«Establishment of Companies with an Investment Nature by Foreign Investors Tentative Provisions» Supplementary Provisions (2)

(Promulgated by the Ministry of Foreign Trade and Economic Cooperation on, and effective as of, 31 May 2001.)

The following supplementary provisions to the Establishment of Companies with an Investment Nature by Foreign Investors Tentative Provisions promulgated by the Ministry of Foreign Trade and Economic Cooperation on 4 April 1995 are formulated in order to promote investment in China by multinational corporations, attract advanced foreign technology and management experience and improve the functioning of investment companies:

* Investment companies shall be permitted to provide relevant technical training to the domestic distributors and agents for the products of their investee enterprises and to the domestic companies and enterprises with which they or their parent companies have entered into technology transfer agreements.

* Investment companies shall be permitted to act as sponsors in sponsoring and establishing foreign-funded companies limited by shares or to hold unlisted non-floating legal person shares of foreign-funded companies limited by shares. Investment companies shall be deemed to be foreign sponsors of companies limited by shares.

* Investment companies shall be permitted to purchase the products of their investee enterprises and, after effecting system integration, to sell such products domestically and abroad. If the products of their investee enterprises are not able to completely satisfy the requirements of system integration, investment companies shall be permitted to procure ancillary system integration products domestically and abroad, provided that the value of such procured products does not exceed 50% of the value of all the products required to effect system integration.

* Subject to the approval of the original examination and approval authority, an investment company shall, in order to carry out market development for the products of an investee enterprise before such enterprise comes on stream or before a new product of an investee enterprise goes into production, be permitted to import from its parent company for trial sale in China a limited quantity of products not subject to import quotas that are identical or similar to the products to be produced by the investee enterprise.

* An investment company shall import the afore-mentioned ancillary system integration products or imported products for trial sale using the portion of the company's registered capital contributed in cash foreign exchange, foreign exchange profits or proceeds from foreign exchange loans taken out abroad. The aggregate value of the afore-mentioned imports each year may not exceed 20% of the portion of the company's registered capital contributed in cash foreign exchange. If the value of such imports in any year is less than 20% of the portion of the company's registered capital contributed in cash foreign exchange, the balance may not be rolled over to the next year.

* If an investment company wishes to engage in the business activities specified in Article 1, 3 or 4 hereof, it shall submit such relevant application documents as its amended contract, articles of association, etc. to the Ministry of Foreign Trade and Economic Cooperation for its approval in accordance with the prescribed procedures and shall satisfy the following conditions:

the investment company's registered capital has been paid in on schedule in accordance with the contract and articles of association and the amount of registered capital actually paid in is not less than US$30 million;

the investment company has operated in accordance with the law and has no record of legal violations.

An investment company shall submit the details of its investments and operations for each year in accordance with the prescribed contents and format to the Ministry of Foreign Trade and Economic Cooperation for the record within the first three months of the succeeding year. The afore-mentioned materials will constitute part of the materials that the investment company is required to submit when participating in annual joint inspections.

In the event of any discrepancy between these Provisions and the Problems Concerning the  «Establishment of Companies with an Investment Nature by Foreign Investors Tentative Provisions»Explanation issued by the Ministry of Foreign Trade and Economic Cooperation on 16 February 1996, these Regulations shall prevail.

These Provisions shall be implemented as of the date of promulgation.

*Remarks: Articles 1 to 6 have been revised according to the Amending the and the Supplementary Provisions Thereof Decision promulgated by the Ministry of Foreign Trade and Economic Cooperation on 7 March 2003. Please refer to the Decision at ref no. 2330/2003.03.07 for more details.