Revising the Foreign-invested Holding Company Regulations

By Lester Ross and Grace Chen, Wilmer Cutler Pickering Hale and Dorr LLP, Beijing

Holding companies are relatively recent introductions to the PRC regime governing company structures. The establishment by foreign investors of China-domiciled holding companies was first authorized on April 4 1995.¹  To many contemplating setting up holding companies, the US$30 million registered capital contribution threshold and other conditions for establishment, as well as restrictions on their functions, have limited their attractiveness.  Nevertheless, more than 300 holding companies have been established to date by foreign investors who have relatively large investment programmes in multiple projects.  Investors have been attracted by the opportunities to centralize administrative operations, create better career opportunities for management personnel, and build a stronger brand. 

The restrictions on establishing holding companies and on their activities have been relaxed several times since 1995. The original regulations were supplemented by an interpretation (February 16 1996) and two supplementary regulations (August 24 1999 and March 31 2001). Major changes were introduced on March 7 2003 (with effect from April 6 2003).  These various regulations and interpretations addressing the establishment and permitted activities of holding companies were then consolidated into a single regulation, the Establishment of Companies with an Investment Nature by Foreign Investors Provisions (the Holding Company Regulations), issued by the Ministry of Commerce (MOFCOM) on June 10 2003 (with effect from July 10 2003).  The Holding Company Regulations were amended on February 13 2004 (with effect from March 14 2004) (the February 13 Revision) and again on November 17 2004 (with effect from December 17 2004) (the November 17 Revision).