China to Allow Foreign Companies and Individuals to Set Up Partnership Enterprises

China has announced that a new regulation aimed at providing regulatory certainty to foreign firms and individuals who are interested in establishing partnership enterprises in the country will be introduced next year.

The State Council passed the Regulation on Partnership Enterprises Founded by Foreign Companies or Individuals in August this year and officially announced the news on November 25, according to an official government announcement released yesterday.

The new regulation, which will take effect on March 1, 2010, will apply to partnership enterprises founded by two or more foreign companies or individuals, or by foreign firms or individuals in partnership with Chinese individuals, companies or organizations.

According to the new regulation, China will protect the lawful interests of any foreign firm or individual that sets up a partnership enterprises in China and will encourage those companies that possess advanced technology and management expertise to establish firms here for the purpose of promoting the development of China's modern service industry and other sectors.

Investors will be required to submit the founding capital of any such partnership in the form of freely convertible currency or lawfully-gained Renminbi.

Partners will also be required to register at the local branch of the Administration of Industry and Commerce but this registration will not require the approval of the Ministry of Commerce.

The  new regulation also applies to enterprises and individuals from Hong Kong, Macao and Taiwan who intend to establish partnership enterprises in mainland China.

Though the new regulation will take effect from March.1, 2010, it was passed at the 77th Standing Meeting of State Council on August 19, 2009. No explanation was given for the long delay in announcing the decision.

According to a Reuters report on the new regulation,  currently, only Chinese investors in onshore yuan funds can opt for the limited partnership structure, which offers tax advantages and caps liability.

Once the new regulation takes effect, foreign investors will also be permitted to establish  limited partnerships in China.

Links and Sources
State Council: Announcement (Chinese)

Reuters: China okays foreign partnerships