GENERAL OVERVIEW
According to the World Bank’s data the People’s Republic of China (further “China” or “PRC”) is currently the second world’s largest economy (GDP ranking) with economic ambitions exceeding the Asian region. PRC already expands its influence in Africa and Latin America by concluding numerous trade agreements. And what about Europe? From the Chinese point of view the economic crisis that preoccupies Europe seems an opportunity rather than an obstacle. Now, the question is – where should China base its starting point for further expansion in Europe. The answer may be Poland. With its steady and resilient economy it remains an attractive place to start and develop business, despite the raging crisis. Sadly, however, this does not seem to fully translate into present trade relations between China and Poland.
In order to attract China’s greater attention to Poland, its President Bronisław Komorowski visited PRC in December 2011. His diplomatic visit was accompanied by a trade mission. The mission presented Chinese authorities and investors with benefits that may result from investments in Poland. After years of transformation, Poland may be proud of its economic and political stability. Poland also offers a growing internal market together with increasing internal demand along with qualified and available workforce.
ENTERING THE POLISH MARKET
Chinese investors may enter the Polish market in many ways. One of them is to start-up a partnership or a company. The main legal act regulating starting-up businesses in Poland by foreign investors is the Act on Freedom of Economic Activity dated 2nd July 2004 (the “Act”). In general the Act provides, that entrepreneurs based outside of the EU (EEA) may set-up business in the form of:
– limited partnership (spółka komandytowa),
– joint-stock partnership (spółka komandytowo-akcyjna),
– limited liability company (spółka z ograniczoną odpowiedzialnością, or
– joint-stock company. (spółka akcyjna)
While the business significance of joint-stock partnerships is increasing, still the most popular (both for foreign and domestic entrepreneurs) is the limited liability company (LLC). LLC is a legal person acting through its corporate bodies – in general, the Management Board. LLC acquires rights and incur liabilities on its behalf. Shareholders of LLC are not liable for the company’s obligations (with some minor exceptions). Minimal initial share capital of an LLC amounts to PLN 5,000 (around EUR 1,200).
Foreign investors may also choose to do business in Poland without setting-up a company or a partnership. One of such methods is to establish a Polish branch office of a foreign company. According to the Act, foreign entrepreneurs may establish branches under the reciprocity rule. China and Poland are bound by this rule¹. The main difference between a company (partnership) and the branch is that a branch has no legal personality. A branch is only an operational part (component) of a company. Moreover, branches may conduct business only within the scope of operation (business) of the “parent” company.
Another attractive way to enter the Polish market is through a process of privatisation. In very broad sense privatisation means disposal of state-own property in favour of a private entity. The most recent (and as far the first) example of such entry by Chinese investor is the acquisition of the non-military part of the steelworks company Huta Stalowa Wola by Guangxi LiuGong Machinery.
The concept of the single European cross-border passport mechanism applicable to the financial services sector (especially insurance and banking) is also worth noting. In general a financial institution, which has been granted with a license for providing financial services in one of the EU Member States is not required to obtain additional licenses for performing such activities in other EU Member States. This may be especially interesting to Chinese banks, which if granted with the license in Poland would be able to provide financial services across Europe under the single European passport.
A HUB FOR CHINESE EXPANSION IN EUROPE?
The above mentioned factors turn the spotlights to Poland as a potential Chinese bridge to Europe. There are however also some concerns. PRC companies need to obtain regulatory approval for closing overseas deals. This adds some level of uncertainty in closing such transactions. On the other hand, Polish administrative requirements for starting-up business still remain relatively complex. The Chinese investors will also have to face Polish realities, what may be difficult for the newcomers. What is more, Poland and its culture is not so popular in China as for example in Japan. Therefore, it is still to be seen if Poland will become a starting point for Chinese economic expansion in Europe.
¹ Please see the Agreement between China and Poland dated 7 June 1988 on mutual support and protection of investments as well as the Agreement between China and Poland dated 8 June 2004 on economic cooperation between the Government of theRepublic of Poland and the Government of the People’s Republic of China.
Michał Żołubak is completing his apprenticeship with the Warsaw Advocates Bar. He has more than 6 years of practice in M&A transactions involving cross border elements. He conducts his own business activity and cooperates with Siemiątkowski & Davies Warsaw law firm. Michał specializes in real estate deals, European Law and advises on complex corporate law issues. He has graduated from University of Warsaw Faculty of Law and Administration with a master’s degree. Michał also completed studies at the English and European Law Centre at Warsaw University. He has published in reputable magazines and newsletters.