Interests in Subsidiaries and Branches

Abstract

Abstract Warranty 1 dealt with the due establishment, approval, and capitalization of the target Company. Warranty 2 deals with the subsidiary interests of the target Company. In the PRC, there are specific rules governing the establishment of subsidiary interests and the issues that arise from the application of these rules are addressed in this Chapter II– Where the target Company is a foreign investment enterprise, much of the impetus for the establishment of subsidiaries and branches comes from trying to overcome certain regulatory obstacles to doing business in China. First, foreign investment enterprises are initially approved to operate only from a single location. Secondly, until recently and then only subject to certain limitations, foreign investment enterprises were generally not permitted to engage in domestic trade, meaning that they could only sell goods that they themselves manufactured. A foreign investment enterprise could not buy and sell third party goods, including those manufactured by its foreign parent company or an affiliated foreign investment enterprise. Thirdly, a foreign investment enterprise can only provide after-sales service for its own products, not even for those of an affiliated enterprise in China or those of its other group members imported into China.