Laws of the People's Republic of China

The Ministry of Foreign Trade and Economic Cooperation

Decree of the Ministry of Foreign Trade and Economic Cooperation

No.4

The Decision on Amending the Interim Provisions Concerning the Establishment of Investment Companies by Foreign Investment and the Supplementary Provisions were adopted at the 4th ministerial office meeting of the MOFTEC, which is hereby promulgated and shall be implemented thirty days upon the date of the promulgation.

Minister Shi Guangsheng

March 7, 2003

Decision on Amending the Interim Provisions Concerning the Establishment of Investment Companies by Foreign Investment and the Supplementary Provisions

In order to promote the investment of transnational companies in China, introduce advanced foreign technologies and management experiences, and perfect the functions of investment companies, hereby is to amend the Interim Provisions Concerning the Establishment of Investment Companies by Foreign Investment (hereinafter referred to as the Interim Provisions), the Supplementary Provisions on the Interim Provisions Concerning the Establishment of Investment Companies by Foreign Investment (hereinafter referred to as the Supplementary Provisions), and the 2nd Supplementary Provisions on the Interim Provisions Concerning the Establishment of Investment Companies by Foreign Investment (hereinafter referred to as the 2nd Supplementary Provisions) promulgated by the MOFTEC as of 1995.

I.

Item 4 of Article 3 of the Interim Provisions is amended as: The balance sheet of the investors of the past three years audited by force of law.

II.

Article 4 of the Interim Provisions is amended as: foreign investors shall contribute to the registered capital of the investment company with freely convertible currencies, or RMB profits obtained in China or legitimate RMB gains or proceeds from the transfer of shares or liquidation activities. Chinese investors may make contribution to the registered capital with Renminbi. In case foreign investors contribute to the registered capital of the investment company with legitimate RMB gains or proceeds, they shall submit the relevant certification and vouchers for payment of taxes. The capital contribution shall be paid in within two years upon issuance of the business license.

III.

Article 5 of the Interim Provisions is amended as: Upon establishment with approval by the MOFTEC, the investment companies may undertake the following businesses according to the actual requirements by the operational activities engaged in China:

(I)

Investment in the fields permitted for foreign investment by the state.

(II)

With written authorization by the enterprises invested (through unanimous consent by the Board of Directors), providing the following services to the enterprise invested:

1.

Assisting or acting as agency in purchasing for the enterprise invested machinery equipment, office equipment, raw materials, components, spare parts at home and abroad fro self use by the enterprises invested and selling the products produced by the enterprises invested at home and abroad, as well as providing after-sale services;

2.

Balancing foreign exchanges among the enterprises invested with consent and supervision of the administration of foreign exchanges;

3.

Providing enterprises invested with technical supports, personnel training, internal personnel management and other services during the production, sales and market development of products;

4.

Assisting the enterprises invested in seeking for loans and provision of guarantee;

(III)

Setting up scientific research and development center or department in China for undertaking of research and development of new products and high-tech, transferring the R&D results and providing the corresponding technical services.

(IV)

Providing its investors with advisory services, and providing its associated companies with market information on investment and advisory services relating to investment policies.

IV.

Article 16 of the Interim Provisions is amended as: In case the investment companies invest in establishing enterprises, the investment made by the investment company or jointly with other foreign investors should not be less than 25% of the registered capital of the enterprises to be established, which enjoy the treatment granted to foreign-invested enterprises with issuance of certificate of approval of foreign-invested enterprises and business license of foreign-invested enterprises.

V.

Article 1 of the Supplementary Provisions is amended as follows: In case the registered capital of the investment company is no less than USD30m, its loan shall not exceed four times that of the paid-in registered capital and in case the registered capital of the investment company is no less than USD100m, its loan shall not exceed six times that of the paid-in registered capital. In case the loan of the investment company would exceed the above-mentioned quota as required by its operations, application should be made to the MOFTEC for approval.

VI.

