Q: What is the impact of the recent changes in investment regulations for foreign contractors doing work in China?

A: The Chinese Ministry of Construction previously allowed for foreign contractors to perform project work in China without requiring the establishment of a Chinese company. Under Decree 32, such foreign companies could perform work pursuant to a Foreign Enterprise Qualification Certificate. Decree 113, issued by the Ministry of Construction and the Ministry of Foreign Trade and Economic Cooperation on Sept. 27, 2002, however, changed those requirements such that after Oct. 1, 2003, foreign contractors could only perform projects in China through a Foreign Investment Construction Enterprise (FICE), a Chinese corporate entity.

On Sept. 8, 2003, the Ministry of Construction postponed the implementation of the new regulations requiring the use of a FICE from Oct. 1, 2003, to April 1, 2004. The impact of the outbreak of SARS on the ability of foreign contractors to obtain a Foreign Investment Construction Qualification Certificate was given as the reason for delaying the implementation.

Nevertheless, for foreign contractors to perform work in China prior to April 1, 2004 they must either operate under a current Foreign Enterprise Qualification Certificate (already obtained under Decree 32) or obtain a Foreign Investment Construction Qualification Certificate for a FICE , pursuant to Decree 113. After April 1, 2004, a foreign contractor may only perform work in China through a FICE with a proper certificate.

Thanks to George J. Pierson, P.E., Esq., who is a partner at Peckar & Abramson, P.C., and director of the firm's International Construction Practice Group. His expertise includes all aspects of domestic and international construction and contract law. Previously, he was the executive vice president/legal director of Kvaerner E&C, the international engineering and construction company. His e-mail is gpierson@pecklaw.com.

QA archive >>