Laws of the People's Republic of China

Ministry of Commerce

Order of the Ministry of Commerce of the People's Republic of China

No.22

The Provisions on the Establishment of Investment Companies by Foreign Investors were amended and adopted at the 12th executive meeting of the Ministry of Commerce of the People's Republic of China on November 13, 2004. The amended Provisions on the Establishment of Investment Companies by Foreign Investors are hereby promulgated and shall be implemented 30 days after the date of promulgation.

Bo Xilai, Minister of the Ministry of Commerce

November 17, 2004

Provisions on the Establishment of Investment Companies by Foreign Investors

Article 1

In order to promote foreign investors to invest in China, and introduce advanced technologies and management experiences from abroad, foreign investors are permitted to, in accordance with the relevant laws and regulations of China on foreign investments as well as the present Provisions, establish investment companies in China.

Article 2

The term "investment company" as mentioned in the present Provisions refers to a company established by a foreign investor in the form of either wholly-owned enterprise or Chinese-foreign joint venture to engage in direct investments. Such a company shall be in the form of a limited liability company.

Article 3

A foreign investor who intends to establish an investment company shall meet the following conditions:

(a)

1.It is in good credit status and has necessary economic strength to establish an investment company, with its total amount of assets during the year before the application no less than 400 million USD, and it has established a foreign-funded enterprise inside the territory of China, with the amount of registered capital it has actually contributed being 10 million USD or more, and 3 or more project proposals thereof on planned investment projects which have been approved, or; 2. It is in good credit status and has necessary economic strength to establish an investment company, and has established 10 or more foreign-funded enterprises inside the territory of China, with the amount of registered capital it has actually contributed being 30 million USD or more;

(b)

If it establishes an investment company by means of joint venture, the Chinese investor shall be in good credit status and have necessary economic strength to establish an investment company, with its total amount of assets during the year before the application being no less than RMB 100 million Yuan;

(c)

The investment company's registered capital shall be no less than 30 million USD.

The foreign investor that applies to establish an investment company shall be a foreign company, enterprise or economic organization. If there are two or more foreign investors, there shall be at least one foreign investor holding major stock rights who conforms to Item (a) of Paragraph 1 of the present Article.

Article 4

A foreign investor who meets the conditions prescribed in Item (a) of Paragraph 1 of Article 3 of the present Provisions may invest to establish an investment company in the name of its wholly-owned subsidiary company.

Article 5

If a foreign investor that applies to establish an investment company meets the conditions prescribed in Item (a) of Paragraph 1 of Article 3 of the present Provisions, it must issue a letter of warranty to the examination and approval organ, guaranteeing the contribution by the established investment company of the registered capital when investing inside the territory of China and the technology transfer of the said foreign investor or associated company.

If a foreign investor invests to establish an investment company in the name of its wholly-owned subsidiary company, the parent company must issue a letter of warranty to the approval organ, guaranteeing the contribution by the subsidiary company of the registered capital of the established investment company according to the conditions approved by the approval organ, and guaranteeing the contribution by the investment company of the registered capital when investing inside the territory of China and the technology transfer of the parent company and its subsidiaries.

Article 6

An investor shall, when applying to establish an investment company, submit the following documents to the commercial department of the province, autonomous region, municipality directly under the Central Government, city directly under state planning where the investment company under planned establishment is located for verification and consent, if being consented to, which shall be submitted to the Ministry of Commerce for examination and approval.

(a)

In the case of establishing a joint venture, an application report on the establishment of a joint venture investment company, contracts and articles of association signed by all parties to the investment;

In the case of establishing a wholly-owned investment company, the wholly foreign-owned enterprise's application form, feasibility study report and articles of association signed by the foreign investor,;

(b)

The certification documents of credit status, certification documents of registration (photocopies) and certification documents of the legal representative (photocopies) of all parties to the investment;

(c)

The approval certificate (photocopy) and business license (photocopy) of the enterprise invested by the foreign investor and the capital verification report (photocopy) issued by Chinese CPA;

(d)

The balance sheets of all parties to the investment in the latest three years which have been audited in pursuance of law;

(e)

The letter of warranty to be submitted as required by Article 5 of the present Provisions; and

(f)

Other documents required by the Ministry of Commerce.

All the above-mentioned documents shall be formal documents unless it is indicated to be a photocopy.

If the documents are not signed by a legal representative, a power of attorney by the legal representative shall be presented.