Article 2 of the 2nd Supplementary Provisions is amended as follows: the investment company may as sponsor prepare and establish foreign-invested joint-stock companies or hold the corporate shares of foreign-invested joint-stock companies that have not been public listed. The investment company may also hold the corporate shares of other joint-stock companies in the territory of China that have not been public listed. The investment company shall be deemed as foreign sponsor or shareholders of the joint-stock companies.

VII.

Article 5 of the 2nd Supplementary Provisions is amended as follows: the importation by the investment company of systematically complete set of products or trial-sale products should go through the formalities in compliance with the relevant stipulations, with the cash contribution, profits of foreign exchanges or loans outside China of foreign exchanges in the registered capital of the investment companies. The accumulated annual importation amount mentioned above should not exceed 35% of the cash foreign exchanges in the registered capital. Any balance of the accumulated annual importation amount that does not exceed 35% of the cash foreign exchanges in the registered capital of the year should not be passed for use by the next year.

VIII.

Article 3 , Article 4 , Article 5 and Article 6 of the Supplementary Provisions and Articles 1, 3, 4 and 6 of the 2nd Supplementary Provisions are consolidated and amended as:

Upon the establishment of the investment company, if the operations are undertaken by force of law without records of legal violation, with registered capital paid in timely as specified by the Articles of association and if the paid-in capital by the investors is no less than USD30m that has been used as investment in the enterprises invested, the investment company may with the examination and consent by the local foreign economic and trade administration of provinces, autonomous regions, municipalities directly under the Central Government or municipalities separately listed on the state plan apply to the MOFTEC, and upon approval undertake the following businesses according to the actual requirements of its operations in China:

(I)

With written authorization by the enterprises invested (through unanimous consent by the Board of Directors), undertaking the following businesses:

1.

Selling he products produced by the enterprises invested by distribution in the market at home and abroad; and

2.

Providing the enterprises invested with transportation, warehousing and integrated services.

(II)

Exporting domestic commodities not involved in export quota or licensing administration by agency, distribution or establishing export and purchasing institutions;

(III)

Purchasing the products produced by the enterprises invested and selling them at home and abroad after system integration, and in case the products produced by the enterprises invested may not fully satisfy the demands of system integration, the investment company is allowed for purchasing complementary products at home and abroad for system integration with the value of the purchase not exceeding 50% of total value of all the products required for the system integration;

(IV)

Providing relevant technical trainings for the domestic distributors and agent of the enterprises invested and domestic companies and enterprises that have reached agreements on technological transfer with the investment companies or their parent companies;

(V)

For the aim of the development of the product market prior to the production or the production of new products of the enterprises invested, the investment companies are allowed for importing small amount of products from their parent companies identical or similar to the products to be produced by the enterprises invested for domestic sales on trial that are not under import quota administration;

(VI)

Providing the enterprises invested with operational leasing services of machine and office equipments;

(VII)

Providing after-sale services for the products produced the parent companies; and

(VIII)

Participating in project contracting outside China of Chinese enterprises qualified for operations of foreign contracting projects according to the relevant state provisions.

In applying for operation of the above-mentioned businesses, the investment company shall submit the following documents to the examination and approval authority:

(I)

Application signed by the legal representative of the investment company;

(II)

Resolution of the Board of directors of the investment company;

(III)

Amended Articles of Association of the investment company;

(IV)

Certificate for approval of the investment company (copy) and business license (copy), as well as the report on asset appraisal issued by Chinese certified public accountants; and

(V)

Report on asset appraisal for the enterprises invested that is issued by Chinese certified public accountants.

IX.

In case the Decision is of discrepancy with the Interim Provisions Concerning the Establishment of Investment Companies by Foreign Investment, the Interpretation on the Issues Relating to the Interim Provisions Concerning the Establishment of Investment Companies by Foreign Investment, the Supplementary Provisions on the Interim Provisions Concerning the Establishment of Investment Companies by Foreign Investment or the 2nd Supplementary Provisions on the Interim Provisions Concerning the Establishment of Investment Companies by Foreign Investment, this Decision shall prevail.

X.

The Decision shall enter into force thirty days after its promulgation.