Laws of the People's Republic of China

The State Council

Decree of the State Council of the People's Republic of China

No.346

The Provisions on Guiding the Orientation of Foreign Investment are hereby promulgated and shall enter into force on April 1, 2002.

Premier of the State Council: Zhu Rongji

February 11, 2002

Provisions on Guiding the Orientation of Foreign Investment

Article 1

In order to guide the orientation of foreign investment, to keep the orientation of foreign investment in line with the national economy and social development planning of China, and to protect of the lawful rights and interests of investors, these Provisions have been formulated according to the laws and provision on foreign investment and the requirements of industrial policies of the State.

Article 2

These Provisions shall be applicable to the projects of investment and establishment of Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and foreign-capital enterprises (hereinafter referred to all as enterprises with foreign investment), and projects with foreign investment in other forms (hereinafter referred to as projects with foreign investment) within the territory of China.

Article 3

The Guidance Catalog of Industry with Foreign Investment and the Catalog of Dominant Industries with Foreign Investment of the Mid-west Region shall be formulated by the State Development Planning Commission, the State Economic and Trade Commission, the Ministry of Foreign Trade and Economic Cooperation jointly with other relevant departments under the State Council, and shall be promulgated upon the approval of the State Council; when it is needed to partly adjust the Guidance Catalog of Industry with Foreign Investment and the Catalog of Dominant Industries with Foreign Investment of the Mid-west Region in light of the actual situation, the State Economic and Trade Commission, the State Development Planning Commission, the Ministry of Foreign Trade and Economic Cooperation jointly with the relevant departments under the State Council shall make the revision and promulgation timely.

The Guidance Catalog of Industry with Foreign Investment and the Catalog of Dominant Industries with Foreign Investment of the Mid-west Region shall be the basis of the application of relevant policies in directing and examining and approving projects with foreign investment and enterprises with foreign investment.

Article 4

Projects with foreign investment fall into 4 categories, namely encouraged, permitted, restricted and prohibited ones.

The Projects with foreign investment that are encouraged, restricted and prohibited shall be listed in the Guidance Catalog of Industry with Foreign Investment. And the projects with foreign investment that don't fall into the categories of encouraged, restricted or prohibited projects shall be the permitted projects with foreign investment. The permitted projects with foreign investment shall not be listed in the Guidance Catalog of Industry with Foreign Investment.

Article 5

A project in any of the following situations shall be listed as the encouraged projects with foreign investment:

1)

being of new agriculture technologies, agriculture comprehensive development, or energy, transportation and important raw material industries;

2)

being of high and new technologies or advanced application technologies that can improve the product performance and increase the technology economic efficiency of the enterprises or those that can produce the new equipments and new materials which the domestic production capacity fails to produce;

3)

meeting the market needs and being able to improve the product level, develop new markets or increase the international competitive capacity of the products;

4)

being of new technologies and new equipments that can save energy and raw material, comprehensively utilize resources and regenerate resources, and prevent environment pollutions;

5)

being capable of bring into the advantages of human power and resources of the mid-west region into full play and being in conformity to the industrial policies of the State;

6)

other situations as provided for by laws and administrative regulations.

Article 6

A project in any of the following situations shall be a restricted project with foreign investment:

1)

being of technology lagged behind;

2)

being adverse to saving resources and improving environment;

3)

engaged in the prospecting and exploitation of the specific type of mineral resources to which the State applies protective exploitation;

4)

falling into the industries that the State opens step by step;

5)

other situations as provided by laws and administrative regulations.

Article 7

A project in any of the following situations shall be a prohibited project with foreign investment:

1)

harming the State safety or impairing the public interests;

2)

polluting the environment, damaging natural resources or harming human health;

3)

occupying too much farmland and being adverse to the protection and development of land resources;

4)

harming the safety and usage of military facilities;

5)

using the particular techniques or technologies of China to produce products;

6)

other situations as provided for by laws and administrative regulations.