If a lawfully established intermediary institution is authorized to file the application, a power of attorney signed by the legal representative of the investor shall be presented.

Article 7

A foreign investor must use a convertible currency or the Renminbi profits it obtains inside the territory of China or the lawful Renminbi proceeds it obtains due to share transfer or liquidation, etc. as the registered capital it contributes to the investment company. A Chinese investor may invest in Renminbi. If a foreign investor uses its lawful Renminbi proceeds as the registered capital and contributes to the investment company, it shall submit the relevant evidential documents and the tax payment receipts. The investments shall be fully contributed within two years from the day when the business license is issued.

Article 8

In the registered capital of an investment company, there shall be at least 30 million USD which shall be regarded as investments to the newly established foreign-funded enterprise, or be regarded as the incompletely contributed amount of investments to the foreign-funded enterprise invested and established by the parent company or associated company (with the formalities of stock right transfer having been lawfully completed), or the increased part of investments, or be used for establishing research and development center or other institutions, or be used for purchasing the stock rights of a shareholder of a domestic company inside the territory of China (excluding the stock right formed by the capital contributions already paid by the parent company or the associated companies of the investment company).

Article 9

If the registered capital of an investment company is no less than 30 million USD, the amount of loans shall be no more than 4 times of the contributed amount of registered capital. If the registered capital of an investment company is no less than 100 million USD, the amount of loans shall be no more than 6 times of the contributed amount of registered capital. If the amount of loans for the investment company is planned to exceed the above limit due to the needs in operation, it shall report to the Ministry of Commerce for approval.

Article 10

An investment company may, after being approved by the Ministry of Commerce to be established, run the following business on the basis of its actual needs in undertaking the business activities in China:

(a)

Investing in accordance with the law in the areas where foreign investments are permitted by the state.

(b)

Being entrusted in writing by an enterprise it invests in (unanimously adopted by the board of directors) to provide the enterprise with the following services:

(1)

Assisting or representing the said enterprise in purchasing machinery equipment, office equipment and raw materials, components and parts needed in production for the enterprise's own use from both home and abroad, as well as in selling products manufactured by the said enterprise in both domestic and overseas markets, and providing after-sale service;

(2)

Balancing foreign exchanges between the enterprises it invests in upon the consent and under the supervision of the foreign exchange department;

(3)

Providing the enterprise it invests in with such services as technical supports in the process of production, sale and market development, trainings for employees, and intra-enterprise personnel management, etc.;

(4)

Assisting the enterprise it invests in to seek loans, and providing guaranty.

(c)

Establishing scientific research and development centers or offices inside the territory of China, engaging in research and development of new products and hi-techs, transferring its research and development achievements, and providing corresponding technical services.

(d)

Providing its investors with consulting services, and providing its associated companies with such consulting services including market information related to investment and investment policies, etc.

(e)

Undertaking services contracted out by its parent company or its associated companies.

Article 11

The investment company undertaking goods import & export, or technology import & export shall be in accordance with Measures for the Record-keeping and Registration of Foreign Trade Operators;

The investment company undertaking commission agency, wholesale, retail and franchising shall be in accordance with Measures for the Administration on Foreign Investment in Commercial Fields and modify its business scope in accordance with the law.

Article 12

The term "an enterprise invested by an investment company "as mentioned in the present Provisions refers to an enterprise meeting the following conditions:

(a)

An enterprise invested by an investment company either directly or jointly with any other foreign investor and/or Chinese investor, with the proportion of the converted sole investment of the foreign investor of the investment company or the converted joint investment with other foreign investors to the registered capital of the invested enterprise at 25% or more;

(b)

The investment company purchases part or all of the stock rights of the enterprise invested and established inside the territory of China by its investor or associated company and other foreign investors, thus causing the proportion of the converted sole investment of the foreign investor of the investment company or the converted joint investment with other foreign investors to the registered capital of the invested enterprise to reach 25% or more;

(c)

The investment company's investment amount shall be no less than 10% of the registered capital of the enterprise it invests and establishes.

Article 13

An investment company may, upon approval by the People's Bank of China, provide financial supports to the enterprise it invests in and establishes.

Article 14

An investment company may act as an initiator to initiate the establishment of a foreign-funded share limited company or to hold the unlisted corporate shares of the foreign-funded share limited company. The investment company may also hold the unlisted corporate shares of other share limited company inside the territory in accordance with the relevant provisions of the state. The investment company shall be regarded as an overseas initiator or shareholder of the share limited company.

