Investing In China: The Feasibility Study Report

In you are establishing a company in China, the Chinese government will require you to prepare a Feasibility Study Report in order to obtain approval for your project. This is basically a sales job designed to persuade the government that your project will be good for China.

It bears emphasizing that two versions of the Feasibility Study Report are generally required – a preliminary report early on, and a full report later on. Listed below are the contents of a full report, which can be simplified for the purposes of providing a preliminary report. Its purpose is to sell the project to the examination and approval authority by demonstrating its benefits to the Chinese economy and providing evidence of the investors’ ability to carry out the project.

(1) Proposed name of the proposed enterprise, legal address, scope of business, and scale.

(2) Names of investors, countries of establishment, legal addresses; name, position, and nationality of the new enterprise’s legal representative, and (in the case of Joint Ventures) the name of the administrative bureau supervising the Chinese partner.

(3) Details of proposed investment funds (self-owned funds, loan capital, investment proportion, form of investment – such as cash, equipment, etc., investment contribution schedule), and (in the case of Cooperative Joint Ventures) profit and loss sharing ratio among the partners.

(4) Term (duration) of the new enterprise.

(5) List of persons responsible for preparing the Feasibility Study Report.

(6) Summary and conclusion (including problems, issues, and suggestions).

The final Feasibility Study Report should also cover the following issues:

- production plans and their basis, with an explanation of market demand both in China and abroad, and how the market survey was carried out. Similar facilities already existing or being built in China or abroad should be mentioned and commented upon;

- selection of the location of the project and the reasons; necessary supplies of utilities and telecommunications facilities, and a description of the present situation;

- sources of raw materials, amounts needed, and supplier channels;

-organizational structure of the new enterprise and the reasons for it, including total number, composition and recruiting sources for employees, departments to be established, and management;

-selection of equipment and manufacturing processes, and the reasons therefore (including a classified list of domestic equipment and equipment to be imported);

-modes of construction, construction schedule, and an explanation thereof;

-a discussion of environmental protection, labor safety, and health care issues;

-structure of foreign exchange balance and reasons therefore, and statement of planned export percentage of the new enterprise’s products;

-fundraising methods, including building and equipment as capital investment, and calculations therefore;

-composite analysis of benefits and foreign exchange revenues and expenditures using the dynamic, risk, or sensitivity method (including economic, technical, financial and legal analysis)

Appendices:

(i) written comment on planned site selection and Letter of Intent confirming the supply of utilities;

(ii) authorization documentation of the legal representatives of the investors (foreign investors should have their documents notarized by home country authorities and authenticated by a Chinese embassy or consulate in its home country);

(iii) opinions of the examination and approval authority regarding the funds to be contributed by the Chinese partner (for Joint Ventures);

(iv) annual financial reports, including balance sheets and profit and loss statements of each investor;

(v) an approved (standardized) Environmental Impact Statement if the project will have significant environmental impact (ex: construction and renovation projects). The standardized form is available from the local, provincial, or national Environmental Protection Bureau (depending on which level of government examines and approves your project), and must be approved by them.

Foreign Invested Enterprises - The term “FIE” means “Foreign Invested Enterprise”. It is an entity established under Chinese foreign investment law (and thus is considered to be a Chinese company) that is partially or wholly funded by non-Chinese nationals (either individuals or entities). This includes both types of Joint Ventures, Wholly Foreign Owned Enterprises, Foreign Invested Holding Companies, Foreign Invested Companies Limited by Shares, and Regional Headquarters. FIES are generally eligible for a variety of tax breaks and investment incentives (Foreign Invested Holding Companies are generally ineligible for these benefits but may benefit indirectly by investing in other FIEs).