main information agency “Badging SME Online Companies” was created in 2003. The first level is the main website in Beijing, which has second-level satellite sites in each region, and the third level includes information networks in all cities, economic zones and municipalities.
Along with general information about the state of the small business market, CSMEO publishes information about outstanding scientific and technical achievements, patents and new technologies, publishes information about agencies providing services to small businesses, informs about the procedure for creating an enterprise, advises aspiring entrepreneurs and provides information on activities credit and financial institutions, reports on the needs and labor resources for small and medium-sized enterprises in various regions and cities of the country, and also provides information about specialists looking for work. In addition, CSMEO characterizes the development of local and international groups of industrial enterprises, and also provides technological and commercial information about members of various entrepreneurs' unions.
For the convenience of users, online legal advice is provided on regulating the activities of small enterprises and advising entrepreneurs on certification of quality and management systems, as well as assistance in developing plans for the computerization of enterprises.
CSMEO also serves government agencies, disseminating information to all government services related to small business activities. Analyzes statistical data on the state and activities of entrepreneurs, gives forecasts for their further development. Collects information on the activities of agencies and institutions supporting small businesses in order to assess their effectiveness. Disseminates information about the experience of the most successful enterprises and provides assistance in the development of electronic business. Helps entrepreneurs submit online applications to SME support funds for assistance.
The organization develops draft training programs and assistance to start-up entrepreneurs in setting up a business, and also coordinates the activities of training courses and programs. Analyzes the practice of the loan guarantee system in order to minimize risks. At the same time, CSMEO provides everyone with a wide range of technical services, including: e-mail, search engines, selection of thematic information, operational research, video conferencing, website creation.
Thus, we can conclude that the Chinese government is constantly taking various measures to create more favorable conditions for the further development of small and medium-sized enterprises, improving the legal system for regulating its activities and providing services to this sector of the economy.
Ten years ago, China joined the WTO, after which the Celestial Empire immediately attracted a lot of attention from investors and business owners. However, China became a truly attractive jurisdiction for foreigners in 2006. Then a new law was adopted that radically changed the idea of corporate law: overly stringent requirements for the company’s charter disappeared, the principles of doing business became more flexible, and management became less troublesome. Recently, more and more often, Ukrainian investors and business owners are registering companies in foreign jurisdictions. What does an owner need to know about registering their business in China?
Types of companies in China
In the case of China, as well as any other jurisdiction with the possibility of choosing the type of company, it is necessary to clearly understand how exactly the movement of goods will be carried out (and whether the company’s activities will be related to trade turnover at all). This is important, since it all depends on whether it will be necessary to organize production, whether it will be a representative office of a large international holding company or an enterprise whose activities are directly based on the use of the results of intellectual work.
There are three types of enterprises that can be registered in China:
- WFOE -company;
- representative company;
- joint venture.
WFOE -company
WFOE - company (Wholly foreign owned enterprise - literally this is a company wholly owned exclusively by foreign persons) - a limited liability enterprise. The share of foreign capital is 100%. Such companies do not require the participation of Chinese investors. This option is suitable for a business with a clear specialization, because it will require a license to conduct operations in a specific area (except for export and import).
This is an ideal choice for those who want to independently determine their business development strategy, protect the company’s intellectual property at the legislative level and compete with other types of companies. W FOE -the company also allows you to organize production in China as efficiently as possible, export of foreign products to China and sales on the domestic market.
Representative company
This is the most common registration scheme when the production of goods is not the purpose of registering a new company. Most often used by owners of international businesses as a representation of the parent company, as well as as an independent unit for conducting various marketing research, establishing contacts in the market, and supporting services for business.
It should be understood that a representative office as a type of legal entity does not have the right to carry out its activities to make a profit. In this case, we are talking about services aimed at developing business and increasing the profits of other companies. In addition to marketing, consulting and sociological services, the representative office can also be used to import goods from China, since this type of activity does not require special licensing.
