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China FDI: You Got To Know What To Hold, Know What To Fold

China FDI Lawyers

Co-blogger and uber-experienced China lawyer Steve Dickinson is interviewed over at Danwei FM on Foreign Direct Investment (FDI) in China. [link no longer exists] The interview focuses on China’s new catalogue on foreign investment.

I urge anyone contemplating investing in China to go have a listen. Here are the highlights:

Real Estate.
China does not have a problem with foreign investors getting involved in developing and building new real estate projects, but it does have a problem with foreign investors buying existing properties to re-sell. There are restrictions on luxury properties, both in the catalogue and in certain regulations. Nobody seems to know why China wants to discourage foreign investment in luxury properties.

China has always restricted foreign investment in publishing and its handling of internet foreign investment is just an extension/confirmation of that. China has deemed publishing a website as exactly the same as publishing a magazine and it is going to restrict this in the same way. China is concerned about access to information.

Market research and social research.
Wholly foreign owned entities (WFOEs) are not allowed to do market research. Joint Ventures (JVs) can conduct such research, but WFOEs cannot. Beijing initially thought it would monopolize and monetize market research but now it just is worried about negative research. Steve asks how companies can be expected to invest in a country in which they cannot do legal research and then notes it is completely contradictory to have a catalogue with twenty pages of “encouraged” investments, but no right to conduct market research to find out whether investment makes sense. This prohibition against WFOEs doing market research is “uniformly ignored,” but Steve does have to caution those who do engage in it that they risk an immediate shutdown. Neither JVs nor WFOEs are allowed to conduct social research.

The new catalogue documents Beijing’s desire to shift China from “Quantity of FDI to Quality of FDI” and to move China away from a cheap labor/cheap material economy to one where information, knowledge, efficiency and technology are at a premium.

3 responses to “China FDI: You Got To Know What To Hold, Know What To Fold”

  1. Good post. Thanks, Dan.
    Is there a definition of “market research” under the statute or regs in China?
    I assume not, or if so, that it’s so vague as to be unhelpful, in which case I am wondering if you or Steve can give a few examples of what is/is not market research?
    E.g., sending your firm employee out to a bar or street corner to talk to people about a product to gain reconn (undercover market research), or, is it mainly formal market surveys that a company or its research firm prepare and send out that we are talking about? What about tracking how your customers navigate through your web site — would that be considered market research in violation of the statute?
    I am trying to get my head around how broad the scope of this law is in China.

  2. There’s a very simple reason China discourages FDI in luxury property (and it’s not just FDI – local investment isn’t too popular at the top levels of government either). A very large proportion of investment in real estate had been targeted at luxury villas and appartments, which stoked resentment about the growing wealth gap among those who couldn’t afford them. There may be some hope that by deterring people from this segment more “affordable housing” may be built instead, but in the meantime officials can at least prevent the bad publicity associated with turfing the poor out of their houses to make way for new luxury developments.

  3. “Nobody seems to know why China wants to discourage foreign investment in luxury properties”. Crap. Of course we know. It’s to stop all the speculators driving up the market. Mainly from Taiwan and Hong Kong. China doesn’t need luxury property. It needs medium-low value proprty the bulk of it’s citizens can buy not artifically inflated prices to ramp up their GDP growth figures.

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