Article 15

If an established investment company runs its business in accordance with the law and has no record of violation of law, and its registered capital is contributed in time as prescribed in the articles of association, and the amount of the registered capital actually contributed by the investor is no less than 30 million USD and has been used as investment of the enterprise it invests in, the investment company shall, after obtaining the consent of the administrative department for commerce of a province, autonomous region, municipality directly under the Central Government, city directly under state planning at its locality, file an application to the Ministry of Commerce, and may, if being approved, run the following business on the basis of its actual needs in undertaking business activities in China:

(a)

Being entrusted in writing by an enterprise it invests in (unanimously adopted by the board of directors) to carry out the following business:

1.

Selling the products manufactured by the enterprise it invests in by means of distribution in both domestic and foreign markets;

2.

Providing the enterprise it invests in with such comprehensive services such as transport, storage, etc.

(b)

Exporting domestic commodities involving by means of agency, distribution or by establishing an export purchasing institution (including internal institution) in accordance with the relevant provisions of the state;

(c)

Purchasing the products manufactured by the enterprise it invests and then sell them both home and abroad after system integration; if the products manufactured by the enterprise it invests in cannot completely satisfy the needs in system integration, it is permitted to purchase the auxiliary products for system integration both home and abroad, provided that the value of the said products shall not exceed 50% of the value of all the products needed in the system integration;

(d)

Providing relevant technical trainings for the domestic distributors and agents of the products by the enterprise it invests, and for the domestic companies and enterprises that have concluded technology transfer agreements with the investment company or its parent company;

(e)

It is permitted to, before the enterprise it invests in starts production or before the new products of the enterprise it invests in are put into production, import from its parent company the products related to those to-be-manufactured by the enterprise it invests in for domestic trial sale for the purpose of developing the products market;

(f)

Providing the enterprise it invests in with services of operative lease of machines and office equipment;

(g)

Providing after-sale service for the imports

(h)

Participating in overseas contract projects undertaken by Chinese enterprises having the right to run overseas contract projects

(i)

selling (excluding retail) at home the imports of investment company manufactured by its parent company.

Article 16

An investment company shall, if importing the products under Paragraphs 3 and 5 of Article 15 go through the formalities in accordance with the relevant provisions of the state. The above accumulative imported amount of each year shall not exceed the capital contributions already paid by the company.

Article 17

An investment company shall, if applying for running the business prescribed in Article 15 of the present Provisions, submit the following documents to the Ministry of Commerce:

(a)

An application letter signed by the legal representative of the investment company;

(b)

The resolution of the investment company's board of directors;

(c)

The investment company's amended articles of association;

(d)

The investment company's approval certificate (photocopy), business license (photocopy) and its capital verification report issued by Chinese CPA;

(e)

The capital verification report issued by Chinese CPA on the enterprise it invests in; and

(f)

Other documents as required by the Ministry of Commerce.

Article 18

The duration of an investment company shall be verified in light of the nature of the project under planned establishment by the investment company as well as the relevant provisions of the state on foreign-funded enterprises' duration of business operation.

Article 19

An investment company shall, if investing to establish an enterprise, separately report for approval according to the scope of approval and procedures of examination and approval for foreign-funded enterprises.

Article 20

If an investment company invests to establish an enterprise, with the proportion of the converted sole investment by the foreign investor of the investment company or the converted joint investment with other foreign investors to the registered capital of the enterprise it invests and establishes at 25% or more, the invested and established enterprise may enjoy the treatments for foreign-funded enterprises, and be issued the approval certificate of foreign-funded enterprise and the business license of foreign-funded enterprise. As for the investment ratio below 25%, the enterprise shall, unless otherwise prescribed by laws or administrative regulations, be examined and approved according to the present procedures for examination and registration on the establishment of foreign-funded investment company.

Article 21

An investment company shall, if establishing a branch, report to the Ministry of Commerce for examination and approval. If the investment company applies to establish a branch company, it must meet the following conditions:

(a)

Its registered capital has been contributed in good time as prescribed in the contract and the articles of association, and the contributed amount of investments is no less than 30 million USD; or the investment company has invested and established or has owned 10 or more foreign-funded enterprises;

(b)

The region where the branch company is planned to be established shall be a region with concentrative investments of the investment company or a region with concentrative sale of the products.