Joint venture
A joint venture (or JV) is an enterprise founded by a foreigner and with mixed capital. A joint venture is the best option for those business owners who want to take advantage of Chinese legislation, which favors local companies, giving them access to the medical, healthcare and educational sectors. This partnership can be characterized as an equity participation in a limited liability company, with the only difference being that one of the two participants must be a citizen of the People's Republic of China. Most often, a joint venture involves a clear distribution of profits according to the shares prescribed initially and investments from each partner.
However, there are more flexible forms of joint venture. They allow the foreign partner to withdraw investments before the expiration of the enterprise's life and do not have clear requirements for the principles of profit distribution. This type of company is also suitable for business owners who require local partners and constant contact with the local bureaucracy. In particular, businessmen seek to register just such companies to export goods from the Middle Kingdom or sell on the local market.
Of course, no jurisdiction is perfect in everything. This applies to the carefree Seychelles, the tax havens of the Caribbean, flexible Holland, and the strict People's Republic of China. Definitely, if it’s time for a business to move to the international level, then China is one of the best options both as a sales market, as a production and resource base, and as a huge purchasing platform. However, if for some reason an investor prefers not to register a company in China, but wants to take advantage of the opportunities of this market, the most worthy and close alternative is Hong Kong. Registering a company in this jurisdiction will be useful if the business exports goods from China through the Hong Kong buffer zone.
Many of our clients who have decided to open a company in China often ask what type of 100% foreign-owned WFOE company they should open. Actually, the answer is very simple.
What types of WFOE are there in China?
It is a common misconception that there are many types of enterprises with 100% foreign capital. In fact, there is only one such species.
Despite the fact that the company you have opened is usually called a trading, service or manufacturing enterprise, in fact they are all the same type of business in China, the only difference is in the declared field of business.
Registration of WFOE in China is the same, regardless of the field of your future business, and for the government there is no difference between them. The document that will be provided to the relevant authorities outlining the scope of your business will change, but essentially the rest of the information you must provide will be the same.
Here are some important points to remember if you are looking to open a company in China:
- No matter what business niche you choose, the process for registering a WFOE is the same.
- Typically, you do not need to rent a factory, office, or store until you obtain a business license.
- Once you obtain your license, you may need to apply for additional documents and permits that are relevant to your business or industry. For example, a trading company planning to import or export goods must apply for an “export and import” license. However, this does not in any way affect the opening of the company itself.
How much money do you need to open a company in China?
The initial minimum investment is largely optional (and also tax-free, unlike subsequent foreign investments, which may in turn be taxed). As a rule, government agencies do not check how much money you have in the bank, but we recommend depositing an amount into your account that will be enough to cover the expenses for 1-2 years of the company’s existence (staff salaries, rent of premises, etc.)
Depending on the scope of your business, we recommend the following capital investment amounts:
- Services/Consulting – 100 thousand yuan
- Trade – 300 thousand yuan
- Production – 500 thousand yuan
- Food/Catering – 500 thousand yuan
So WFOE is WFOE, period.
Do you want to open a company in China? You may have other questions: about the costs of starting a company or where to set up a WFOE? We are ready to answer them.
Date: 05/14/2003
Chinese limited liability companies
In connection with the increasing volumes of cooperation between Russian companies and Chinese enterprises, it makes sense to consider the functioning of Chinese limited liability companies.
The main provisions concerning the organization and activities of limited liability companies (as well as joint stock companies) are contained in the Law of the People's Republic of China "On Companies" dated December 29, 1993.
First of all, only mainland Chinese citizens can be directors and shareholders of Chinese limited liability companies (this does not include residents of Hong Kong, Macau, Taiwan and Chinese citizens of other countries). This excludes direct foreign participation in such companies. There are different requirements for the composition of the board of directors and the qualifications required for a company director in different regions of China. The board of directors may consist of a minimum of two or three directors, depending on the location and registration of the company. Some regions require that the company's "legal representative" be registered at the place of residence in the area in which the company is registered. Directors and shareholders of Chinese companies may also be other Chinese legal entities. To establish a limited liability company in China, you need at least two founders - individuals or legal entities.
