Project to establish European and A sian

Co-operations of small and medium sized Enterprises

Expertise Guide Asia

Doing Business
in China
(Focusing Construction)

Introduction
The Expertise Guide Asia for Malaysia and China
includes information for SMEs
The guide is an outcome of the ASIA Invest Project
PEACE in which companies from Spain, Hungary,
the Czech Republic, Germany, Malaysia and China
participated. Essential part of the project was the
two matchmaking events in Xian (China) at 15 June
2009 and Kuala Lumpur (Malaysia) at the 18 June
2009. Intensive preparation, individual advisory and
custom-fit supports were additional objects during
the project to facilitate the entry of small and medium sized companies in foreign markets. Expertise
Guide Asia for Malaysia and China are one part of
the project support and it is available for all SMEs
interested in these markets.
Main sectors were energy efficient construction,
general building construction, environmental energies/renewable energies, installation (every kind of
installation), architecture, outdoor planning/landscape gardening, cleaning contractors, interior work
and design and builtin furniture/furniture. So the
two guides are focused on the construction area.
The project is funded by the European Union under
the Asia-Invest Programme. These Guides make no
claim to be complete. They serve as an orientation
guide for normal case. Liability regarding information, accuracy and usefulness of these instructions
cannot be assumed.

Contractor:
Handwerkskammer Dortmund
Reinoldistr. 79
44135 Dortmund
Author of the Expertise Guide Asia China:
Delegation of German
Industry and Commerce Shanghai
29/F POS Plaza, 1600 Century Avenue
Shanghai 200122, China
Author of the Expertise Guide Asia Malaysia:
Malaysian German Chamber
of Industry and Commerce
Suite 47.01, Level 47,
Menara AmBank, No. 8, Jalan Yap
Kwan Seng, 50450 Kuala Lumpur, Malaysia
Layout
helex agentur & consult, Dortmund
Project Partners:
Dortmund Chamber of Skilled Crafts and Trades
Mnster Chamber of Skilled Crafts and Trades
Dortmund Chamber of Commerce
Mnster Chamber of Commerce
German Chinese Chamber of Commerce Shanghai
Heves Chamber of Commerce
Zala Chamber of Commerce
Barcelona Chamber of Commerce;
Czech Chamber of Commerce
Copyright 2010 / 5/2010. All righths reserved.

Table of Contents
1.

Formal requirements
for temporary activities
1.1
Work permit
1.2 Residence permit
1.3 Special Cases
2.
Special requirements
for the construction industry
2.1 Requirements for construction
companies in China
2.2 Requirements for construction
design and engineering companies
in China
3.
Tax Law/Social Security
3.1 Corporation income tax
3.2 Individual Tax
3.3 Income taxes for outgoing
German workers
3.4 Social Insurance
3.4.1 Information on social security
in China:
3.4.2 Social welfare in Shanghai

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4
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5
6
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8
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10
11
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4.
Legal Framework
4.1 Contract law
4.1.1 Employment management
regulations for foreigners
4.1.2 Contract regulations in the
construction industry
4.2 Product responsibility
and guarantee
4.3 Rules and Standards for foreign
invested construction companies
4.3.1 Regulations on administration of
foreigninvested construction
enterprises
4.3.2 Regulations on administration of
foreign-invested construction and
engineering design enterprises
5.
Intercultural skills
5.1 Greetings / Titles /
Exchanging business cards
5.2 Gestures
5.3 Gifts
5.4 Communication in general
5.5 Business behavior
5.6 Negotiations
5.7 Dining
6.
Further links

Table of Contents

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1. Formal requirements for temporary activities

1.1 Work permit
According to the Management regulation for foreign employees in China, foreigners to be employed
in China must meet the following conditions:
at least 18 years of age, good physical health;
possession of the necessary expertise and relevant work experience to carry out their work;
no criminal record;
a valid passport or international travel documents which can replace a passport (hereinafter
referred to as a document instead of passport).
The employer company should apply for a work
permit, if it intends to employ foreigners. To should
obtain the Peoples Republic of China work permit
for foreigners, the following documents have to be
prepared:
Approval of the company (copy with company
stamp)
Business license (copy with company stamp)
Company code (copy with company stamp)
Rsum, English or German, with a Chinese version (on company paper with company stamp)
Qualifications of work experience or certificate of
ability to work (copy with company stamp)
Training certificate (copy with company stamp)
Passport (copy with company stamp)

Formal requirements for temporary activities

Foreigners with permission to work in China can apply for a working visa at Chinese embassies, consulates and visa offices all over the world, bringing
with them their work permit, issued by the Ministry
of Labor, a letter issued by the authorized unit and
a valid passport or another valid tavel document. By
following these steps, the foreign employee should
afterwards be in possession of a working visa and
should enter China and obtain an employment license and a residence permit for foreigners.

1.2 Residence permit

The residence permit for foreigners is issued to people, staying more than 1 year in China. A temporary
foreigner residence permit is issued to people who
stay less than one year in China.
Foreigners who need to stay in China for more than
30 days must apply for a residence permit or temporary residence permit for foreigners at the police
office in their residential city or county within 30
days after the date of their entry into China.
Necessary documents to apply for the residence
permit:
valid passport and visa;
employer correspondence;
certificate of accommodation registration;
health certificate;
2 recent color photos

1.3 Special Cases

Foreigners may be exempted of the duty to obtain
an employment license and a work permit, if they
meet any of the following conditions:
1. Foreign professional technical and managerial personnel employed directly by the Chinese
government; those with senior technical titles or
credentials of special skills recognized by their
home, or international technical authorities, or
professional associations, to be employed by
Chinese government organs; and institutions
and foreigners holding a foreign expert certificate issued by Chinas Bureau of Foreign Expert
Affairs
2. Foreign workers with special skills who work
in offshore petroleum operations without the
need to go ashore for employment and can hold
a work permit for foreign personnel engaged in
the offshore petroleum operations in the Peoples Republic of China;
3. Foreigners who conduct commercial entertaining performances with the approval of the Ministry of Culture and hold a permit for temporary
commercialized performance.