Article 22

An investment company that meets the prescribed conditions may file an application for determining as the regional headquarter of the transnational companies (hereinafter referred to as the regional headquarter), and shall go through the modification formalities in accordance with the law.

(a)

When applying for determining as the regional headquarter, an investment company shall meet the following requirements:

(1)

The contributed investment in the registered capital is not less than 100 million USD; or the contributed investment in the registered capital is not less than 50 million USD, the total amount of the assets of the enterprises it invests in is not less than RMB 300 million yuan during the year before the application, and the total amount of profits in not less than RMB 100 million yuan (which shall be calculated according to the relevant provisions on consolidated statements);

(2)

Meeting the conditions as specified in Article 8 of the present Provisions;

(3)

It has established research and development institutions according to relevant regulations.

(b)

An investment company that has been determined as the regional headquarter may, in light of the actual needs of its business in China, engage in the following business:

(1)

The business as prescribed in Articles 10 and 15;

(2)

Importing and selling transnational company and holding associated company's products within China;

(3)

Importing the original auxiliary materials and parts necessary for providing maintenance services for products of the enterprises invested by it or the transnational company;

(4)

Undertaking services contracted out by enterprises both at home and abroad;

(5)

It may engage in logistics and distribution services in accordance with relevant provisions;

(6)

Upon approval of the China Banking Supervision Commission, it may establish financial companies to provide relevant financial services to investment companies and the enterprises invested by it;

(7)

Upon approval of the Ministry of Commerce, it may engage in contracting overseas projects and make investments abroad, establish financial lease companies and provide relevant services; and

(8)

Entrust other domestic company with producing or processing its products or its parent company's products and sell at home and abroad;

(9)

Other business upon approval.

(c)

Application procedures:

(1)

The investment company shall file an application to the local administrative department for commerce of the province, autonomous region, municipality directly under the Central Government or city directly under state planning for preliminary examination, and then the application shall be submitted to the Ministry of Commerce;

(2)

The Ministry of Commerce shall make a reply within 30 days from the day when it receives a complete set of application materials, in the case of determining the applicant as the regional headquarter, it shall issue a new foreign-funded enterprise approval certificate (with an indication of "Regional Headquarter");

(3)

The investment company shall, within 30 days, file an application to the administrative department of industry and commerce for modifying the registration upon the strength of the approval certificate;

(d)

Application documents:

(1)

The application signed by the legal representative of the investment company;

(2)

Resolution of the investment company or the board of directors of the transnational company;

(3)

The amended articles of association / contract of the investment company;

(4)

The approval certificate (photocopy) and business license (photocopy) of the investment enterprise and the capital verification report (photocopy) issued by Chinese CPA;

(5)

The approval certificate (photography) and business license (photocopy) and the capital verification report (photocopy) issued by Chinese CPA;

(6)

The invested enterprise' capital verification report (photocopy) issued by a Chinese CPA

(7)

The main financial statements of the investment companies audited by Chinese CPA; and

(8)

Other documents required by the Ministry of Commerce.

The above-mentioned documents shall be formal ones except for those indicated as photography.

The "transnational company" as mentioned in the present Article refers to the parent company of the company group of the foreign investor that establishes the investment company.

Article 23

The investment activities of an investment company inside the territory of China are not be limited by its registration place.

Article 24

The investment activities of an investment company inside the territory of China are not be limited by its registration place.

Article 25

An investment company shall earnestly implement its project investment plans, and shall, within 3 months before the next year, submit the information on investment and operation of the first year to the Ministry of Commerce for archival purposes in compliance with the prescribed contents and format. The above-mentioned material shall be regarded as one of the necessary materials for the investment company to apply for joint annual examination.

Article 26

An investment company and the enterprise it invests and establishes are legal persons or entities independent from each other, and their business relations shall be treated as those between independent enterprises

Article 27

An investment company and the enterprises established by it shall abide by the law, regulation and rules of China, shall not evade administration and tax payment by any means.

Article 28

No investment company may directly engage in productive activities.

Article 29

The present Provisions shall be allowed to apply to the establishment of investment companies in the Mainland by investors from Taiwan, Hong Kong and Macao.

Article 30

The power to interpret the present Provisions shall remain with the Ministry of Commerce.

Article 31

The present Provisions shall be implemented 30 days after the date of promulgation.