Establishment of Companies with an Investment Nature by Foreign Investors Provisions (2nd Revision)

Article 3: The application for the establishment of a company with an investment nature shall meet the following conditions:

(1) (i) the foreign investor shall have good creditworthiness, the financial strength necessary for the establishment of a company with an investment nature, a total asset value of no less than US$400 million in the year prior to the submission of an application, will also have established foreign-invested enterprise(s) in China with a capital contribution of more than US$10 million of registered capital actually paid in; or (ii) the foreign investor shall have good creditworthiness, the financial strength necessary for the establishment of a company with an investment nature; have already established 10 foreign-invested enterprises or more, with a capital contribution of more than US$30 million of registered capital actually paid in;

(2) where a company with an investment nature is established in the form of an equity joint venture, the Chinese partner shall have good creditworthiness, the financial strength necessary for the establishment of a company with an investment nature and, a year prior to application, a total asset value of no less than Rmb100 million; and

(3) the registered capital of a company with an investment nature shall not be less than US$30 million.

The foreign investor applying to establish a company with an investment nature shall be a foreign company, enterprise or economic organization. If there are two or more foreign investors, at least one foreign investor with a large equity interest shall fulfil the provisions specified in Item (i) of Paragraph (1) of this article.

Article 4: Foreign investors meeting the conditions stipulated in Item (i) of Paragraph (1) of Article 3 hereof may invest in and establish companies with an investment nature in the name of their wholly owned subsidiaries.

Article 5: If a foreign investor applying to establish a company with an investment nature meets the conditions specified in Item (i) of Paragraph (1) of Article 3 hereof, it shall submit a letter to the examination and approval authority in which it guarantees payment of registered capital, and the transfer of technology belonging to the said foreign investor or its affiliate(s), when the company with an investment nature established by it makes investment in China.

If a company with an investment nature is invested in and established in the name of a wholly owned subsidiary, its parent company shall submit a letter to the examination and approval authority in which it guarantees completion of payment, in accordance with the conditions approved by the examination and approval authority, by its subsidiary of the registered capital of the company with an investment nature to be established; and guarantees, when such company with an investment nature makes investment in China, payment of the registered capital and transfer of technology belonging to such parent company and its subsidiary (subsidiaries).

Article 6: When applying to establish a company with an investment nature, an investor shall submit the following documents to the Ministry of Commerce for examination and approval after such documents have been verified and given consent by the department in charge of commerce of the province, autonomous region, municipality directly under the central government or city with an independent development plan where the proposed company is to be established:

(1) for establishment of a company with an investment nature in the form of an equity joint venture, the application, contract and articles of association signed by all the investment parties; for establishment of a company with an investment nature in the form of a wholly foreign-owned company, the application, feasibility study report and articles of association signed by the foreign investor;

(2) supporting documents on the creditworthiness of the investment parties as well as supporting documents (copies) of registration and legal person representatives;

(3) copies of the approval certificate(s), business licence(s) and the capital verification report(s) issued by a PRC certified public accountant of the enterprise(s) invested by the foreign investor;

(4) lawfully audited balance sheets of the investment parties for the past three years;

(5) a letter of guarantee that shall be submitted in accordance with Article 5 hereof; and

(6) other documents as required by the Ministry of Commerce.

The aforementioned documents shall be originals except where indicated as copies.

Where a document is not signed by a legal representative, a power of attorney from such legal representative shall be provided.

Where an agency established in accordance with the law is appointed to handle application formalities, a power of attorney signed by a legal representative of the investor shall be provided.

Article 7: 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 supporting documents and tax payment receipts. The capital contribution shall be fully paid in within two years of the issue of a business licence.

Article 8: At least US$30 million of the registered capital of companies with an investment nature shall be used as capital contributions to foreign-invested enterprises invested in and newly established by them; as contributions to the capital, or increases in capital, of foreign-invested enterprises already invested in and established by their parent companies or affiliates (and for which procedures for the assignment of equity have been completed according to law), where such capital or increases in capital have not been fully paid in; as investments for establishment of such organizations as research and development centres; or for purchase of equity interests from shareholders of companies in China (excluding equity interests formed by the amount of contributions fully paid in by the parent company or affiliate(s) of the company with an investment nature).

Article 9: If the registered capital of a company with an investment nature is not less than US$30 million, the amount of loans taken out by it may not exceed four times the amount of its paid-in registered capital. If the registered capital of a company with an investment nature is not less than US$100 million, the amount of loans taken out by it may not exceed six times the amount of its paid-in registered capital. If, due to business requirements, a company with an investment nature intends to have its amount of loans exceed the aforementioned stipulations, it shall obtain the approval of the Ministry of Commerce.

Article 10: A company of an investment nature established with approval from the Ministry of Commerce may, according to the actual requirements of its business activities in China, engage in the following businesses:

(1) investment in accordance with the law in sectors in which foreign investment is permitted by the state;

(2) providing the following services to an investee enterprise when appointed in writing (subject to the unanimous resolution of the board of directors) by 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, sales and market development to an investee enterprise; and

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

(3) 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;

(4) providing its investors with consultancy services, and providing its affiliated companies with such consultancy services as providing market information and investment strategies related to the investment of such company; and

(5) providing outsourcing services for its parent company and affiliated companies.