Foreigners may be exempted of the employment

license and may apply directly for the working permit by presenting their working visas and relevant
papers after their entry, if they meet any of the following conditions:
Foreigners employed in China under agreements
or accords entered into by the Chinese government with foreign governments or international organizations for the implementation of Sinoforeign projects of cooperation and exchange;
Chief representatives and representatives of the
permanent offices of foreign enterprises in China.
If in a specific case, a private individual of Chinese
or foreign nationality would like to order equipment
for their private residence in a foreign country, it is
according to Chinese laws not possible, to ask the
foreign manufacturer or a foreign craftsman to install it in their homes. An installation like this must
be performed by a Chinese company. Though, it
is possible for foreign craftsmen to come to China
with a Business-Visa (F) as consultants to advise the
Chinese craftsmen. A requirement is here still being invited by the Chinese company, which performs
the installation in order to receive a visa. This procedure applies for any kind of installation, regardless
if whether in the fields of electronics or equipment
installation.

Formal requirements for temporary activities

2. Special requirements for the construction industry

2.1 Requirements for construction
companies in China
Foreign construction companies operated in the
1980s and 1990s only on a project-basis in China.
In order to be involved in the construction industry in China, foreign companies had to demonstrate
their capability to participate in a particular project
in order to receive a business license. Foreign companies can be involved in the following practices in
the construction industry:
Projects financed exclusively with foreign capital
Projects funded by loans of international institutions, such as the World Bank, achieved by an international bid
Chinese-foreign joint venture projects, which demand technical expertise, the Chinese partners
of the joint venture do not have
Projects financed by Chinese entities, but also in
need of foreign expertise - collaborations with
Chinese partners are possible in this case

As part of Chinas commitment agreed in order to

join the World Trade Organization (WTO), the Ministry of Construction and the Ministry of Foreign
Trade and Economic Cooperation (now the Ministry
of Commerce) jointly issued two new regulations:
the Regulation on Administration of ForeignInvested Construction Enterprises and the Regulation
on Administration of Foreign-Invested Construction
and Engineering Design Enterprises, in 2002.

Special requirements for the construction industry

After the Regulation on Administration of Foreign

Invested Construction Enterprises came into force,
the old system, which based on projects, became
invalid. Instead, if the foreign companies want to be
involved in construction projects in China, they are
now obliged to find a foreign-invested construction
enterprise, except for projects financed by international institutions, eg. the World Bank.

The main disadvantage of the new rules is, that

foreign companies seeking involvement in Chinas
construction projects are now forced to maintain a
permanent presence in China, with significant capital and labor input.

2.2 Requirements for construction

design and engineering companies in China
Chinese design offices are divided into four classes,
A, B, C and D. The class A design offices have no
limits in terms of scale, the difficulty grade, or the
location of the applied projects; the class B and class
C design offices will be limited according to their
province of origin and the location of the design office. The class D design offices can not design underground structures.

In the field of design and engineering there are basically three ways for a foreign company to get involved in China:
Founding of a foreign-invested design company
(joint venture or 100% subsidiary) or purchase of
shares in an
existing Chinese company
Founding of a limited consultancy company
Cross-border provision of design for, or jointly,
with a Chinese design office

Concerning the activities of foreign designers and

engineers in China, the Regulations on Administration of Foreign-Invested Construction and Engineering Design Enterprises are very important. According to this, foreign-invested design enterprises will

face stricter rules for achieving the certificate of

competence than Chinese designers. It means, that
because of a lack of experience in Chinese construction projects, foreign-invested design companies
are likely to be rated in a lower class, even if they
have a successful record elsewhere.
Besides reestablishing a foreign-invested design enterprise - alone or in the form of a joint venture with
a Chinese partner there is, of course, the question
whether founding a foreign-invested design enterprise is possible through the acquisition of shares
in an existing Chinese design company. Its possible in principle: In such a case, the stricter rules of
planning regulations do not interfere, provided they
comply with key personnel and compulsory attendance etc. However, a revaluation of the certificate of
competence has to be taken.

Special requirements for the construction industry

3. Tax Law/Social Security

3.1 Corporation income tax
The following enterprises or organizations, which
separately account for their respective financial results (hereinafter referred to as taxpayers) shall have
an obligation to pay income tax:
1. State-owned enterprises;
2. Collective enterprises;
3. Private enterprises;
4. Joint venture enterprises;
5. Joint stock enterprises;
6. Any other organizations deriving income from production and business operations and other income.

The income tax payable by a taxpayer shall be

computed at 33% of its taxable income. The taxable income shall represent total income earned
by the taxpayer in a tax year less deductible
items. The taxable income shall represent the total income, earned by the taxpayer in a fiscal year
less deductible items for that fiscal year.