The company's "legal representative" is personally responsible for ensuring that the company's activities are carried out in accordance with Chinese law, and may be subject to liability (including criminal liability) for failure to comply with this requirement. For this reason, company seals are usually held by the legal representative. Thus, the legal representative of the company is the person who has the greatest analogies with the executive director in the West.
The government body responsible for approving the scope of activities of companies and issuing business licenses is the Bureau of Commerce and Industry, which issues various seals and stamps to companies, including the main seal, which is placed on all official company documents, such as contracts, etc. .; and the financial seal, which is placed on all documents related to financial transactions (including banking and tax). These documents must also bear the signature of a legal representative or designated signatory. An authorized person appointed as a legal representative of a company (for example, a person who has the right to sign the company's bank documents) does not necessarily have to be a citizen of the People's Republic of China; he can also be a foreigner. In general, foreigners can be hired by Chinese companies, but they must obtain work and residence permits in the PRC and register with the tax department for personal income tax.
Chinese limited liability companies, as indeed all companies in China (including those with foreign investment), must have a clearly defined scope of their activities in their charter, which defines the scope of the company's business activities. It must be approved by the Department of Commerce and Industry. Any activity outside the scope of the company's activities is illegal. If necessary, with the approval of the Trade and Industry Administration, the scope of the company’s activities can be expanded.
In China, unlike the requirements in Western countries, the registered capital of a company, according to the articles of association, must be paid in full. The authorized capital is transferred to the company's savings bank account, after which the bank issues a certificate of receipt of funds into the account, which is certified by a special auditing firm that issues a “certificate of confirmation of capital.” This certificate must be submitted to the Office of Commerce and Industry within 90 days of receiving the business license, otherwise the company is considered to be in violation of the provisions of its own articles of association and its license is subject to revocation.
Depending on the scope of activity and the location of the company in China, the requirements for the minimum amount of registered capital vary from 100,000 to several million yuan. The registered amount of the authorized capital is reflected in the business license and represents the amount of limited liability of the company. Thus, it is possible to clearly determine the amount of credit that can be provided to such a business unit. In the event that the share capital is spent, the liability of the directors and members of the company is limited to its amount in the event that the company becomes insolvent and creditors demand performance of obligations.
Companies in China are registered at the local level, so it is impossible for two companies with the same name to exist within the same city or province. However, on a national scale, such a situation is quite possible. Therefore, if it is necessary to ensure the protection of a name at the national level, it is necessary to register the company name as a trademark, which ensures its protection throughout the territory of the PRC.
After completing the business license procedure, the company is required to register with the local tax office, which issues the appropriate registration certificate. It is issued annually and, together with the business license, must be placed in a visible place in the company's office.
Chinese limited liability companies are subject to turnover tax, the rate of which varies depending on the type of activity and location of the company. For example, bars and restaurants are subject to this tax at a rate of 10%, trading companies are usually 5%. The tax must be calculated and paid monthly. Income tax is payable annually, its amount is determined on the basis of the company's annual audit. The national income tax rate is 33%. But there are some regional differences. For example, in Shanghai - 24%, and in special economic zones it is reduced to 15%.
A Chinese limited liability company can establish branches in other cities or provinces, for which it is necessary to obtain approval from the Administration of Commerce and Industry, firstly, at the place of registration of the company, and secondly, at the location of the branch. The Commercial and Industrial Directorate at the location of the branch issues a license for economic activity for the branch. In this case, the amount of capital required to establish a branch is usually 50% of the authorized capital of the parent company.
In addition to obtaining the aforementioned certificates and licenses necessary for registering an enterprise, for the operation of the enterprise it is necessary to obtain other permits, for example, from the fire department, police, health department, for the right to trade in alcoholic beverages and other documents depending on the specific circumstances.
Joint ventures with Chinese and foreign capital in China
The first step in this direction was the adoption by the 2nd session of the fifth convocation of the National People's Congress on July 1, 1979 of the "Law of the People's Republic of China on the Exploitation of Mixed Enterprises Based on Chinese and Foreign Capital." This Law to this day remains the fundamental act in the legal formulation of the policy of cooperation with foreign capital in the field of joint (mixed) enterprises.