Article 11: Companies with an investment nature engaging in import and export of goods or technology shall comply with the provisions of the Ministry of Commerce, Registration for the Record of Foreign Trade Operators Procedures.

Companies with an investment nature engaging in commission agency, wholesale, retail, or franchising activities shall comply with the relevant provisions of the Ministry of Commerce, Administration of Foreign Investment in the Commercial Sector Procedures, and shall amend the corresponding business scope in accordance with the law.

Article 12: For the purposes of these Provisions, the phrase ¡°an investee enterprise of a company with an investment nature¡± shall refer to enterprises fulfilling the following criteria:

(1) an enterprise invested by a company with an investment nature directly or in conjunction with other foreign and/or Chinese investors in which the proportion of investment attributable to foreign investors of such company alone, or in conjunction with other foreign investors, accounts for 25% or more of the registered capital of the enterprise invested in and established;

(2) an established enterprise in China whose interests, owned by investors or affiliates of a company with an investment nature and other foreign investors or investors in China, are partly or entirely acquired by such company, and the proportion of investment attributable to foreign investors of such company alone, or in conjunction with other foreign investors, accounts for 25% or more of the registered capital of the established enterprise;

(3) the amount of investment of a company with an investment nature is not less than 10% of the registered capital of the enterprise it invests in and establishes.

Article 13: Subject to the approval of the China Banking Regulatory Commission, a company with an investment nature may provide financial support to enterprises invested in and established by it.

Article 14: Companies with an investment nature may act as sponsors in sponsoring and establishing foreign-invested companies limited by shares or hold unlisted non-traded legal person shares of foreign-invested companies limited by shares. Companies with an investment nature may also, in accordance with relevant state provisions, hold unlisted non-traded legal person shares of other companies limited by shares in China. Companies with an investment nature shall be deemed to be foreign sponsors or shareholders of companies limited by shares.

Article 15: 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 in registered capital of not less than US$30 million and has used such paid-in capital in ways stipulated in Article 8 hereof, it may, according to the actual requirements of its business activities in China, engage in the following businesses in accordance with relevant state provisions with the examination and consent of the department in charge of commerce of the province, autonomous region, municipality directly under the central government or city with independent development plans where the company is located, and an application to and approval from the Ministry of Commerce:

(1) when appointed in writing (subject to the unanimous resolution of the board of directors) by an investee enterprise:

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

(ii) provide transportation, warehousing and other such comprehensive services to the investee enterprise;

(2) act as an agent or distributor in or by way of establishing an export procurement organization (including an internal unit) exporting domestic goods and, in accordance with relevant provisions, applying for tax rebates;

(3) purchase the products of an investee enterprise and, after effecting system integration, sell 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;

(4) provide 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, its parent company or affiliates have entered into technology transfer agreements;

(5) 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 products of their parent companies relevant to the products to be produced by the enterprise;

(6) provide operational leasing services of machinery and office equipment to investee enterprises, or establish operational leasing companies according to law;

(7) provide after-sale services to products imported by it;

(8) participate in contracting of foreign projects of Chinese enterprises having the right to contract foreign projects; and

(9) sale (excluding retail) in China of products from the parent company imported by the company with an investment nature.

Article 16: Companies with an investment nature importing products in accordance with Item (3) or (5) of Article 15 shall carry out the formalities in accordance with relevant state provisions. The annual cumulative amount of the aforementioned imports shall not exceed the amount of paid-in registered capital of the company.

Article 17: Companies of an investment nature applying to engage in the businesses specified under Article 15 hereof shall submit the following documents to the Ministry of Commerce:

(1) an application signed by the legal representative of the company;

(2) the resolution of the board of directors of the company;

(3) the amended articles of association of the company;

(4) the company¡¯s approval certificate (copy), business licence (copy) and capital verification report issued by a China certified public accountant;

(5) a capital verification report on the investee enterprise issued by a China certified public accountant; and

(6) other documents as required by the Ministry of Commerce.

Article 18: The term of a company with an investment nature shall be determined according to the relevant state provisions on the operating term of foreign-invested enterprises and on the basis of the nature of the project to be invested by such company.

Article 19: The establishment of an enterprise by a company with an investment nature shall be submitted and approved individually in accordance with the limit of powers and procedures for the examination and approval of foreign-invested enterprises.

Article 20: Where a company with an investment nature invests in and establishes an enterprise in which the proportion of investment made attributable to foreign investors of such company alone, or in conjunction with other foreign investors, in general accounts for not less than 25% of the registered capital of the enterprise invested in and established, such enterprise shall enjoy preferential treatment as a foreign-invested enterprise, and a foreign-invested enterprise approval certificate and business licence shall be issued. If the afore-mentioned capital contribution is less than 25%, examination, approval and registration shall be carried out in accordance with the prevailing examination, approval and registration procedures for establishment of foreign-invested enterprises unless otherwise provided by laws or administrative regulations.

