For a Singapore-based investor, the first question in any China deal is not valuation — it is which legal framework will govern your rights and how your money will physically cross the border.
1. Which legal framework applies?
Since 2020, the PRC Foreign Investment Law applies national treatment to foreign investors, subject to the Negative List. Sectors on the list are restricted or prohibited; everything else is open.
- A direct equity stake in a PRC company is governed by PRC law. Disputes can be arbitrated (e.g. CIETAC) and enforced in China.
- An offshore holding (Cayman or BVI) is governed by offshore law, with disputes typically going to HKIAC or SIAC arbitration — enforceable in China under the New York Convention and Mainland-HK arrangements.
- Check treaty relief on dividends — the China–Singapore treaty is one of the most favourable (5% withholding rate on dividends subject to conditions).
2. How does money flow into China?
Direct investment path: complete foreign-investment registration, then SAFE registration at the bank, capital-account remittance and conversion to RMB.
Offshore path: fund the Cayman entity, which injects capital (or a shareholder loan) into the onshore subsidiary (WFOE).
Two verifications matter:
- Confirm founders have completed SAFE Circular 37 registration (mandatory for offshore structures with PRC individual shareholders).
- Confirm paid-in capital is real — bank statements confirmed directly with the bank, not PDFs supplied by the founder.
3. Practical red flags
- Sector on the Negative List but structured as a direct equity investment.
- Founder cannot produce Circular 37 registration records.
- Licence scope does not cover actual business activities.
Source: compiled by iOrbis with PRC counsel input. This is general information, not legal advice — confirm specifics with qualified PRC counsel.
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