2008 Update to Investment and Operating in Restricted Industries in China

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There are a number of business sectors in China such as telecommunications services, online commerce and auction in which direct foreign investment is restricted.1 Limits are placed on the percentage amount of foreign ownership of companies in these sectors. Foreign ownership in these sectors may also increase the difficulty of obtaining government operating permits.2 Nevertheless, some of these heavily regulated sectors present substantial market opportunities. A number of companies in these sectors have gone public in the U.S. despite the restrictions on foreign investment. This memorandum describes a corporate structure that a non-Chinese corporation may use for investment and participation in restricted industries in China. This structure has worked for companies seeking access to capital markets in the U.S., and should work for access to capital markets in Hong Kong or Singapore.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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