3.2 Individual Tax

The tax liability in China is composed of the limited
and unlimited tax liability, which is based on residence principle and the duration of the stay.
For people who stay less than 183 days in China
within a year (for those countries that have a double taxation agreement with China), their income of
self-employment in China is exempted from taxes, if
the wage/salary payments are made by an employer
outside of China. This exemption does not apply
to foreigners, if their income is paid by a Chinese

Tax Law/Social Security

employer, including chief representative and senior

management executives.
Under these circumstances, foreigners are liable for
taxation from the first day on.
Stays in China of more than 183 days and less than
one year will be regarded as non-residence in China,
and the following taxes will be applicable:
1. The employee works in China and obtains salary
from Chinese employers: tax in China
2. The employee works in China and obtains salary
from foreign employers: tax in China
3. The employee works overseas and obtains salary
from Chinese employers: no tax in China
4. The employee works overseas and obtains salary
from foreign employers: no tax in China.
If a foreigner stays in China for more than one year
and less than five years, they are subject to the following income taxes:
1. The employee works in China and obtains salaries from Chinese employers: tax in China
2. The employee works in China and obtains salaries from foreign employers: tax in China
3. The employee works overseas and obtains salaries from Chinese employers: tax in China
4. The employee works overseas and obtains salaries from foreign employers: no tax in China.
After a stay of 5 years, a foreigner will be taxed in
China for his entire international income, and interest income or rental income in foreign countries.
The Chinese tax law has almost no deductions. Cash

amounts paid from companies to the employee are

usually taxed. Anyone who receives a fixed amount
of money as rental subsidy must be fully taxed. Only
payments taken by the companies - eg for rent, privately used passenger cars, plane tickets for home
holiday, school fees, etc - are exempted.
The Chinese financial authorities consider it to be obligatory, that the amount of income has to be proven
by a salary certificate. Normal income levels for specific positions are well known. A general manager
for example, who earns a salary of 4,500 RMB and
would like to pay 25 RMB in taxes, should prepare for
some very tough questions. The finance authorities
are also well informed about the length of the stay in
China, due to all entry and exit data of airports are of
course kept nation-wide accessible databanks.
According to the new regulations of the State Administration of Taxation (SAT),Reinforcing the Management of Income Tax Records for Expatriates, local
authorities have now issued a new file to foreigners.
In addition, from January 2007 on, all individuals in
China with an annual income of over 120,000 RMB
should apply for income tax independently, and taxpayers with an income above RMB 120,000 per year
should give tax clarification according to the new
provisions, in addition to their monthly tax payment,
either through their employer or by themselves.

For wages and salaries, the tax rate is progressive

from 5 to 45%. The top rate of 45%, charged on a
monthly income, basis, applies to incomes exceeding 100,000 RMB.
The Peoples Republic of China income tax rate (in
RMB, tax rates in %) For the calculation of the tax
rate for foreign employees, an amount of 4,800 RMB
will be deducted from the respective monthly incom.

Salary
under 500
500 to 2.000
2.000 to 5.000
5.000 to 20.000
20.000 to 40.000
40.000 to 60.000
60.000 to 80.000
80.000 to 100.000
over 100.000

Tax rate in %
5
10
15
20
25
30
35
40
45

Tax Law/Social Security

3.3 Income taxes for outgoing

German workers
The term outgoing means working in another country for a foreign-based employer in the framework
of a domestic employment relationship.
In general, the tax situation of an outgoing employee is complicated, involving both, foreign and
Chinese tax laws. The assistance of a specialist tax
adviser is recommended.

Generally they consider the following factors:

1. Taxing state (s)
2. Influential factors on the individual tax liability
overseas, for example, through home ownership,
income from rental/lease or business
3. If necessary: Application procedure for tax exemption
4. Responsibility for payment of income taxes (employer or employee)
5. Reimbursement of expenditure by the company
(i.e. tax, possibly countervailing tax, if not included in the subsidies)
The following chart demonstrates in which cases a
foreign employee should pay income tax:

Is it income based on a position

in a representative office?
no

yes

income taxable

Is the income paid by companies in the PRC?

yes

income taxable

Will the income be calculated to the account of a

company in China in the end?
no

yes

income taxable

Does the foreign employee spend less than 90 days

in China in a calendar year?
no

yes

income taxable

Does the foreign employee spend less than 184

days in China in a calendar year?
no

yes

income taxable

no

The income tax can possibly be exempted,

further advice needed.

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Tax Law/Social Security

3.4 Social Insurance

3.4.1 Information on social security

in China:
Its essential to distinguish whether it concerns a
Chinese or a foreign worker. Moreover, it is important to distinguish whether it is concerning the employer in a Chinese or foreign-invested enterprises
(joint venture) or a representative office or a wholly
foreign owned enterprise.

The employer can directly hire the employee or

through the recruitment company.
2. Employer: daughter company of a
foreign company (WFOE) or joint venture
Employee: foreign nationality
Foreign employee can either be employed by the
German company (i.e dispatch contract), or be employed by a local employment contract.

3.4.2 Social welfare in Shanghai

A. Representative office
1. Employer: Representative office
Employee: Chinese nationality
The employee can not directly be employed by a
representative office with an employment contract.
The employee will sign a contract with a recruitment
company. The representative office can only hire the
employee by this company. In addition to this contract (employee and the recruitment company), another service contract can be signed between the
recruitment company and the employee, in which
other details can be added. The recruitment company is responsible for the social welfare contributions of the employee. The representative office is
required to make contributions as described in II.
2. Employer: Representative office
Employee: foreign nationality
The employment relationship is governed by the foreign labor and social security law.
B. wholly foreign owned enterprise,
joint venture
1. Employer: subsidiary firm of a
foreign company (WFOE) or joint venture
Employee: Chinese nationality

A. Chinese employee
1. The employer has to pay 12% of the salary for
health insurance, 22.5% for the pension insurance, 2% for the unemployment insurance and
7% for the housing allowance, and 0.5% to 3%
for work accident insurance (depending on the
level of danger of the activity).
2. The employee has to pay 2% of the salary for
health insurance, 8% for the pensions, 1% for the
unemployment insurance and 7% for the housing allowance.
3. If the salary of the employee is more than 300%
above the average salary in Shanghai, the excess
is not subject to social welfare contribution. The
average salary in Shanghai is 2892 RMB (2007).
4. For employees who only have a freelance contract with the employer is no social welfare contribution to pay.
B. Foreign employees
Basically foreign workers are not eligible for the Chinese social security system. Also, such employees
are not hired by a recruitment company.

