Bigger stage for overseas firms
By Dai Yan (China Daily)
Updated: 2004-06-01 08:35

The country's official approval of regional headquarters for foreign-funded companies may help attract more foreign investment as the corporate model offers a broader business scope and easier overall operations.

Officials from the Ministry of Commerce said the first batch of foreign-funded companies have been acknowledged as the regional headquarters since the related rules came into force in March of this year.

A woman stands in front of a wall bearing logos of foreign firms at a recent trade fair. The official approval of regional headquarters for foreign-funded companies in China may help attract more foreign investment as the corporate model offers broader business scope and simplified operations. [newsphoto]

The revised Provisions on the Establishment of Holding Companies by Foreign Investors, which took effect in March, said a qualified holding company can obtain the status of a regional headquarters.

These regional headquarters, different from those which are defined by companies, should be accepted by the government and then will enjoy a broader business scope, the official said.

But he failed to name the companies which had been given that status this time.

He said many foreign-funded holding companies are applying for the designation and the qualified ones will be approved soon.

A holding company, which has US$100 million of registered capital, can apply for certification as a regional headquarters, the official said.

If it has registered capital of less than US$100 million but more than US$50 million, it can also apply for the status if the total assets of its subsidiaries in China are not less than 3 billion yuan (US$362 million) and their profits are not less than 100 million yuan (US$12.08 million).

The qualified holding companies are also required to have used at least US$30 million of its registered capital for new investment in China and have established at least two research & development (R&D) centres in China, he added.

The business scope of the regional headquarters is considerably broader than that of an ordinary holding company, according to the official.

The regional headquarters can import the products of its parent company and distribute them in China. It can also conduct outsourcing and logistics services for all domestic and foreign companies.

The regional headquarters can also set up a financial company to provide financial services to its subsidiaries, after winning approval from the China Banking Regulatory Commission (CBRC), the official said.

Analysts said the formal approval for opening regional headquarters offices will add to China's attractiveness as an investment destination.

China has approved several regional headquarters before the rules went into effect, but only on a trial basis.

Wang Zhile, a researcher specializing multinationals under the Chinese Academy of International Trade and Economic Co-operation, said that many multinationals feel the pressing need to set up a regional headquarters to have tighter and more simplified control over their increased investment in China.

More large foreign-funded companies are expected to change their fragmented management styles by setting up a holding company or a regional headquarters, Wang said.

The latter is obviously preferred because of a wider business scope, he added.

The separate ventures of a foreign-funded company in China are usually managed by different departments of the overseas parent company.

"The recent government policy supporting their moves are welcomed by the foreign-funded companies," Wang said.

He believed the government's continuous improvement on foreign investment management will encourage more investment in China.

Apart from the policy incentives, China's rising position in the global strategies of those companies has highlighted the need for improved local management, Wang said.

These large companies are changing their assessment of China from a world factory to a world market, Wang said.

At the end of 2003, there were over 300 foreign-owned holding companies in China, with 127 located in Beijing.

Actual foreign direct investment to China remained flat in 2003, but rose 1.44 per cent to US$53.5 billion.

It reached US$19.62 billion in the first four months, up 10.07 per cent year-on-year.

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