Supplementary Provisions on the Investment in, and Establishment of, Companies with an Investment Nature by Foreign Investors

(Promulgated by the Ministry of Commerce on May 26 2006 and effective as of July 1 2006.)

Order of MOFCOM [2006] No.3

With a view to further encouraging investment in China by multinational corporations and improving the functions of companies with an investment nature, we hereby supplement the Provisions on the Establishment of Companies with an Investment Nature by Foreign Business Entities (Order of MOFCOM [2004] No.22, hereinafter referred to as "Order No.22") promulgated by the Ministry of Commerce on November 17 2004 as follows:

1. Article 22 of Order No.22 is amended as follows, "A foreign investor must use a freely convertible currency, its renminbi profits made in China or lawful renminbi proceeds derived from such activities as an equity transfer, liquidation, etc. as its contribution to the registered capital of a company with an investment nature. A Chinese investor may make its capital contribution in renminbi. If the foreign investor is to use its lawful renminbi proceeds as its contribution to the registered capital of a company with an investment nature, it shall submit such relevant supporting documentation as its approval document for capital account related foreign exchange transactions for the reinvestment of domestic renminbi profits or other lawful renminbi proceeds, etc. and its tax payment vouchers. Within two years of the issue of the business licence, the capital contribution shall not be less than US$30 million and the remainder of the capital contribution to the registered capital shall be paid in full within five years of the date of issue of the business licence."

2. Companies with an investment nature shall be permitted to contract for the services contracted out by overseas companies.

3. Article 11 of Order No.22 is amended as follows:

"Companies with an investment nature which engage in the import and export of goods or technologies shall comply with the Ministry of Commerce, Measures for the Record Filing of Foreign Trade Operators; the procedures for export-related tax refunds in respect of the export products of a company with an investment nature may be carried out in accordance with relevant provisions;

A company with an investment nature may sell in China through commission agency (other than auctions) or wholesale the merchandise it has imported and the merchandise that it has purchased in China; the sale of certain designated merchandise and retail and franchise sales shall comply with relevant provisions."

4. Companies with an investment nature shall be permitted to make strategic investments in listed companies in accordance with relevant state provisions. In such cases, companies with an investment nature shall be deemed overseas shareholders of companies limited by shares.

5. Before its investee enterprise comes on stream or commences production of a new product, a company with an investment nature that satisfies the relevant conditions of Article 15 of Order No.22 may, for the purpose of developing the market for the product or products, import the relevant product(s) for trial sale in China. Additionally, it may engage other enterprises in China to produce/process its products or those of its parent company and sell the same in China or abroad.

6. Article 16 of Order No.22 is deleted.

7. If a foreign investor uses its renminbi profits made in China or lawful renminbi proceeds derived from such activities as an equity transfer, liquidation, etc. as its contribution to the registered capital (or the capital increase) of a company with an investment nature, the company with an investment nature may use all or part of such portion of its registered capital to invest in and establish enterprises in China. An enterprise established by the company with an investment nature using the aforementioned registered capital may carry out relevant procedures for foreign exchange registration, and capital verification and confirmation for a foreign-invested enterprise with the foreign exchange control department of the place where it is located, on the strength of such documents as the approval document from the examination and approval authority for foreign-invested enterprises, its approval document for capital account related foreign exchange transactions issued by the foreign exchange control department approving the foreign investor's use of renminbi profits, or other lawful renminbi proceeds, to make its capital contribution to (or contribution to the capital increase of) the company with an investment nature, a written explanation issued by the company with an investment nature stating that the source of the renminbi capital contribution to its investee enterprise is the aforementioned registered capital, etc. and it shall not be required to again carry out the procedures for an approval document for capital account related foreign exchange transactions for a company with an investment nature that makes its domestic investment in renminbi.

A Sino-foreign equity joint venture company with an investment nature that uses that portion of its registered capital contributed by the Chinese investor to establish an enterprise in China shall not be required to carry out such foreign exchange control related procedures as those for foreign exchange registration of a foreign-invested enterprise, for registration of foreign capital and foreign exchange in respect of the receipt of foreign exchange from the equity transfer, for capital verification and confirmation or for registration of foreign capital and foreign exchange, etc. and may normally carry out capital verification procedures in accordance with the provisions for ordinary enterprises in China.

8. Sub-item (i) of Item (2) of Article 22 of Order No.22 is amended as follows, "the businesses specified in Articles 10, 11 and 15 hereof".

9. Subject to the approval of the Ministry of Commerce, companies with an investment nature recognized as regional headquarters shall be permitted to engage in operational leasing and financial leasing businesses.

10. Companies with an investment nature recognized as regional headquarters shall be permitted to engage enterprises in China to produce/process products and to sell them in China and abroad, and permitted to engage in entrusted processing trade business where all products are exported for sale abroad.

11. Subject to the approval of the foreign exchange control authority, a company with an investment nature that performs the function of a finance centre or fund management centre and is recognized as a regional headquarters may centrally manage the foreign exchange funds of its affiliates in China and may open offshore accounts with banks in China to centrally manage the foreign exchange funds of its overseas affiliates and those foreign exchange funds of its affiliates in China which, with the approval of the foreign exchange control authority, are used to extend loans abroad. Fund transactions between offshore accounts and domestic accounts shall be administered in line with the administration of cross-border fund transactions.

12. Companies with an investment nature shall report on their investments, business and other such circumstances with the specified content, in the specified format and by the specified method to the Ministry of Commerce for the record by June 1 of each year and, as required by the Ministry of Commerce, submit relevant information in a timely manner. The Ministry of Commerce shall bear an obligation of confidentiality in respect of the information submitted by companies with an investment nature.

13. If a company with an investment nature fails to submit relevant information in accordance with the requirements of Article 12, the Ministry of Commerce will handle the matter in accordance with relevant provisions.

14. These Provisions shall be effective as of July 1 2006. In the event of a discrepancy between Order No.22 and these Provisions, these Provisions shall prevail.