Tax Law/Social Security

11

4. Legal Framework
4.1 Contract law
4.1.1 Employment management

regulations for foreigners
The employer and its foreign employee should, in accordance with the Law Of The Peoples Republic of
China on Employment Contracts and Regulations
on The Management of Employment of Foreigners
in China, conclude a labor contract, the term of
which shall not exceed five years. Such contract may
be renewed upon expiration after the completion of
examination and approval procedures in accordance
with.
The work permit of the employed foreigner shall
cease to be effective upon the expiration of the
term of the labor contract between the foreigner
and his employer. If renewal is required, the employer should, within thirty days prior to the expiration
of the contract, submit an application to the labor
administrative authorities for the extension of term
of employment, and after approval is obtained, proceed to go through formalities for the extension of
the work permit.
The foreign employee should ,within ten days after
obtaining the approval for extension of his term of
employment in China or the change of his employment location or his employer, go through formalities for the extension or change his residence certificate at the local public security organs.
After the termination of the labor contract between
the foreign employee and his employer, the employer should promptly report it to the labor and public security authorities, return the work permit and

12

Legal Framework

the residence certificate of the mentioned foreigner,

and go through formalities for exiting China.
The employer of the foreign employee in China shall
be the same as specified in his employment license.
If the foreigner switches employers within the array, designated by the certificate office but remains
in a job of the same nature, the change must be
approved by the original Certificate Office and recorded in his work permit. If the foreigner is to be
employed not within the array designated by the
certificate, he/she must go through formalities for a
new employment license.
For foreigners whose residence status is revoked by
public security organs due to his violation of Chinese
laws, the labor contract should be terminated by
the employer and the employment permit will be
withdrawn by the labor administrative authorities.
Should labor disputes arise between the employer
and its foreign employee, these should be handled
in accordance with the Labor Law of the People's
Republic of China and the regulations of the People's Republic of China on Settlement of Labor Disputes in Enterprises.
The labor administrative authorities shall conduct an
annual inspection of the work permit within thirty
days prior the end of every year of employment of
the foreigner. The employer should go through formalities of the annual inspection at the certificate
office of the labor administrative authorities. The
work permit shall automatically cease to be effective when the deadline is passed. In case of loss or
damage of the work permit during the term of his
employment in China, the foreigner should promptly report it to the original certificate office and go

through formalities for the issuance of the employment permit again.

The construction contract should contain the following points:

The wage paid to the foreign employee by the employer shall not be lower than the minimum wage
at the locality.

Scope of the plan

Construction period
The time for commencement and completion of
any work to be commissioned in interim,
Quality
Costs
Time for delivery of technical materials
Responsibility for the supply of materials and
equipment
Appropriation of funds and settlement of account
Inspection upon completion of the project
Scope and period of quality warranty
Cooperation between the envolved parties

Working hoursrest and vacationwork safety and

hygiene as well as the social insurance of the foreign
employees in China shall follow the relevant provisions of the state.
Generally, foreign employees have neither obligation nor a right to be in possession of social insurances. However, according to the Notice of Human
Resources and Social Security Bureau of Shanghai
on Issues Concerning Foreigners Working in Shanghai, People Acquiring Permanent Residence abroad
and Hong Kong, Macao and Taiwan Residents to
Participate in the Social Insurance for Urban Workers (10th of October 2009), foreign employees may
have the basic pension insurance, basic medical insurance and workers compensation insurance.

4.1.2 Contract regulations

in the construction industry
Regulations on the construction contract can be
found in the contract law, the construction law
and other administrative regulations relating to the
construction quality. As both are general contracts,
where the client authorizes the measure and planning activity to a contractor, and the separate authorization of measure, planning and implementation activity from the client to individual entrepreneur are allowed.

The existing regulations on architecture and planning contracts are quite rare.
Preinstructed is the minimum content of the architecture contract, which has to contain the following:
A time limit for supplying the relevant information and documents for the planning
An estimation of the budget
Nomination of the requirements for sufficient
quality
Regulations about the salary
Other conditions for the cooperation, like methods of dispute settlement

Legal Framework

13

4.2 Product responsibility

and guarantee
Product quality law of the Peoples Republic of China was released in 1993 and amended in 2000. According to this regulation:
Anyone who conducts activities of production and
sale of any product within the territory of the Peoples Republic of China must abide by this law. But
the product referred to in this law means a product
which is processed or manufactured for the purpose of sale. This law shall not apply to construction
projects.
Some important articles are listed here for
reference:
It is prohibited to forge or falsely use authentication marks, famous-and-excellent-product marks or
other product quality marks; it is prohibited to forge
the origin of a product, to forge or falsely use the
name and address of a factory of another producers; and it is prohibited to mix impurities or imitations into products that are produced or sold, or
pass a fake product off as a genuine one, or pass a
defective product off as a high-quality one.
The department in charge of supervision and control over product quality under the state council
shall be responsible for nation-wide supervision and
control over product quality. The relevant departments under the state council shall be responsible
for supervision and control over product quality
within the scope of their respective functions and
responsibilities.

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Legal Framework

Industrial products constituting possible threats to

the health or safety of human life and property must
be in compliance with the national standards and
trade standards safeguarding the health or safety
of human life and property; In the absence of such
national standards or trade standards, the product
must meet the requirements for safeguarding the
health or safety of human life and property.
To implement a construction project, the contractors shall comply with the provisions of Administrative Regulations on the Work Safety of Construction
Projects and Regulation on the Quality Management of Construction Projects which provide responsibilities and obligations of construction project
owners, the survey and design entities, construction
entity, and project supervisory entity, quality repair
guarantee of construction projects and supervision
and administration.
Furthermore, the quality of the construction projects
shall be in accordance with the Compulsory Provisions on the Standard of the Construction Projects
promulgated by the Construction Department of
the State Council.

