By October 21, 2022 No Comments

Reports and surveys from foreign chambers of commerce in China have recently expressed concerns over China economic and Covid-19 policies’ impact on foreign investment and presence in China.

These policies, notably by limiting business trips from other countries to China, do not ease the discussion and conclusion of business deals, as we know that face to face meetings and on-site meetings are crucial for the development of business relationship, mutual understanding, and final decision of investment. Such reports point out that some foreign companies are adopting a “wait-and-see” approach, meaning not investing more in China nor divesting, but waiting for further signal of openness from Chinese authorities.

Against this background, we can see that new trends of investment in China are developing from companies which, so far, were not physically present in China but were under cooperation or commercial contracts with local Chinese companies for exporting their goods and products to China, in a pure export-driven growth logic.

Some of these foreign companies make the decision to invest and set-up an entity in China, either wholly owned or in joint-venture. Their goal in making such decision of investment and going from an export-strategy to a domestic localization, can be to adapt to new Chinese regulations in certain areas.

For example, in a certain number of areas related to new technologies or the medical field (pharmaceuticals, medical devices, etc.), Chinese policies encourage or impose the use of products qualified as “Made-in-China”; thus, in responses to calls for tenders, foreign products which hitherto could be assured of winning the call for tenders given their technological superiority, can now be excluded de facto or de jure when they do not meet this “Made-in-China” criterion. Some foreign medical devices manufacturers have also noted that national or local authorities encourage hospitals to buy locally produced devices or that public insurance organizations could refuse to reimburse certain foreign production devices. Some provinces have published catalogs of foreign medical equipment authorized for import, to which hospitals are recommended to stick to when domestic solutions comparable to foreign products exist.

This leads several foreign manufacturers to study the opportunity of creating an entity in China, alone or with a partner, in order to produce or assemble locally for China. The trend is not only to assemble or manufacture “in China for China” products identical to historical products manufactured by the foreign company based on a license granted to the local manufacturer (either incorporated as a WFOE or as a JV), but also to develop cooperations with local companies in order to develop product innovation and R&D “in China for China” and develop new products specially aimed at adapting products to local needs or accessing new markets.

Other foreign companies are forced by their global customers to produce directly in China to serve the Chinese market or the Asian market from China, to limit logistics costs and constraints linked to supply chain disruptions due to Covid-19 policies and geopolitical turmoil.

Hence the need to adopt an objective and pragmatic point of view when the question of investing in the Chinese market by creating a local entity (which can generate greater financial costs than a single commercial cooperation) arises for a company.



As a full-service Chinese law firm, DHH Law Firm is at your disposal to help you deepen your reflections concerning your current or future investments or legal matters in China and Chinese policies and regulations. We are used to assisting foreign companies in the setting-up of their local presence in China. Please feel free to contact Christine Miles at [email protected].