Amending the «Establishment of Companies with an Investment Nature by Foreign Investors Tentative Provisions»and Its Supplementary Provisions Decision

(Promulgated by the Ministry of Foreign Trade Economic Cooperation on March 7 2003 and effective 30 days after the date of promulgation.)

The following amendments to the Establishment of Companies with an Investment Nature by Foreign Investors Tentative Provisions (hereafter, Tentative Provisions), Supplementary Provisions (hereafter, Supplementary Provisions) and Supplementary Provisions (2) promulgated by the Ministry of Foreign Trade and Economic Cooperation since 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 companies with an investment nature:

1. Item Four of Article 3 of the Tentative Provisions is amended as: balance sheets of the investment parties for the past three years that are audited in accordance with the law.

2. Article 4 of the Tentative Provisions is amended as: A foreign investor shall contribute capital in a freely convertible currency or with renminbi profits gained in China or lawful renminbi proceeds derived from such activities as equity transfer or liquidation to the registered capital of a company of an investment nature. The Chinese investor may contribute capital in renminbi. If a foreign investor contributes capital with its lawful renminbi proceeds, it shall submit relevant proving documents and tax payment receipts. The capital contribution shall be paid up within two years of the issue of a business licence.

3. Article 5 of the Tentative Provisions is amended as: A company of an investment nature established with approval from MOFTEC may, according to the actual requirements of its business activities in China, engage in the following businesses:

a. investment in accordance with the law in sectors in which foreign investment is permitted by the State;

b. appointed in writing (subject to a unanimous resolution of the board of directors) by an investee enterprise to provide the following services to such enterprise:

(i) assisting or acting as agent for an investee enterprise in the purchase of machinery, equipment and office equipment for self use by such enterprise and in the purchase of raw materials, spare parts and components required for production from inside and outside China, and in the sale of products inside and outside China produced by such enterprise, as well as providing after-sale services;

(ii) balancing foreign exchange among investee enterprises with the consent and under the supervision of an administration of foreign exchange;

(iii) providing such services as technical support, staff training and enterprise internal human resources management that are required in the course of production, sale and market development to an investee enterprise; and

(iv) assisting investee enterprises in raising loans and providing guarantees;

c. establishment of scientific research and development centres or departments in China for purposes of engaging in the research and development of new products, and high and new technologies, transferring the resulting achievements and providing corresponding technical services; and

d. providing its investors with consultancy services, and providing its affiliated company with such consultancy services as providing market information and investment strategies related to the investment of such company.

4. Article 10 of the Tentative Provisions is amended as: Where a company of an investment nature invests in the establishment of an enterprise in which the proportion of investment made by such company or in conjunction with other foreign investors is not less than 25% of the registered capital of such enterprise, such enterprise shall enjoy preferential treatment as a foreign-invested enterprise, and a foreign-invested enterprise approval certificate and business licence shall be issued.

5. Article 1 of the Supplementary Provisions is amended as: Where the registered capital of a company of an investment nature is not less than US$30 million, the amount of loans taken out by such company may not exceed four times the amount of its paid-up registered capital. Where the registered capital of a company of an investment nature is not less than US$100 million, the amount of loans taken out by such company may not exceed six times the amount of its paid-up registered capital. If, due to business requirements, a company of an investment nature intends to have its amount of loans exceed the afore-mentioned stipulations, it shall obtain the approval of the Ministry of Foreign Trade and Economic Cooperation.

6. Article 2 of the Supplementary Provisions (2) is amended as: Companies with an investment nature may act as sponsors in sponsoring and establishing foreign-invested companies limited by shares or hold unlisted non-floating legal person shares of foreign-invested companies limited by shares. Companies with an investment nature may also hold unlisted non-floating legal person shares of other companies limited by shares in China in accordance with relevant State provisions. Companies with an investment nature shall be deemed to be foreign sponsors or shareholders of companies limited by shares.

7. Article 5 of the Supplementary Provisions (2) is amended as: When importing ancillary system integration products or products for trial sale, a company with an investment nature shall complete formalities in accordance with relevant provisions and use 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 shall not exceed 35% 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 35% of the portion of the company's registered capital contributed in cash foreign exchange, the balance shall not be rolled over to the next year.

8. Articles 3, 4, 5 and 6 of the Supplementary Provisions and Articles 1, 3, 4 and 6 of the Supplementary Provisions (2) are merged and amended as:

If after its establishment a company of an investment nature operates in accordance with the law, has no record of legal violations, paid the registered capital on schedule in accordance with the articles of association, has its investors actually paid up registered capital of not less than US$30 million and has used such paid up capital in the investment of its investee enterprise, it may, according to the actual requirement of its business activities in China, engage in the following businesses after its application has been examined and approved by the foreign trade and economic cooperation department of the province, autonomous region, municipality directly under the central government or city with independent development plans where the company is located and forwarded to MOFTEC and is approved thereby:

a. appointed in writing (subject to a unanimous resolution of the board of directors) by an investee enterprise to launch the following businesses:

(i) acting as a distributor on the domestic and foreign markets for the products produced by the investee enterprise; and

(ii) providing transportation, warehousing and other such comprehensive services to the investee enterprises;

b. acting as an agent or distributor in or by way of establishing an export procurement organization exporting domestic goods that are not subject to export quotas or export licensing;

c. purchasing the products of an investee enterprise and, after effecting system integration, selling such products domestically and abroad. If the products of the investee enterprise are not able to completely satisfy the requirements of system integration, companies of an investment nature 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;

d. providing relevant technical training to the domestic distributors and agents for the products of its investee enterprises and to the domestic companies and enterprises with which it or its parent company has entered into technology transfer agreements;

e. 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 the enterprise goes into production, companies with an investment nature are permitted to import from their parent companies 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 enterprise;

f. providing operational leasing services of machinery and office equipment to investee enterprises;

g. providing after-sale services to products produced by its parent company; and

h. participating, in accordance with relevant State provisions, in contracting of foreign projects of Chinese enterprises having the right to contract foreign projects.

Companies of an investment nature applying to engage in the afore-mentioned businesses shall submit the following documents to the examination and approval authority:

a. an application signed by the legal representative of the company;

b. the resolution of the board of directors of the company;

c. the amended articles of association of the company;

d. the company's approval certificate (copy), business licence (copy) and capital verification report issued by a China certified public accountant; and

e. a capital verification report on the investee enterprise issued by a China certified public accountant.

9. Where there is any discrepancy between the Establishment of Companies with an Investment Nature by Foreign Investors Tentative Provisions, Problems Concerning the Explanation, Supplementary Provisions or Supplementary Provisions (2) and this Decision, the Decision shall prevail.

10. The Decision shall be effective 30 days after the date of promulgation.