4.3 Rules and Standards for

foreign invested construction companies
The two regulations mentioned above Regulations
on Administration of ForeignInvested Construction
Enterprises and Regulations on Administration of
Foreign-Invested Construction and Engineering Design Enterprises contains all the rules from application to supervision, some important articles in the
two regulations are listed for reference.

4.3.1 Regulations on administration

of foreigninvested construction

enterprises
These regulations shall apply to the establishment
of foreigninvested construction enterprises within
the territory of the Peoples Republic of China, the
application for construction enterprise qualifications
and the administration and supervision of foreign
invested construction enterprises.
The term foreign-invested construction enterprise
mentioned in these regulations refers to a wholly
foreign-owned construction enterprise, or a Sinoforeign equity construction joint venture or a Sinoforeign cooperative construction enterprise established within the territory of the Peoples Republic
of China in accordance with Chinese laws and regulations.
A foreign investor, which intends to establish a
foreign-invested construction enterprise within
the territory of the Peoples Republic of China and
conduct construction business, shall, in accordance
with laws, obtain the approval certificate from the
relevant foreign trade and economic cooperation
administration department and register with the
State Administration of Industry and Commerce or
its authorized administration of industry and commerce at local levels, and the qualification certificate from the relevant construction administration
department.
Notice of the Ministry of Commerce on Entrusting
the Provincial Administrative Departments of Com-

merce to Examine, Approve and Administrate the

Foreign-invested Construction Enterprises (2005)
provides that the provincial administrative departments of commerce and the administrative commissions of national economic and technical development zones are entrusted to examine, approve and
administrate the foreign-invested construction enterprises.
According to the Notice of the Ministry of Commerce on Entrusting the Provincial Administrative
Departments of Commerce to Examine, Approve
and Administrate the Foreign-invested Construction
Enterprises (2005) and Regulations on Administration of ForeignInvested Construction Enterprises, the establishment of the foreign-invested construction enterprise no matter what qualifications
it belongs to shall be examined and approved by
the foreign trade and economic cooperation administration department at the provincial level and its
qualifications shall be examined and approved by
the construction administration department of the
Peoples Government at the corresponding level.
Where the Chinese investor to a proposed Sino-foreign equity construction joint venture or a Sino-foreign contractual construction enterprise is an enterprise administered by the central government, the
establishment of the joint venture shall be examined
and approved by the foreign trade and economic
cooperation administration department of the State
Council and its qualifications shall be examined and
approved by the construction administration department of the State Council.

Legal Framework

15

The procedures for the establishment of a foreigninvested construction enterprise as a general contractor
with Super Grade or Grade A qualifications or a professional contractor with Grade A qualifications are:
1. The applicant shall submit an application to the
foreign trade and economic cooperation administration department of the peoples government
of the province, the autonomous region or the
directly administered municipality where the proposed foreign-invested construction enterprise is
to be established.
2. The foreign trade and economic cooperation administration department of the Peoples Government of the province, the autonomous region or
the directly administered municipality shall complete the preliminary examination within 30 days
of receiving the application, and shall, if it grants
the preliminary approval, submit the application
to the foreign trade and economic cooperation
administration department of the state council
for further approval.
3. Within 10 days of receiving the application for
further approval, the provincial commercial administrative department shall solicit the opinions
of the construction administrative department
at the corresponding level. The construction administration shall provide its opinion in writing
within 30 days of receiving the request. Within
30 days of receiving the response, the provincial
commercial administrative department shall decide whether or not to approve the application
in written form. If the application is approved,
a foreign-invested enterprise certificate shall be
granted; if the application is not approved, reasons for the disapproval shall be given in written
form.
4. Within 30 days of receiving the approval certifi-

16

Legal Framework

cate, the applicant shall register with the relevant

registration department.
5. After obtaining the business license for the legal entity, the application by the foreign-invested
construction enterprise for qualification approval
shall be conducted in accordance with Regulations on Administration of Construction Enterprise Qualifications.
According to article 8, the procedures for the establishment of a foreign-invested construction enterprise as a contractor or a specialized contractor
with Level B or lower qualifications or any of the
subcontractor qualifications shall be administered
by the construction administration department and
the foreign trade and economic cooperation administration department of the peoples government of
the province, the autonomous region or the directly
administered municipality based on local conditions
with reference to Article 7 of these regulations and
Regulations on Administration of Construction Enterprise Qualifications.
Examination and approval of qualifications of the
foreign-invested construction enterprise by the construction administration department of the peoples
government of the province, the autonomous region or the directly administered municipality shall
be recorded with the construction administration
department of the State Council within 30 days after the approval is given.
The application by a foreign-invested construction
enterprise for upgrading it`s qualifications or adding
additional qualifications in addition to major items
shall be made to the relevant construction administration department in accordance with relevant
regulations.

