| Multinational corporations are allowed to establish foreign-invested holding companies that are in legal terms limited liability business entities and which can be set up either as an EJV or a WFOE. Foreign investors that choose this type of investment vehicle typically want to increase their investment or reinvestment, or to co-ordinate already established investment companies in China.
Although such companies have many similarities to Western holding companies, some differences exist. For example, the Chinese authorities have denied holding companies the right to perform many corporate group functions, such as foreign exchange balancing, which are their raison d’être.
In November 2004, Mofcom promulgated the Regulations on the Investment in and Establishment of Holding Companies by Foreign Business Entities. Generally, these revised regulations have expanded or redefined the business scope of holding companies.
Foreign investors may invest in fields such as industry, agriculture, infrastructure and energy. Typical business activities of holding companies include acting as a purchasing agent, distributing or providing after-sales services for all products that they import, and handling certain financing, foreign exchange and loan issues. Moreover, a holding company may sell wholesale in China-but not retail- the products it has imported from imposes requirements – including high minimum registered capital requirements – on investors wishing to set up a holding company in China. |