I always love it when “my” blog posts are written for me via an email from one of my law firm’s China lawyers on which I am cc’ed. The following is such an email, relating to the ability of a Chinese company to invest in a project outside China. Broken down to its most simple element, the question relates to the difficulty Chinese companies face when trying to send more than $50,000 (this is the yearly cut-off number) outside China. Here is the email, modified slightly to strip it of any possible identifiers:
The Chinese government must approve in advance the transfer of funds outside China in excess of USD $50,000. Chinese government regulations state this approval is routine and will be completed in three days. This is not even remotely true. In fact, the PRC government restricts all foreign investment by all private Chinese investors.
Your investors are claiming this investment is supported by the local government and so approval is guaranteed. In that case, they simply need to obtain the approval. However, any transfer made without approval is a violation of Chinese law and nearly impossible in any case.
To deal with this issue, most Chinese companies (private and government owned) make their overseas investments with funds already located outside of China — usually from Hong Kong, Cayman Islands or BVI. How these funds got to these locations is never clear. However, once the funds are located outside of China, Chinese government approval is no longer required.
To answer your specific question about how to secure investment in your project from China, you essentially have the following two options:
1. The PRC person or entity should request approval as soon as possible. We can help draft the documents they will need from you to secure this approval.
2. The PRC person or entity should make arrangements for payment from a source located outside China.
With China’s recent stock market fluctuations, the PRC government is restricting even more the investment of funds from China.. Your PRC investors are well connected and this project is supported at the local level. In that case, approval should be easy to obtain. Accordingly, the application should be made as soon as possible.
For information on the related issue of getting paid by a Chinese company that owes you money for services your company provided, check out How to Get Paid from China.