An applicant who intends to establish a foreign-invested construction enterprise shall submit the following documents to the relevant foreign trade and
economic cooperation administration department:
1. Application forms to establish a foreign-invested
construction enterprise signed by the investors
legal representative;
2. The feasibility study report, prepared or accepted
by the investors;
3. The contract for the establishment of a foreigninvested construction enterprise and the articles
of association signed by the investors legal representative (only the articles of association is required for the establishment of a wholly foreignowned construction enterprise);
4. The notification on pre-verification of the name
of the enterprise;
5. Certificate of legal person registration and certificate of the bank credit standing of the investor ;
6. Appointment documents and identity documents of the chairman of the board of directors,
members of the board of directors, managers,
persons in charge of engineering and techniques
to be appointed by the investor; and
7. Balance sheets and profit and loss accounts of
the investor within the recent three years audited
by a certified accountant or an accounting firm.
The applicant applying for foreign-invested construction enterprise qualifications shall submit the
following documents to the relevant construction
administration department:

2. The approval certificate of the establishment of

the foreign-invested construction enterprise;
3. The business license for the legal entity;
4. The bank credit standing of the investor;
5. Appointment letters and documentary evidence
of the investors designated chairman and members of the board of directors, the persons in
charge of the finance, business operation, engineering and techniques of the enterprise, etc. to
be appointed by the investor; and
6. Balance sheets and profit and loss accounts of
the investor within the recent three years audited
by a certified accountant or an accounting firm.
7. Other materials as required by the provisions
concerning the qualifications of construction enterprises.
The total capital contribution of the Chinese party to
a Sino-foreign equity construction joint venture or
a Sino-foreign cooperative construction enterprise
shall not be less than 25% of the registered capital.
Qualifications of Sino-foreign equity construction
joint ventures and Sino-foreign contractual construction enterprises established prior to the implementation of these Regulations are required to be
re-examined and ratified in accordance with these
regulations and Regulations on Administration of
Construction Enterprise Qualifications.
All documents required to be submitted by an applicant under these regulations shall be in Chinese.
If the original documentary evidence is in a foreign
language, a Chinese translation shall be provided.

1. Application forms for the foreign-invested construction enterprise qualifications;

Legal Framework

17

Wholly foreign-owned construction enterprises may

only undertake the following types of construction
projects within the scope of their qualifications:
1. Construction projects funded totally by foreign
investments, foreign grants or foreign investments and grants;
2. Construction projects financed by international
financial organizations and awarded through international tendering process in accordance with
the provisions of the loan agreement;
3. Sino-foreign jointly constructed projects where
the foreign investment is equal to or greater than
50%; Sino-foreign jointly constructed projects
where the foreign investment is less than 50%
but which Chinese construction enterprises cannot undertake independently due to technical
difficulties and has been approved by the construction administration departments of the peoples government of provinces, or autonomous
regions or directly administered municipalities;
4. China-invested construction projects which Chinese construction enterprises cannot undertake
independently due to technical difficulties. Such
projects may be jointly undertaken by Chinese
and foreign construction enterprises and has
been approved by the construction administration departments of the peoples government of
provinces, or autonomous regions or directly administered municipalities.
Article 16 Sino-foreign equity construction joint ventures and Sino-foreign cooperative construction enterprises shall undertake construction projects within
the permitted scope of their grades of qualifications.

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Legal Framework

The criteria of grading of qualifications of foreigninvested construction enterprises shall be in accordance with the criteria of grading of construction enterprise qualifications promulgated by the construction administration department of the State Council.
Where a foreign-invested construction enterprise
undertakes a construction project as the general
contractor, it shall complete the principal parts of
the structure of the project by itself.
Where a foreign-invested construction enterprise
contracts for construction projects in the form of
a consortium with other construction enterprises,
the consortium shall contract for projects within the
permitted scope of the lower qualification grade.
Where a foreign-invested construction enterprise
contracts for construction projects beyond the permitted scope of its qualifications in violation of article 15 of these regulations, it may be fined at an
amount between 2% to 4% of the contractual price
of the construction. An order to suspend its business operation for rectification may also be issued
and its qualification certificate may be demoted. In
serious situations, the qualification certificate shall
be revoked and any proceeds illegally obtained shall
be confiscated.
Where a foreign-invested construction enterprise
carrying out construction business violates the
Construction Law of the Peoples Republic of China, the Tendering and Bidding Law of the Peoples
Republic of China, Regulations on Administration
of Engineering Construction Quality and Regulations on Administration of Construction Enterprise
Qualifications and other relevant laws, regulations
and rules, it shall be penalized in accordance with
relevant provisions.

4.3.2 Regulations on administration of

foreign-invested construction and engineering design enterprises

neering design qualifications or other Grade A or B

engineering design qualifications shall be:

A foreign investor, which intends to establish a foreign-invested construction and engineering design
enterprise within the territory of the Peoples Republic of China and carry out construction and engineering design business shall, in accordance with
laws, obtain the foreign-invested enterprise approval certificate from the relevant foreign trade and
economic cooperation administration department
and register with the State Administration of Industry and Commerce or its authorized administration
of industry and commerce at local levels, and also
obtain the qualification certificate of construction
and engineering design enterprise from the relevant
construction administration department.

1. The applicant shall submit an application to the

foreign trade and economic cooperation administration department of the peoples government
of the province, the autonomous region or the
directly administered municipality where the
proposed foreign-invested construction and engineering design enterprise is to be established.
2. The foreign trade and economic cooperation administration department of the peoples government of the province, or the autonomous region
or the directly administered municipality shall
complete the preliminary examination within
30 days of receiving the application, and shall,
if it grants the preliminary approval, submit the
application to the foreign trade and economic
cooperation administration department of the
State Council for further approval.
3. Within 10 days of receiving the application for
further approval, the provincial commercial administrative department shall solicit the opinions
of the construction administrative department at
the corresponding level. The construction administration department shall provide its opinion in
writing within 30 days of receiving the request.
Within 30 days of receiving the response, the
provincial commercial administrative department
shall decide whether or not to approve the application and express such a decision in written
form. If the application is approved, a foreigninvested enterprise certificate shall be granted; if
the application is not approved, reasons for the
disapproval shall be given in written form.
4. Within 30 days of receiving the approval certificate, the applicant shall carry out enterprise registration with the relevant registration department.

