As we all know, foreign investors have been heavily restricted from investing in China real estate market. Though restriction does not mean prohibition but due to difficulty in going through approval formalities and in geting foreign exchange financing, many foreign investors are racking their brains in search for alternative ways of tapping the China property market.

Recently while working for a foreign client intending to making investment in China real estate market, we happend to learn that there is one way that may seem appealing for some foreign investors who have already have a foreign-invested enterprises ("FIE") that have accumulated sufficient start-up fund for property development.

It goes like this: the existing FIE intiates to set up another company with its own money (generally in association with another domestic shareholder in order to avoid lump-sum payment of all registered capital, as applicable to single-member company) and such another company MAY be regarded as a domestic company which is free from restrictions applicable to foreign invested real estate company in respect of property holding and financing.

Please note that I use "MAY" above. Actually, under current regulations, existing FIE making investment in other companies are subject to approval and examination of the local foreign investment department when such investment relates to "restricted industries" listed in the Catalogue of Industries for Guiding Foreign Investment. Such local scrutiny may mean real barrier for such indirect investment in real estate sector.

However, our client had no difficulty using its existing foreign invested property development company  in setting up a "domestic company" because local foreign investment department and industry and commerce bureau both thought that it is not necessary for approval from perspective of foreign investment. It was actually a very easy and strightfoward process. Moreover, the new company, as a domestic company, will enjoy much broad liberty in developping various project using the same vehicle.

We understood that local government may intentionally gave green lights to such indirect investment in order to lure and attract capital inflow.

The major drawback in this indirect investment mode is that foreign investor still cannot get their greenbacks or other foreign currencies into China, which may benefit substantially from Chinese currency appreciation.