Article 21: The establishment of a branch by a company with an investment nature shall be submitted to the Ministry of Commerce for examination and approval. To apply for the establishment of a branch, a company with an investment nature must meet the following conditions:

(1) the registered capital of the company with an investment nature has been paid on schedule in accordance with the provisions of the contract or articles or association and the amount of capital contribution already paid is not less than US$30 million, or the company with an investment nature has already invested in and established or owns at least 10 foreign-invested enterprises; and

(2) the region in which the branch is to be established is a region in which the company with an investment nature has concentrated its investment or its product sales.

Article 22: Qualified companies with an investment nature may apply to be recognized as the regional headquarters of a multinational company (hereafter, regional headquarters) and carry out formalities for such change in accordance with the law.

(1) To apply for recognition as a regional headquarters, a company with an investment nature shall fulfil the following criteria:

(i) has paid in registered capital of not less than US$100 million, or has paid in registered capital of not less than US$50 million and in the year preceding the application the total amounts of assets and profits (calculated according to relevant provisions on consolidated statements) of its investee enterprise shall respectively be not less than Rmb3 billion and Rmb100 million;

(ii) complies with the provisions of Article 8 hereof; and

(iii) has established a research and development institution in accordance with relevant provisions.

(2) Companies with an investment nature recognized as regional headquarters may, according to the actual requirements of their business activities in China, engage in the following businesses:

(i) the businesses specified in Articles 10 and 15 hereof;

(ii) import and sale (excluding retail) of products in China of multinational companies and their controlled affiliates;

(iii) import of raw and supplementary materials, and spare parts and components, required for maintenance services provided for products of investee enterprises and multinational companies;

(iv) providing outsourcing services for enterprises inside and outside China;

(v) engaging in logistics and distribution services in accordance with relevant provisions;

(vi) subject to the approval of the China Banking Regulatory Commission, establish finance companies to provide relevant finance services for companies with an investment nature and their investee companies;

(vii) subject to the approval of the Ministry of Commerce, engage in overseas project contracting and overseas investment and establishing lease-financing companies to provide related services;

(viii) entrusting other enterprises in China to produce/process its products or products of its parent company and selling such products inside and outside China; and

(ix) other approved businesses.

(3) The application procedure:

(i) the company with an investment nature shall apply to the department in charge of commerce of the province, autonomous region, municipality directly under the central government or city with an independent development plan of the place where it is located. The application shall be submitted to the Ministry of Commerce after preliminary verification;

(ii) the Ministry of Commerce shall render an official reply within 30 days of receipt of the complete set of application documents. If recognized as a regional headquarters, the company with an investment nature shall have its foreign-invested enterprise approval certificate replaced and a foreign-invested enterprise approval certificate (bearing ¡°regional headquarters¡±) issued; and

(iii) the company with an investment nature shall apply to the department of industry and commerce administration to carry out the formalities for amendment of registration on the strength of the approval certificate within 30 days.

(4) Application documents:

(i) an application signed by the legal representative of the company with an investment nature;

(ii) resolutions by the boards of directors or general shareholders¡¯ meetings of the company with an investment nature and its multinational company;

(iii) the amended articles of association/contract of the company with an investment nature;

(iv) the approval certificate (copy) and business licence (copy) of, and a capital verification report issued by a China certified public accountant on, the company with an investment nature;

(v) the approval certificate (copy) and business licence (copy) of the investee enterprise;

(vi) a capital verification report issued by a China certified public accountant on the investee enterprise;

(vii) major financial statements of the company with an investment nature audited by a China certified public accountant; and

(viii) other documents as requested by the Ministry of Commerce.

The aforementioned documents shall be originals except where indicated as copies.

For the purposes of this article, ¡°multinational company¡± means the parent company of the conglomerate to which the foreign investor establishing the company with an investment nature belongs.

Article 22: The investment activities of a company with an investment nature shall not be restricted to the place where such company is registered.

Article 23: Tax collection of a company with an investment nature shall be handled in accordance with the relevant laws and regulations of China.

Article 24: A company with an investment nature shall zealously implement its project investment plans and shall report details of its investments and business in the first year in accordance with the specified contents and format to the Ministry of Commerce for the record within the first three months prior to the following year. The aforementioned materials will constitute part of the materials that the company is required to submit when participating in annual joint inspections.

Article 25: A company with an investment nature and the enterprise(s) invested in and established by such company are legal persons or entities independent of one another. The business contacts between such company and enterprise(s) shall be treated as business contacts between independent enterprises.

Article 26: A company with an investment nature and the enterprise(s) invested in and established by such company shall abide by the laws, regulations and rules of China, and shall not employ any means to avoid administration and tax payments.

Article 27: A company with an investment nature shall not directly engage in production activities.

Article 28: These Provisions shall apply to investors from Taiwan, Hong Kong and Macao who invest in the establishment of companies with an investment nature in China.

Article 29: The Ministry of Commerce shall be responsible for interpreting these Provisions.

Article 30: These Provisions shall be effective 30 days from the date of promulgation (November 17 2004).