Capitalisation and Non-Capitalisation in Chinese
Capital letters can be used to emphasize or indicate proper nouns in Chinese. However, no set rule determines when it’s appropriate or inappropriate to capitalize a word.
Beijing was China’s capital from 1271-1912, hosting the Forbidden City. This place served as a center of commerce and culture.
Registered capital covers initial costs associated with starting and running a business until it becomes self-sustaining, such as cash, capital equipment, or non-monetary assets. An appraiser must first verify non-monetary contributions before being included in a company’s capital account, and any non-monetary contributions must come with written documentation outlining why they were contained therein.
Registered capital is required of every company registered in China, whether a Wholly Foreign Owned Enterprise (WFOE) or Joint Venture (JV). Depending on its industry, documented capital requirements may differ, and manufacturing businesses usually need more significant amounts than service businesses.
In general, registered capital for companies is set in international circulating currencies. SMEsChina recommends choosing one easily transferable from overseas bank accounts as this will simplify Chinese foreign exchange procedures. Selecting your registered capital limit within your Articles of Association should also be within the specified limits. Increasing or reducing it can be accomplished quickly, but doing the latter requires more work.
Shareholders of a company are held liable for their registered capital contributions in the event of bankruptcy, even though liabilities could exceed registered capital contributions due to the inability to repay debts. Whether or not shareholders can meet their liabilities depends upon factors like the type and size of the business and the ability to generate profits.
Registered capital is more than just the primary source of revenue for any company; it also serves as proof that it exists and has legal approval to operate. Furthermore, third parties often refer to registered capital when conducting due diligence investigations; therefore, business leaders must understand how registered capital works to make informed business decisions.
Non-monetary contributions are not mandatory when it comes to Chinese company-registered capital. However, it’s still essential that their proper form and amount are established in their articles of association. Assets like licensed intellectual property rights, goodwill, or sweat equity that could qualify as non-monetary capital contributions should be supported with valuations and legally binding pledges of ownership; additionally, they cannot be used as loan funding mechanisms.
Shareholders are required by their Articles of Association to make capital contributions at the specified times and in full. So, a company should carefully plan its capital injection and keep records of actual contributions; this information will become publicly available and serve as a point of reference for third parties.
China recently revised its company law to implement a paid-in capital system that restricts minimum registered capital, ratio of cash contributions to noncash contributions, and period for capital injection. But these restrictions are slowly being relaxed – Yang Wei recently predicted that Chinese authorities would soon begin valuing companies based on policy commitments rather than profit expectations – this should help attract capital into firms that align with Xi Jinping’s priority sectors like technology, biotech, green tech, high-end equipment and electric vehicles that fall under Party national security policy.
Not all shareholders or promoters may contribute monetary capital contributions; non-monetary properties may also be provided in addition to money as capital contributions. Any such non-monetary donations must be assessed and verified by an institution legally established for capital verification; furthermore, they should be free of defects or encumbrances and transferable under law.
Chinese characters differ significantly from English letters in that each symbol stands for multiple concepts or ideas that may or may not exist in alphabetic form; as a result, some Chinese characters may represent ideas beyond just single words or meanings. It is possible for some words in Chinese not to exist alphabetically at all – however, this doesn’t imply a symbol has no purpose whatsoever – indeed, multiple definitions could apply to any one character!
Before March 2014, China enforced a mandatory paid-in capital system requiring foreign companies to invest a minimum amount of their registered capital into a Wholly Foreign-Owned Enterprise (WFOE). Although this requirement has since been eliminated, WFOEs should still ensure they have sufficient registered money in place to support operations and expansion – this may take the form of cash or non-cash contributions such as land use rights, intellectual property assets, or equipment/machinery purchases; all investments must align with production scope specified in articles of association of a WFOE’s articles of association.
Instead of providing cash as capital contributions in-kind, shareholders may also provide moveable property as capital contributions in-kind. It must be valued by a qualified appraiser, recorded in the company records, and declared in its articles of association. It must be returned to its donor shareholder if not utilized within its intended use period.
Shareholders may contribute patent rights as capital contributions in-kind; however, legal title to this property can only be established, altered, or transferred after it has been registered according to law. As this can be a time-consuming process that could cause significant losses for your business, it is wise to prepare and set an adequate level of registered capital from the start. Furthermore, recorded capital information is publicly accessible in the National Enterprise Credit Information Publicity System, which third parties could potentially access and impede suppliers from securing contracts with your company.
Foreign capital account
Since the early 1980s, China’s government has implemented stringent capital account controls. These restrictions prevent domestic citizens from investing overseas and foreign investors from accessing China’s financial markets, leading to persistent underfunding among Chinese firms and distorting credit allocation. State-owned enterprises (SOEs) receive preferential credit treatment, while private firms face higher lending costs and limited investment opportunities.
China’s capital control regime is built around “financial repression,” a set of policies designed to stem capital outflows by taxing foreign exchange earnings and restricting domestic financial asset markets. While such policies may lead to distortions in intertemporal consumption-saving decisions that reduce household welfare, they also incentivize households to invest in the stock market or accumulate savings through bank deposits.
China has taken steps to liberalize its capital account, yet has not relaxed its strict controls over investment flows or the domestic exchange rate. Furthermore, Chinese laws and regulations related to national security restrict market access for foreign investors; equity caps and joint venture requirements limit their share ownership in Chinese enterprises as they attempt to gain entry.
Abolishing these restrictions would require a fundamental shift in China’s growth model, including decreasing direct lending to SOEs and lessening dependence on foreign investments. As China’s economic performance improves, policymakers may gradually relax restrictions. Unfortunately, COVID-19 will likely impede this process; nonetheless, China has indicated its intention to liberalize its capital account slowly. Russia recently unlocked its domestic bond market and reduced quotas on bank-by-bank trading, both positive steps. However, more changes must occur to ensure foreign investors receive fair treatment in their financial markets. A reverse in capital outflows could act as an impetus to accelerate recovery while simultaneously improving the well-being of households and businesses.