Regarding Foreign Investment in Materials Processing Factories, A Middle Way

In late August 2008 the General Office of the Shenzhen Municipal Government issued File No. 91 Opinions Regarding Foreign Investment in Materials Processing Factories in Shenzhen and Their Continued Operations.  That document embodies a Central Government assignment of authority to each local Special Economic Zone to draft and coordinate a workable solution to keep those foreign investments here in China, while also recognizing the changes in Chinese law that we all have to remain in compliance with.
 
The good part of that new set of guidelines is that foreign investors are now legally permitted to continue to run a Materials Processing Factory (also known as an “APC”) and also to establish a Wholly Foreign Owned Enterprise (“WFOE”) operation in the same physical location for a transition period. 
 
This is in contrast to the old set of rules where they wanted an APC or Materials Processing Factory to close first – then reopen and a new Foreign Investment.
 
That transition period will allow dual operations for up to 180 days from the time your WFOE licensing is granted.  At the end of that period, the APC will have all corporate affairs ‘wound up’ and will no longer exist and you will be a WTO compliant WFOE manufacturer.  You will hold your own import and export licenses.  You will have access to the domestic Chinese market.  You will be able to manage your corporate affairs in any way you wish – internally – so long as you also comply with all Chinese language local reporting requirements.  These are an unprecedented and very liberal type of legislation that was not possible here even some years ago.
 
The bad part of that law might be summarized as follows; how do you change the tire on a car without pulling the car over to the side of the road?  So, in short, this process will present some challenges.  Both because you will have to keep the wheels turning round and round, so to speak, as this transition occurs, but also because the Chinese have very little experience with this sort of thing.  It is new law.
 
Moreover, you will now be subject to all aspects of Chinese law, which you may never have been before.  Yes, running a factory here meant you were physically present in China, but only a small part of Chinese law would have been imposed on you – as that is what an APC was all about.  Foreign investors long ago would only agree to come to China if they were not subject to the full force of Chinese law.   Those days are behind us all now.
 
And it is not a bad thing.  Just different.