www.stoel.com
China Stimulus Package
Geoffrey G. Revelle
Stoel Rives LLP
Oregon
WashIngton
CalIfornIa
Utah
Idaho
Summary
• $586 billion announced 11/2008 over the next
2 years
• Part of “proactive fiscal policy” to create jobs
and maintain 8% GDP growth
• Main beneficiaries – government owned and
private Chinese companies, provincial
governments
• High-tech and other foreign products and
services not available in China also will
benefit
Chinese Business Entities
•
•
•
•
State-owned enterprises (“SOE”)
Provincial Investment Vehicle (“PIV”)
Domestic Private Enterprise (“DPE”)
Foreign Invested Enterprises
Foreign Invested Enterprise
(“FIE”)
• Wholly Foreign-Owned Enterprises (“WFOE”)
− 100% foreign-owned
− Only engage in business in China when foreign
investment permitted or encouraged
− Typically in manufacturing, consulting, trading,
wholesale and retail
− Limited liability
FIE’s (cont.)
• Equity Joint Venture (“EJV”)
− Chinese and foreign ownership
− Commonly used to invest in restricted areas of
Chinese economy
− Limited liability
FIE’s (cont.)
• Cooperative Joint Ventures (“CJV”)
− Can be limited liability company or an unincorporated
entity
− Engage in restricted activities
• Foreign invested companies limited by shares
(“FICLS”)
− Stock exchange company
• Representative office: conduct research,
establish contacts, cannot engage in profitmaking activities
Prohibited Foreign Investment
• Arms and munitions
• Construction and operation of power grids
• Motion picture distribution
Restricted Activity
• Requires participation of Chinese company
• Categories
− Outdated technology
− Harmful to environment
− Protected economic sectors
• Examples
− Gold, silver, and platinum mining
− Mobile and data telecom services
− Grain production
Encouraged Activities
• No participation by Chinese company required
• Examples:
− Development of agricultural technologies
− Production of engineering plastics and plastic
alloys
− Software
− Construction of large thermal power stations
Stimulus Package Goals
• Maintain GDP gross at or near 8% and create
jobs (6.1% first quarter)
• Focus on 10 sectors of the economy
• In line with latest Five-Year Plan
• Boost domestic demand (spending) to counter
export losses
Focus Areas
Rural Infrastructure
• Roads
• Power grid
− Drinking water safety and conservation
• $54 billion
Focus Areas
Transportation
• Rail
− extending lines, more passenger links, coal
routes
− $147 billion in 2009, $147 billion in 2010
• Airports in central and western regions
− $30 billion in 2009, $37 billion in 2010
Focus Areas
Environment
•
•
•
•
Water safety and conservation
Expand recycling
Energy and clean energy technologies
$31 billion 2009/10
Focus Areas
Power Grid
• $175 billion on grid structure 2009/10
• Goal to address grid bottlenecks and add
renewables to system
• Wind and solar investment – energy stimulus,
plan coming later – $290 billion in alternative
energy industry through 2020 – replace coal
with clean energy
Focus Areas
Finance
• Likely remove previously imposed loan
quotas – lending has increased
• Increase bank credit for key stimulus
projects
• State owned banks
• Various tax incentives being put in place
Focus Areas
5/2/08 Earthquake Reconstruction
• $146 billion
Focus Areas
Housing, Health Care & Education, Industry
• $58 billion for low rent housing and slum
clearance
• $27 billion – health care and education project
• $53 billion in modernizing aging industries and
high tech
February National People’s Congress
Changed Priorities
Prioritized Sectors
Original Total
(billion)
263
Revised Total
(billion)
219
Change
(billion)
-44
146
146
0
41
54
58
54
+17
0

23
53
+30

Environmental Projects
51
31
-20
Healthcare and Education
8
27
+19
Infrastructure: railway,
highway, airport, grid
construction
Sichuan Earthquake
Reconstruction
Housing
Rural Livelihood and
Infrastructure
Industry Innovation
• No new money

Approval Process for Funding
• Approval by central government for all
projects, National Development and Reform
Commission (“NDRC”)
• Projects all implemented at the provincial
level
• Provinces and municipalities apply to central
government for funds (NDRC and other
Ministries)
• Not much visibility on the process at this point
Factors
• Fit the Stimulus Package Criteria
• Create jobs, bolster GDP
• Applicant province’s ability to secure all of
the funds needed to complete the project
• Vague standards but predicted 25-30% from
central government, the rest from provincial
governments (PIV’s), banks, SOE’s and private
companies (DPE’s mostly)
FIE Opportunities
• Subcontractors only
• Focus on advanced IP and value added services
that DPE’s and SOE’s can’t provide
FIE Opportunity Examples
• Clean energy technologies, solar, wind
• Technical systems like control and automation
processes for machinery used in railway and
other infrastructure projects
• Logistics and project management services in
rural infrastructure development and
earthquake reconstruction efforts
• High-tech equipment in all areas
• Medical equipment
Foreign Investment Process
• Need to be approved or licensed by
government pursuant to Administrative
Permissions Law
• Complex process to approve projects with
foreign investment
• Both national and provincial approval required
Factors for Success
• Understand and keep track of changes in
bureaucracy
• Understand national and provincial procedures
and guidelines
• Understand the Foreign Investment Industrial
Guidance Catalogue – prohibited, restricted,
encouraged or permitted
Factors for Success (cont.)
• Policy changes and priorities as they change
• Understand needs of each province
• As economy’s conditions change, so will the
package (GDP drops, more spending likely
quickly)
Factors for Success (cont.)
• Understand what services and technologies
Chinese companies can and cannot provide
• Hire good consultants