In the late 70s and early 80s, the PRC chose an integrated approach to attracting foreign private capital, primarily in the form of mixed enterprises. By betting on these types of enterprises, China saw them as more profitable for itself than various types of technical cooperation or compensation deals. This form of attracting foreign investment was intended to a certain extent to guarantee their rational and economically profitable functioning. At the same time, the party attracting capital received certain opportunities to borrow foreign experience in industrial construction and management, modern equipment and technology, and train qualified workers and production management personnel.
The law on the operation of mixed enterprises (rather short, numbering only 15 articles) only in the most general form defined the principles and methods of functioning of mixed enterprises. It was, in a sense, a program document and contained general norms defining the goals and principles of their creation, the organizational structure of enterprises, their legal capacity and areas of activity. As a document reflecting the fundamentals of the method of legal regulation, attraction and use of foreign capital, the Law combines both civil and administrative legal elements.
In order to “expand international economic cooperation and technical exchange,” the Law allows the creation in the territory of the PRC “on the basis of the principle of equality and mutual benefit” of mixed enterprises, the parties (shareholders) of which may be Chinese companies, enterprises and other economic organizations, as well as foreign companies, enterprises, organizations and citizens (Article 1).
The law establishes the licensing procedure for establishing mixed enterprises. The State Committee of the People's Republic of China for the Control of Foreign Investment, which within three months approved (or rejected) the agreements or contracts signed by the parties on the creation of mixed enterprises and their charters, acted as a public administration body with competence in the field of coordinating the attraction of foreign investments and their use. . However, in order to begin operations, the mixed enterprise must then register with the State Administrative Office of Industry and Trade (Article 3). The permitting procedure is also established in relation to the extension or early termination of the activities of an enterprise (Articles 12, 13). Thus, a mixed enterprise becomes a legal entity (although this term does not appear in the Law) under the Chinese legal system. The law establishes that in its activities it must strictly comply with the relevant regulations of the PRC, i.e. it is subject to Chinese jurisdiction (Article 2). Granting enterprises the right to independently participate in civil circulation also indicates that they are vested with the rights of legal entities. The law stipulates that various types of insurance for mixed enterprises are subject to implementation by Chinese insurance companies (Article 8).
As for the property of the mixed enterprise being created, shareholders can make investments in various forms of assets (cash and material assets), acquiring the right to receive industrial products, and are also entitled to reinvest the profits received. In this case, investments by the Chinese side may be conditional on the right to use land plots (otherwise, a lease is provided). Thus, the emerging mixed enterprise, whose property is a peculiar combination of Chinese state property with private foreign property, acquires the character of an enterprise of a state-capitalist type.
Reflecting the Chinese side's desire to improve the "technical level of industry", the Law requires that machinery and equipment serving as a form of foreign investment be "truly advanced". For failure to comply with this condition, the foreign participant bears financial responsibility (Article 5). At the same time, the possibility of reducing income tax within two to three years after the start of profit is provided for an enterprise that corresponds to the “advanced world technical level” (Article 7).
The lower limit of capital investments of foreign shareholders in the authorized capital under Art. 4 is set at 25%. The participation share of each shareholder determines the extent to which he receives profits and incurs losses (Article 4). A foreign party may have a maximum share in the capital of an enterprise in an amount not exceeding 50% of the authorized capital.
The organizational structure of a mixed enterprise is established in Art. 6 of the Law. A mixed enterprise forms a board, the composition of which is determined by agreement between the parties participating in the enterprise. The chairman of the board must be a citizen of the People's Republic of China, regardless of the share of participation of the foreign shareholder, and his deputy (deputies) must be a representative (representatives) of the foreign participant. This provision, coupled with the stipulation that the board decides “important issues” in the form of consultations between representatives of the parties “based on the principle of equality and mutual benefit” (i.e., practically through consensus rather than voting), means that the Chinese side actually final administrative control over the activities of the enterprise is ensured. At the same time, the board has quite broad powers: it has exclusive rights to resolve issues regarding the development of the enterprise, its production programs, budget, distribution of profits, determination of various funds, etc., and also appoints and determines the official responsibilities of key officials in the administration of the enterprise (chief manager, chief engineer, chief accountant, etc.). Provisions of Art. 6 provide ample opportunities for representatives of the Chinese side to use the experience of foreign representatives in the administration to make technical, economic and commercial decisions, as well as to connect the enterprise to the planned economy system.