The application for and the examination and approval of the establishment of a foreign-invested
construction and engineering design enterprise and
the qualifications shall be managed by a grading
and categorization system.
Where an applicant is to apply for Grade A qualifications for construction and engineering design or
other Grade A or Grade B or other Grades qualifications for construction and engineering design, the
establishment of the foreign-invested construction
and engineering design enterprise shall be examined and approved by the provincial commercial administrative department and its qualifications shall
be examined and approved by the construction administration at the corresponding level.
The procedures for the establishment of a foreigninvested construction and engineering design enterprise and the application for construction and engi-

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19

5. After obtaining business license for the legal

entity, if the foreign-invested construction and
engineering design enterprise is to apply for the
construction and engineering design enterprise
qualifications, the application shall be carried out
in accordance with the Regulations on Administration of Construction and Engineering Design
Enterprise Qualifications.
An applicant who intends to establish a foreign-invested construction and engineering design enterprise shall submit the following documents to the
relevant foreign trade and economic cooperation
administration department:
Application forms to establish a foreign-invested
construction and engineering design enterprise
signed by the investors legal representative;
1. The feasibility study report prepared or accepted by the investor;
2. The contract for establishment of foreign-invested construction and engineering design enterprise and the articles of association signed by
the investors legal representative (only the the
articles of association are required for the establishment of a wholly foreign-owned construction and engineering design enterprise);
3. The notification of pre-verification of the name
of the enterprise;
4. Certificates of enterprise registration and certificates of bank credit standing of the country
or region where the investors are engaged as a
construction engineering design enterprise;
5. Appointment letters and documentary evidence
of the investors designated chairman and members of the board of directors, managers and
the person in charge of techniques and engi-

20

Legal Framework

neering, etc. to be appointed by the investors;

and
6. Balance sheets and profit and loss accounts of
the investor over the past three years audited
by a certified accountant or an accounting firm.
The applicant applying for foreign-invested construction and engineering design enterprise qualifications shall submit the following documents to the
relevant construction administration department:
1. Application forms for the qualifications for a
foreign-invested construction and engineering
design enterprise;
2. The approval certificate for the establishment of
the foreign-invested construction and engineering design enterprise;
3. The business license for the legal entity;
4. The enterprise registration certificate and bank
credit standing certificate of the country or region where the investors are engaged as a construction engineering design enterprise;
5. Certificates of practicing qualifications of the
individuals of the country or region where the
foreign service provider is located and the certificates of the performances and credit standing
of the individuals and enterprises in construction
engineering design issued by the administrative
department in-charge or local government or
guild, association or notary public of the country where they are located; and
6. Other documents as required by Regulations on
Administration of Construction and Engineering
Design Enterprise Qualifications.

All materials required to be submitted by an applicant under these Regulations shall be in Chinese. If
the original documentary evidence is in a foreign
language, a Chinese translation shall be provided.
The foreign investor or the foreign service provider
of a foreign-invested construction and engineering
design enterprise shall be an enterprise engaged in
construction and engineering design or a certified
architect or a certified engineer in his or her home
country.
The total capital contribution of the Chinese party to
a Sino-foreign equity construction and engineering
design joint venture or a Sino-foreign cooperatively
construction and engineering design joint venture
shall not be less than 25% of the registered capital.
The criteria of grading of qualifications of foreigninvested construction and engineering design enterprises shall be in accordance with the requirements
of grading of qualifications of construction and engineering design enterprise issued by the construction administration department of the state council.
Where a wholly foreign-owned construction and
engineering design enterprise applies for the construction and engineering design enterprise qualifications, the number of foreign service providers
who have been qualified as certified architects or
certified engineers in China shall not be less than
1/4 of the total number of certified professionals required under the qualification grading criteria, and
the number of foreign service providers who have
the relevant design experience shall not be less than
1/4 of the total number of key technical personnel
required under the qualification grading criteria.

Where a Sino-foreign equity construction and engineering design joint venture or a Sino-foreign cooperatively managed construction and engineering
design enterprise applies for the construction and
engineering design enterprise qualifications, the
number of foreign service providers who have been
qualified as certified architects or certified engineers in China shall not be less than 1/8 of the total
number of registered professionals required under
the qualification grading criteria, and the number
of foreign service providers who have the relevant
design experience shall not be less than 1/8 of the
total number of key technical staff required under
the qualification grading criteria.
Each of the architects and engineers certified in
China and the key technical personnel of the foreign service provider in a foreign-invested construction and engineering design enterprise shall reside
within the territory of the Peoples Republic of China
for no less than a cumulative period of 6 months
each year.
Where a foreign-invested construction and engineering design enterprise carrying out construction
and engineering design activities within the territory of the Peoples Republic of China violates the
Construction Law of the Peoples Republic of China,
Regulations on Administration of Construction Engineering Quality, Regulations on Administration of
Prospecting and Designing of Construction Projects
and Regulations on Administration of Construction
Engineering Prospecting Design Enterprise Qualifications and other relevant laws, regulations and
rules, it shall be penalized in accordance with relevant provisions.

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21

5. Intercultural skills
After fixing the legal, fiscal and formal issues to be
able to work in China, you should not underestimate
another big topic, which you will have to face on a
daily basis in the middle kingdom the cultural differences. The following chapter will introduce you
to the basic rules of manner and behavior in China.
As you will see, this might prove very helpful in your
daily work with your Chinese colleagues.

5.1 Greetings / Titles / Exchanging

business cards
1. Shaking hands when greeting and leaving is nowadays very spread among China`s business people
2. For most Chinese, titles are of big importance
and the best is to address people directly by using their professional title, or Mr., Mrs., or Miss
3. You never should work in China without having
a set of business cards English on one side,
Chinese on the other
4. When giving business cards, do it with both
hands, with the Chinese side facing the recipient.
5. When receiving business cards, to show interest and look at them carefully. You should never
write on or fold a business card you are given.
6. After receiving the business card, never put it in
your wallet or one of your pockets. Carry a small
card case.

