Over the past decade, many foreign businesses have sought to establish or expand their business in China, and China is making an effort to encourage such efforts. China is actively encouraging foreign investment by gradually removing investment barriers and providing financial incentives to investors in certain favored industries and market sectors.

On September 21, the Ministry of Commerce (MOFCOM) issued the Interim Provisions of Equity Contribution of Foreign-invested Enterprises (“Interim Provisions”). The Interim Provisions provide an application procedure and a policy basis for Chinese and foreign investors to contribute capital in the form of equity interests to an enterprise in China. These provisions significantly improve the ability of foreign investors to create new enterprises or to merge existing enterprises, thereby facilitating business expansion without requiring large amounts of initial cash investments.

The principal change introduced by the Interim Provisions is the allowance of contribution of capital in the form of an equity interest of a Chinese enterprise into another enterprise, whether the shareholders of the receiving enterprise are Chinese or foreign. Until the adoption of the Interim Provisions, the contribution of an equity interest of a Chinese enterprise was, as a practical matter, permitted only into another purely Chinese enterprise, while foreign investors were unable to enjoy that option. The Interim Provisions also provide the terms and conditions under which such contributions will be permitted.

China is one of Israel’s principal trade partners. Israel’s exports to China have experienced significant growth in the past decade and consisted primarily of mechanical and electrical equipment, medical equipment, chemical industry products, pearls and other gems. Israeli companies seeking to expand their business to China can learn more about these important regulation updates by reviewing our GT China Alert — New Regulations on Equity Contribution Issued by China’s MOFCOM — prepared by Dawn Zhang and George Qi in our Shanghai office.

Ephraim Schmeidler, an attorney based on Greenberg Traurig’s New York Office, is an Israeli who lived in China and speaks Chinese.