The law also establishes a procedure for resolving disagreements that may arise between Chinese and foreign representatives in the administration of an enterprise. If the dispute cannot be resolved by the board, the matter is referred to a Chinese arbitration body. It is also possible to submit a dispute for consideration to “other arbitration bodies,” which (means arbitration bodies of third countries) (Article 14). By allowing disputes arising within a mixed enterprise to be referred to arbitration in third countries, the Chinese side made a clear concession in terms of the national jurisdiction to which the enterprises are subject.
The starting point for the activities of mixed enterprises is the establishment of Art. 9 that their production and economic plans are communicated to the “competent authorities and are carried out in an economic contractual manner.” Thus, the law clearly aims to ensure that enterprises operate within the framework of Chinese economic plans and under the control of relevant government authorities.
By attracting foreign capital to the country's economy, the Chinese government also seeks to use its activities to increase foreign exchange earnings through exports.
Mixed enterprises have the right to conclude purchase and sale contracts both within the country and abroad. This follows from the provisions of Art. 9 that the raw materials, fuel, equipment and parts needed by the enterprise “must primarily be purchased in China, but can also be purchased on the international market for foreign currency selected by the enterprise itself.” The legal capacity of enterprises also includes the sale of their products abroad, as well as their sale on the Chinese market. The establishment of branches of enterprises outside the PRC is also permitted. Selling the products of a mixed enterprise in foreign markets actually becomes the business of a foreign partner, who is better familiar with the market conditions and the mechanism of foreign trade transactions and has distribution channels.
The desire to tie mixed enterprises to domestic sources of supply when targeting their sales abroad pursues the goal of expanding exports as the main channel for the country to receive foreign currency while simultaneously minimizing foreign exchange costs for the treasury.
The law establishes a general principle for calculating net profit, which is distributed among the participants of a mixed enterprise. Net profit is determined as a result of deductions from gross profit of amounts used to pay income tax, as well as those allocated to the accumulation funds formed at the enterprise, production development, material incentives and welfare (Article 7).
Foreign shareholders, as noted above, not only receive net profit, but have the right to transfer it through the Bank of China abroad (Article 10); foreign workers and employees of mixed enterprises can also transfer their income abroad after paying personal income tax (Article 11).
When creating mixed enterprises with the participation of foreign capital, the question inevitably arises about the legal status of foreign property, which constitutes one of the parts of the enterprise’s property. However, the Law does not contain detailed provisions in this regard. It only states that during the operation of a mixed enterprise, the transfer of rights to the registered capital of one of the shareholders can be made with the consent of other participants (Article 4). The Law also contains the following provision: upon expiration of the contract on a mixed enterprise or early termination of its activities (the latter, according to the Law, is permissible due to serious losses suffered by the enterprise, in case of failure to fulfill the obligations of one of the parties or in connection with certain “force majeure” circumstances"), the foreign shareholder is recognized with the right to transfer abroad both net profit and capital and other funds distributed in this case between the participants (Article 10).
Based on these very general provisions, as well as the provisions determining the legal capacity of mixed enterprises and the procedure for distribution of profits, it can be considered that the Law on the Operation of Mixed Enterprises has some reflection of the principles of legislation on limited liability companies adopted in many countries. The right of ownership of the property of a mixed enterprise in its real-monetary terms belongs to the enterprise itself as a legal entity; it disposes of its property and, within its limits, is responsible for its obligations and debts. At the same time, the property of a mixed enterprise consists of participation shares, which can be transferred to third parties only with the consent of other shareholders. Foreign shareholders of a mixed enterprise are only the owners of the value of their shares and, within their limits, are exposed to the risk of possible losses in the event of the unprofitability of the enterprise.
