I. Direct Foreign Investment

Foreign invested enterprises are those established in China by foreign investors in compliance with State laws, in way of international direct investment. With the 'nationality' of Chinese, foreign invested enterprises consist of three major forms, namely wholly foreign-owned enterprises, Sino-foreign cooperative joint venture and Sino-foreign equity joint venture.

1. A wholly foreign-owned enterprise, WFOE (also known as Whooly Owned Foreign Enterprise, WOFE) is an enterprise established within China with exclusive capital investment by a foreign firm, economic entity or individual in accordance with Chinese laws, such as a daughter company or a new company established within China by a foreign firm.

2. A Sino-foreign Equity Joint Venture (EJV) is an enterprise formed within China jointly by a foreign firm or other economic organization or individual and a Chinese company, enterprise or other economic organization in accordance with Chinese laws. It has the following characteristics:
a. The cooperation in the joint venture takes the form of shares in invested amount to determine the investment ratio in the registered capital of either party. In accordance with Chinese laws, the forms of investment can be various, including currency, equipment, know-how or land-use right. No matter which form they choose, the investment ratio are determined in monetary form.
b. Either party is liable for its risks and shares its right and interest according to the amount of shares. The parties take the management, benefits as well as risks in strict accordance with the shares they hold. Therefore it has the characteristic of standardization.
b. The organizational and management department is the board of directors. It is the upmost power department, with its members selected by both parties on agreement and stipulated in the contract or constitution of the enterprise. The board of directors makes decisions on major issues with equal weight based on mutual benefits.

3. A Sino-foreign Cooperative Joint Venture (CJV) is a contractual economic entity established within China jointly invested and run by a foreign firm or other economic body or individual and a Chinese enterprise or other economic body. It has the following characteristics:
a. Contractual cooperation. The investment amount and ratio are not calculated in monetary form. The rights and obligations of both parties being stipulated in the contract, this form of investment is simple and flexible.
b. Various forms of cooperation and acquirement of the corporate capacity or the operation right according to law. The organizational form and lawful status of the joint venture differ from each other because of the diversity of cooperation forms. All those who are up to the qualification can acquire the corporate capacity; Those whose partnerships are relatively loose and do not meet the condition of juridical person become partner enterprises of China and acquire the operation right according to law.
c. Flexibility in Management. The management of the joint venture is flexible because of the contractual cooperation of the both parties. The enterprise can either set up a board of directors as the upmost power department or set up a joint managing department instead. The members of the department are selected and assigned by both parties jointly. The enterprise can be managed by either party or consigned to a third party.

II. Processing, Assembling, Cooperative Production and Compensate Trade.

1. In the form of Processing, a foreign company provides all or some of raw materials, auxiliary materials or packaging materials, as well as equipment and technology if necessary, while the domestic company processes according to the type, specification and quality requirements specified in the contract. The domestic company collect processing fee upon delivery of the products to the foreign company.

2. In the form of Cooperative Production, a domestic company manufactures according to the patterns, specifications and quality requirements provided by its foreign partner. The domestic company collects materials fee and processing fee upon delivery.

3. In the form of Assembling, a foreign company provides components, parts and semi-finished products as well as technology and equipments if necessary. Its domestic partner collects assembling fee upon delivery.

4. In the form of Compensate Trade, a foreign company provides its Chinese partner with technology, equipment and patent as investment. After the project is put into practice, the Chinese company compensates the investment and interest with products of the invested project or other products.

III. Financing

Generally there are four major forms of foreign financing, namely bank credit, export credit, purchase of bonds and stocks, and financing lease service.

1. Bank credit is the form in which a foreign bank provides a loan to a domestic company. The credit generally consists of two types, namely short credit and long credit. At present the short credit is loaned by a bank from other companies in the industry; The term of long-term credit is over one year, and has the forms of bilateral credit and banking consortium credit. Bilateral credit involves two banks and spans 3 to 5 years. Banking consortium credit is generally appropriate for projects of large amount and long term. Both parties of the credit have to sign contracts and even government will guarantee for the debtor in crucial projects.

2. Export Credit is the credit provided by exporter or its correspondent bank to the correspondent bank of the importer.

Seller Credit is a deferred payment credit provided by seller (exporter) to buyer (importer). Meanwhile the exporter gets corresponding financing to facilitate circulation.

Buyer credit is provided by a bank in exporting country to the importer or its bank, to pay for the imported goods, and the importer amortizes the principal and the interest. Buyer credit is generally used for purchase of goods, technology and relevant goods in crediting country.

Up to now, China has signed export credit agreement with England, France and German.

3. Securities such as stocks and bonds
Stocks are issued by a stock-ownership corporation limited to demonstrate the investor's identity of shareholder. Foreign investors can purchase 'B stock' issued in Shenzhen or Shanghai; Qualified foreign organization investors approved by China Securities Administration Commission can consign a domestic commercial bank as a trustee, or consign a domestic securities company to do securities business. They can also purchase stocks issued by Chinese companies in foreign market. Up to now Chinese companies have issued stocks in the securities market in Hong Kong, New York, Singapore and London.

Bond is another form of securities, issued in foreign financial markets in foreign currency by Chinese domestic organizations, such as state authorities, financial organizations and other organizations and foreign invested companies. It forms the relationship of creditor and debtor.

Bond has the forms of government bond, financial organization bond, enterprise bond, transferable bond, large-amount transferable deposit receipt and commercial bill. Transferable bonds can be transferred to stocks or other bonds upon request of creditors and according to the issuing conditions. Large-amount transferable deposit receipts are issued by banks and can be transferred and circulated in financial market within a certain period of time. Commercial bill is a kind of debt credence issued by domestic organizations to facilitate the capital circulation and transferable within a term of 2 to 270 days.

4. Financing lease service is a way of financing where a lessor purchases the selected equipments from a lessee, and leases them to the lessee according to the leasing agreement or contract for a long-term use. This is one of the most important forms of modern leasing. When an enterprise need raise fund to purchase equipment, a lessor company leases the equipment to it instead of direct credit to it, that is, material financing instead of capital financing. The leasing contract cannot be terminated upon signing. The leasing term is relatively long, and the selection, repair, maintenance and management of the leasing objectives are taken over by the lessee. In other words, the leasing company finances and purchases the equipment and lease to the enterprise in need. The latter pays the rent according to the contract. After expiry of the contract the equipment are disposed of according to the contract.