5.2 Gestures
1. Do not drop the chopsticks it is considered bad
luck.
2. Do not rub your chopsticks together before dining. It implies that you have been given poor
quality chopsticks that may have splinters.

22

Intercultural skills

3. Never place your chopsticks straight up in your

bowl. By placing your sticks upright in your bowl
your will remind your host of joss sticks which
connotes death.
4. Do not blow your nose at the table or in public.
5. Do not refuse to drink. Even if you do not drink,
accept it.
6. Women should not shake legs while sitting,
snap fingers, or whistle.
7. It is common in China to show ones surprise
or dismay by sucking air in quickly and loudly
through the lips and teeth.
8. Spitting in public is very common, don`t be surprised to see people of every age and gender
doing that everywhere around you.

5.3 Gifts
1. When you meet Chinese people for the first
time, an exchange of gifts is usually not common.
2. Writing pens of high quality are considered as
one of the most popular gifts in China.
3. Not suitable for gifts are : knives, scissors, letter
openers, clocks, straw sandals, a stork or crane,
handkerchiefs, anything white, blue or black,
and anything in groups of four
4. Gifts should always be nicely wrapped.
5. Gifts should not being opened right away unless
prompted to do so.
6. Like the business cards, receive and give gifts
with two hands. It is polite to refuse a gift several times before accepting.

5.4 Communication in general

1. Chinese mostly speak in an indirect manner.
There is usually deeper meaning in their words

2.
3.
4.

5.
6.
7.
8.

9.

and sometimes what they mean is quite opposite to what they say.
Chinese tend to stand a little less than arms
length from one another.
Chinese favor direct eye contact.
Do not beckon with the forefinger, but extend
an arm and make a scratching motion with the
fingers.
Do not point using the index finger, but use an
open palm.
Do not use your feet to move something or put
your feet on furniture.
Do not whistle or snap your fingers at anyone.
Do not use large hand movements. The Chinese
do not speak with their hands and your movements may be distracting to your host.
Do not stick your chopsticks upright in a bowl of
rice as it is reserved for funerals. Avoid sucking
and biting your chopsticks as well.

5.5 Business behavior

1. Contacts should have been established already
prior to your trip.
2. Let the most important member of your company lead important meetings. Chinese highly
value rank and Status and could be offended by
being welcomed by a subordinate.
3. Generally, it is rude to be late in business situations. But to show importance, a boss, or one
with a higher social or political status, may be
late as a show his/her prominence.
4. Business discussions begin mostly with small
talk to remove the tension. Then the host begins
the business discussion.
5. Appointments are a must for business.
6. Allow your Chinese partners to leave a meeting
first.

5.6 Negotiations
1. Confrontation, hard selling and pressure tactics
are not valued in China. Chinese value relationship building and have a society, based on collective harmony.
2. Never try to approach a subordinate to force a
fast result. Decisions are only made by the head
of a group. This could take a long time, be patient.
3. The word no is seldomly used by Chinese, they
prefer an indirect communication style
4. Superstition in Chinese culture is still of importance: Many still want to consult with the stars
or wait for a lucky day before they make a decision.

5.7 Dining
1. You should generally taste all the dishes you are
offered, even if it should cost you some effort.
2. You should not start to eat or drink before the
host himself/herself.
3. Do never discuss business issues at meals.
4. Do not eat all of your meal. If you eat all of your
meal, the Chinese will assume you did not receive enough food and are still hungry.

Intercultural skills

23

6. Further links
Newspapers / media:
http://www.chinadaily.com.cn/
http://english.cctv.com/01/index.shtml
http://www.xinhuanet.com/english2010/
http://www.shanghaidaily.com/
http://english.peopledaily.com.cn/
Intercultural topics:
http://chinese-school.netfirms.com/goldenhints.html
http://chinese-school.netfirms.com/guanxi.html
http://www.china-window.com/china_business/china_business_tips/business-etiquette-in-chi.shtml
Language courses:
http://www.linguanaut.com/english_chinese.htm
http://www.chinadaily.com.cn/language_tips/index.html
Foreign pages:
http://www.peking.diplo.de/Vertretung/peking/de/Startseite.html
http://china.ahk.de/ch/chamber/shanghai/
http://www.gtai.com/web_en/homepage
http://english.gov.cn/
http://www.fmprc.gov.cn/eng/
http://www.auswaertiges-amt.de/diplo/en/Laenderinformationen/01-Laender/China.html
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
Travel information:
http://www.lonelyplanet.com/asia
http://www.travelchinaguide.com/cityguides/
Visa forms:
http://www.china-embassy.org/eng/hzqz/zgqz/t84240.htm
http://www.visarite.com/China_Visa_Form.htm
http://www.fmprc.gov.cn/chn/pds/fw/lsfw/qzjj/P020070412415235161751.pdf

24

Legal Framework

ASIA-INVEST PROGRAMME
The Asia-Invest Programme was launched in 1997
as an initiative of the European Union to promote
and support business co-operation between the EU
Member States and Asia. The Programme provides
assistance to intermediary organisations to facilitate
mutually beneficial partnerships between EU and
Asian companies, in particular small and mediumsized enterprises (SMEs), as well as to strengthen
the framework conditions to increase trade and
investment flows between the two regions. The
Programme will continue for another 5-year period
from 2003-2007, with a budget for project funding
of 35 million, in which three main areas of activity will be pursued: (i) Business to business matchmaking and partnership building; (ii) Asian private
sector development, and (iii) Institutional capacity
building, networking and dialogue.