The above is confirmed by the content of the agreement on the creation in March 1980 of one of the first mixed enterprises in China - the China-Schindler elevator company, which produces lifting equipment. The PRC paid great attention to advertising this mixed enterprise as an example of successful cooperation with foreign capital. The parties to it were the China Construction Machinery Corporation and two foreign enterprises - "Schindler holding AG" (Switzerland) and "Jardine Schindler" (Hong Kong). Clause 1.3 of the contract provided that "the participants shall not bear any responsibility for the debts or obligations of the mixed enterprise. The responsibility of the participants is limited to making contributions to the necessary capital." Clause 4.5, dedicated to the procedure for liquidating a mixed enterprise, stated that upon expiration of the agreement, the shares of foreign participants would be purchased by the Chinese participant. In other words, the Chinese side received full ownership of an operating enterprise with an established production process and an established sales market.
The law did not contain sufficiently specific provisions guaranteeing the protection of foreign property included in the property of mixed enterprises. However, this is certainly of paramount importance from the point of view of foreign investors. The law included only a provision that “the government of China, in accordance with applicable laws, on the basis of agreements, contracts, charters approved by the government of China, protects the invested capital, the necessary share of the profits received and other legal rights and interests of foreign shareholders of mixed enterprises” (Article .2). In contrast to the legislation of other states that attract foreign capital in forms similar to those chosen in China, questions about the possibility of nationalizing foreign property, the conditions under which the possibility of nationalization arises, the payment of compensation in such cases, etc. were passed over in silence.
The first two by-laws were adopted by the State Council of the People's Republic of China on July 26, 1980. They were “Regulations on the registration of mixed enterprises based on Chinese and foreign capital” and “Regulations on labor in mixed enterprises.”
In development of the Law on the Operation of Mixed Enterprises of July 1, 1979, the “Regulation on Registration...” clarifies and expands the competence of the State Administrative Department of Industry and Trade and regulates the relations of mixed enterprises with local authorities. It stipulates that a mixed enterprise is subject to registration with the State Administrative Department within a month after the agreement on its creation is approved by the State Committee for Control of Foreign Investments (now the Ministry of Foreign Economic Relations and Foreign Trade).
Administrative bodies in charge of trade and industry at the level of provinces, cities and administrative regions are vested with the right to register mixed enterprises established in the areas under their jurisdiction. However, the State Administrative Office retains the authority to make the final decision on whether to issue a permit to an enterprise to begin operations. The “Regulations...” approves the list of documents required for registration, which must contain basic information about the enterprise. At the same time, mixed enterprises are obliged to register with local authorities (subject to the prior sanction of the State Committee for Control of Foreign Investments) all changes in their production and commercial activities, financial position, terms of operation (including early termination of the contract), and location.
“Regulations on the registration of mixed enterprises...” means that all main aspects of the activities of these enterprises in China become subject to regulation by administrative authorities. It is further evidence of the desire to maintain state control over foreign investment.
However, the “Regulations on Labor in Mixed Enterprises,” which also develops the original provisions of the Law on the Operation of Mixed Enterprises, provides foreign shareholders with a number of benefits. The administration of enterprises receives the right to independently select qualified labor, and wages in mixed enterprises are generally set at a fairly low level (albeit higher than the corresponding figure in similar public sector enterprises), taking into account the general level of wages in Chinese industry. The “Labor Regulations...” stipulate that issues related to hiring, release from work and dismissal, production standards, remuneration, rewards and punishments must be stipulated in labor contracts concluded between the administration of the enterprise and the trade union organizations created at them. The same contracts should regulate the duration of working hours and vacations, issues of insurance, labor protection, and labor discipline. At the same time, the “Regulations...” do not mention the full extension of existing labor law standards in the PRC to mixed enterprises. The employment agreement is intended to serve as a regulator of working conditions in each individual case. It should also be taken into account that there is no provision for the extension of the principles of the territorial and sectoral structure of trade unions existing in China to trade union organizations of mixed enterprises, which may mean the isolation of trade union organizations of mixed enterprises. The administration of such enterprises, in conditions of underemployment in the country, has a real opportunity, using some increase in wages as a kind of bait, to impose favorable working conditions on the staff. The mention that a labor agreement is submitted for approval to the labor department of the people's government of a province, autonomous region or city cannot serve as a reliable guarantee for the interests of Chinese workers and employees of a mixed enterprise, since its implementation largely depends on the discretion of the enterprise administration.