Article 8

The Guidance Catalog of Industry with Foreign Investment may provide that a enterprise with foreign investment is "limited to joint venture, contractual venture", "with Chinese party at the holding position" or "with Chinese party at the relatively holding position".

"Limited to joint venture and operative venture" shall refer to that only Chinese-foreign joint ventures and Chinese-foreign contractual joint ventures are allowed; "with the Chinese parties at the holding position" shall refer to that the total investment proportion of the Chinese parties in the project with foreign investment shall be 51% or more; "with Chinese parties at the relatively holding position" shall refer to that the total investment proportion of the Chinese parties in the project with foreign investment shall be higher that the investment proportion of any foreign party.

Article 9

Apart from enjoying the preferential treatments according to the provisions of the relevant laws and administrative regulations, the encouraged projects with foreign investment that engage in the construction and operation of energy, transportation, municipal infrastructure (coal, oil, natural gas, electric power, railways, highways, ports, airports, city roads, sewage disposition, and garbage disposition, etc.) that needs large amount of investment and long term for recovery may expand their relevant business scope upon approval.

Article 10

The permitted projects with foreign investment of which the products are all directly exported shall be regarded as the encouraged project with foreign investment; the restricted projects with foreign investment of which the export sales accounts for more than 70% of their total amount of sales may be regarded as the permitted projects with foreign investment upon the approval of the people's governments of provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed on the State plan or the competent department under the State Council.

Article 11

The conditions may be eased for the permitted and restricted projects with foreign investment that really can bring the advantages of the mid-west region into full play; among which, those listed in the Guidance Catalog of Industry with Foreign Investment may enjoy the preferential policies for the encouraged projects with foreign investment.

Article 12

Projects with foreign investment shall be examined and approved, and put on record respectively by the departments of development planning and the economic and trade departments according to the limit of authority for examination and approval; the contracts and articles of association of enterprises with foreign investment shall be examined and approved, and put on record by the departments of foreign trade and economic cooperation. Among which, the projects with foreign investment under the limit for restricted projects with foreign investment shall be subject to the examination and approval of the corresponding competent departments of the people's governments of the provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed on the State plan, and shall be reported to the competent departments at the next higher level and the competent industrial departments, the power for examination and approval of this kind of projects may not be granted to the authorities at lower levels. The projects with foreign investment in the service area that are opened to the outside world step by step shall be subject to the examination and approval according to the relevant provisions of the State.

The projects with foreign investment involving quotas and licenses must apply to the departments for quotas and licenses first.

Where there are otherwise provisions of laws and administrative regulations on the procedures and measures for the examination and approval of projects with foreign investment, those provisions shall be observed.

Article 13

With respect to the projects with foreign investment examined and approved in violation of the present provisions, the organ of examination and approval at the next higher level shall cancel it within 30 workdays from the day of receiving the documents for record of that project, its contract and articles of association shall be void, the department of enterprise registration shall not register it and the customs shall not handle the procedures for import and export for it.

Article 14

Where the applicant of a project with foreign investment manages to obtain the approval for the project by deceiving or other illicit means, his legal liabilities shall be investigated for according to law regarding the seriousness of the circumstances; the organ of examination and approval shall cancel the approval for that project and the relevant competent organs shall deal with it correspondingly according to law.

Article 15

Where any of the personnel of the organ of examination and approval abuses his power or neglects his duties, criminal responsibilities shall be investigated for according to the provisions of the criminal law on the crime of abusing powers or the crime of neglecting duties; where the circumstances are not serious enough for criminal punishment, administrative punishment of recording a special demerit or more severe punishment shall be given.

Article 16

With respect to the investment projects established by overseas Chinese and the investors from the Hong Kong Special Administration Region, Macao Special Administrative Region or Taiwan Area, these Provisions shall be applicable by reference in implementation.

Article 17

These Provisions shall enter into force on April 1, 2002. The Interim Provisions on the Guidance of Foreign Investment Directions approved by the State Council on June 7, 1995 and promulgated by the State Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation on June 20, 1995 shall be nullified simultaneously.