Foreign-invested Construction Enterprises: The Next Legal Step

As part of its initiative to transform the role of foreign investment in the PRC construction sector, on April 8 2003 the Ministry of Construction issued the Relevant Administration of Qualifications in the Administration of Foreign-invested Construction Enterprises Provisions Implementing Procedures (the Implementing Rules). These rules bolster the Administration of Foreign-invested Construction Enterprises Provisions (外商投资建筑业企业管理规定) (the FICE Provisions), which became effective on December 1 2002. They also clarify certain issues regarding activities during a transitional period in which foreign-invested enterprises can apply for "qualification certificates".

Prior to the issuance of the FICE Provisions, foreign construction companies could only undertake construction projects in China on a project-specific basis by obtaining a "foreign contractor qualification certificate" and a PRC business licence. In contrast, the FICE Provisions require foreign contractors to establish a foreign-invested construction enterprise (FICE) if they wish to carry out construction projects in China. Not only are foreign investors now required to establish a proper PRC company to do construction work in China, but also FICEs can now engage in multiple independent projects and are not limited to one particular contract.

The Implementing Rules clarify certain questions relating to a transitional period, which will run until the FICE Provisions take full effect on October 1 2003. According to the Implementing Rules, prior to this date, foreign enterprises may continue to work on or expand existing contracted construction projects, and foreign enterprises without a project contracting qualification certificate may apply for such a foreign enterprise qualification certificate. However, after October 1 2003, the relevant authorities will no longer accept applications from foreign companies seeking qualification to contract individual PRC projects. Rather, after October 1 foreign companies will be required to establish FICEs if they wish to contract projects in China. However, foreign companies with the appropriate qualification certification will be allowed to complete the projects contracted prior to October 1 2003.