True, according to the “Regulations on Labor...” in the event of labor disputes, the administration of the enterprise and the trade union can apply for arbitration proceedings to the labor department of the relevant people's government and initiate proceedings in court if they disagree with the arbitration decision. However, this provision is also not capable of reliably protecting the interests of Chinese personnel, given the interest of the PRC leadership in the smooth and profitable functioning of mixed enterprises. At the same time, as provided by the “Labor Regulations...”, mixed enterprises are required to bear the costs of labor insurance for personnel, pay the costs of workers and employees for medical care, and provide various types of subsidies in accordance with the standards existing in state-owned enterprises.
Since mixed enterprises are simultaneously assigned the role of centers for training skilled workers and managerial personnel, the “Regulations on Labor...” provides for the organization of workers’ schools and preparatory courses at enterprises.
On September 10, 1980, the 3rd session of the fifth NPC adopted two regulations that directly affected the interests of foreign participants: the PRC Law on Income Tax on Mixed Enterprises Based on Chinese and Foreign Capital, and the PRC Personal Income Tax Law. At the end of 1980, in order to supplement these laws, the State Council of the People's Republic of China approved the "Regulations" on the procedure for their application. The PRC Law on Income Tax on Mixed Enterprises indicates that the PRC is placing a serious bet on foreign capital, equipment and technology as an important factor in the development of its economy. This is primarily manifested in the desire to provide a fairly favorable “investment climate” for foreign capital owners.
The income tax rate for mixed enterprises is set at 30% of the net income received both from enterprises in China and from their branches abroad. Taking into account the collection of an additional 10% local tax on the amount of income tax, a mixed enterprise is required to pay income tax in a total amount equal to 33% of net profit. This level of taxation is quite preferential: it is lower than in developed and even some developing countries. In general, it exceeds the same figure in a number of developing countries and regions, however, certain benefits are provided for foreign investors: tax reduction or complete exemption from it.
The latter is reflected in the “tax credit” provision contained in the Law under consideration, designed to ensure the attraction of foreign investment for a long period in the PRC economy, as well as directing it to backward sectors of the economy and underdeveloped areas of the country. According to Art. 5 of the Law, mixed enterprises created for a period of ten years or more, after approval of the enterprises’ applications by the tax authorities, are exempt from income tax in the first year of receiving profit; a tax reduction of 50% is allowed in the second and third years. Special privileges are also established for enterprises created in outlying areas or in sectors of the economy that provide low profits (agriculture, forestry). They are not only subject to the general provision mentioned above, but also have the possibility of reducing their income tax by 15-30% for another 10 years after the expiration of the grace period of 1-3 years.
The objectives of attracting foreign capital are also subordinated to the provisions providing benefits for foreign shareholders who reinvest the income received for a long period of time in a mixed enterprise or deposit it in Chinese banks. If the reinvestment period exceeds five years, 40% of the previously collected income tax amount is returned to the foreign partner (Article 6); when a foreign shareholder does not transfer his share of income abroad (i.e., deposits it in China), he is exempt from paying a 10 percent tax on transfers of funds outside the PRC (Article 4).
From Art. 7 of the Law it follows that the Chinese side intends to limit the existence of mixed enterprises that do not generate adequate income to a five-year period. Art. 11 and 12 subordinate the financial and economic functions of mixed enterprises to the control of Chinese tax authorities: enterprises are obliged to report to the tax authorities about all important changes in their activities, and the latter are given the right to audit financial affairs, accounting at enterprises, and payment of taxes by them. Art. 14 provides for sanctions in case of violation of the provisions of Art. 11 and 12 - fines imposed by tax authorities, which in aggravating circumstances may exceed the amount of income tax by five times, as well as judicial sanctions.
In development of the Law of the People's Republic of China on income tax from mixed enterprises, the State Council of the People's Republic of China adopted the "Regulations..." on the procedure for applying this Law.
