Laws of the People's Republic of China

Ministry of Commerce

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

No.2

Provisions on the Establishment of Investment Companies with Foreign Investment, which were revised and adopted at the 2nd executive meeting of the Ministry of Commerce of the People's Republic of China on February 12, 2004, are hereby promulgated, and shall come into force after 30 days as of the date of promulgation.

Lv Fuyuan, Minister of the Ministry of Commerce

February 13, 2004

Provisions on the Establishment of Investment Companies with Foreign Investment

Article 1

With a view to promoting the foreign investors to make investment in China, introducing foreign advanced technology and management experiences, the People's Republic of China permits foreign investors to establish investment companies in China according to the laws, regulations and the provision of China on foreign investment and the provisions.

Article 2

A investment company mentioned in the provisions means a foreign-funded enterprise engaging in direct investment, which is established by a foreign investor in China either in the form of a solely foreign-owned enterprise or a joint venture with a Chinese investor. The export procurement center shall be a limited liability company.

Article 3

To establish an investment company, the following requirements shall be satisfied:

(1)

1. The foreign investor shall have good credit standing, and necessary economic strength for establishing the investment company. The total assets of the investor shall be no less than U.S.D400, 000,000 in the year before the application. And the investor shall have established a foreign-funded enterprise within the territory of China, the amount of actual contribution to the registered capital of which shall be no less than U.S.D 10, 000,000, and which shall have more than three projects which are intended to be invested, or; 2. The foreign investor shall have good credit standing, and necessary economic strength for establishing the investment company. The investor shall have established more than 10 foreign-funded enterprises, the amount of actual contribution to the registered capital of which shall be no less than U.S.D30, 000,000;

(2)

The Chinese investor in a joint venture foreign-funded investment company shall have good credit standing, and necessary economic strength for establishing the investment company. The total assets of the investor shall be no less than RMB100, 000,000 Yuan in the year before the application.

(3)

The registered capital of the investment company shall be no less than U.S.D 30, 000,000.

The foreign investor applying for establishing an investment company shall be a foreign company, enterprise or economical organization. If there are more than 2 investors, at least one of the investors who take major proportion of the stock right shall meet the provisions of Subparagraph 1, Paragraph 1 of this Article.

Article 4

The foreign investor meeting the requirements provided in Subparagraph 1, Paragraph 1, Article 3 of the provisions may invest to establish an investment company in the name of the constituent company exclusively owned by him.

Article 5

If a foreign investor applying for establishing an investment company meets the requirements provided in Subparagraph 1, Paragraph 1, Article 3 of the provisions, the investor shall submit a letter of guaranty to the approving authority, guaranteeing the contribution to the registered capital and the transfer of the technology owned by him or the company related to him when the investment company established by him invests within the territory of China.

For those establishing the investment companies in the name of the constituent company exclusively owned by them, the parent company shall submit a letter of guaranty to the approving authority, guaranteeing that the constituent company shall complete the contribution to the registered capital of the investment company, and guaranteeing the contribution to the registered capital and the transfer of the technology owned by the parent company or its branch companies when the investment company is established within the territory of China.

Article 6

The investor applying for establishing a investment company shall submit the following documents to the competent authority of commerce of the province, autonomous region, municipality directly under the Central Government, or city directly under state planning where the investment company is located. After having been consented to upon preliminary examination, the documents shall submit to the Ministry of Commerce for examination and approval.

(1)

Letter of project suggestion on establishing a investment company in the form of joint venture, the feasibility study report, the contract, the articles of association signed by all the investors;

When establishing an investment company exclusively owned by a foreign investor, the letter of project suggestion, the application form of the foreign enterprise, the feasibility study report, the articles of association signed by the foreign investor;

(2)

Proof document of qualifications, registration document (photocopy), and legal representative (duplicated) of all the investors

(3)

The approval certificate (duplicated), the business license (duplicated) and the report of assets examination issued by a Chinese registered accountant (duplicated) of the enterprises having been funded by the foreign investor;

(4)

The statements of assets and liabilities of all the investors in the last 3 years which have been audited according to the laws;

(5)

The letter of guaranty which shall be submitted according to Article 5 of the provisions;

(6)

Other documents required by the Ministry of Commerce.

Except having been marked as the duplicated copies, the documents above-mentioned shall uniformly be formal documents.

If the documents are signed by non-legal persons, the authorizing letter signed by the legal person of the investor shall be presented.

If the investor authorizes the intermediary organization to make the application, the authorizing letter signed by the legal person of the investor shall be presented.

Article 7

The foreign investor shall make contribution to the registered capital of the investment company in freely convertible currency, or the profit in the form of RMB it earned in the territory of China, or the lawful incomes in the form of RMB which is from the activities such as assignment of the share or liquidation. The Chinese investor may make investment in RMB. The foreign investor who makes contribution to the registered capital in the lawful incomes in the form of RMB shall submit the relevant verifying documents and tax voucher. The contribution shall be completely paid in 2 years as of the date the business license is issued.

Article 8

The investment company shall keep at least U.S.D30, 000,000 in its registered capital used for making investment to the foreign-funded enterprise newly established by it, or making investment to the amount of contribution of the foreign-funded enterprise (having completed the assignment of share according to the law) that haven't completely paid by its parent company or the relevant companies, or making contribution to the increased part of the registered capital, or making investment to the establishment of organizations such as the scientific research and development centre, or purchasing the stock right of the company shareholders in the territory of China( Don't include the stock right formed by the contribution that has been paid by the parent company of the investment company or its relevant companies).

Article 9

If the registered capital of the investment company is no less than U.S.D30, 000,000, the amount of loan shall not exceed 4 times of the registered capital that has been paid. If the registered capital of the investment company is no less than U.S.D100, 000,000, the amount of loan shall not exceed 6 times of the registered capital that has been paid. If the required loan exceeds the above-mentioned provisions because of business need, the investment company shall report to the Ministry of Commerce for approval.

Article 10

After being established by the approval of the Ministry of Commerce, the investment company may engage in the following business according to the actual need when engaging in operational activities in China:

(1)

Making investment in the fields the State permits the foreign investors to invest in;

(2)

Providing the following services to the funded enterprise under the written authorization (adopted unanimously by the board of directors) of the enterprise:

i.

Giving assistance to or acting as procurator of the funded enterprise to purchase machine equipments, office equipments used by itself and the raw material, component, machine replacement parts needed for production from home and abroad, and sell the products produced by the funded enterprise at home and abroad, and provide services after selling;

ii.

Balancing the foreign exchange between the funded enterprises under the approval and supervision of the foreign exchange control departments;

iii.

Providing services such as technological support, staff training, personal administration inside the enterprise in the process of production, sales, market development;

iv.

Giving assistance to the funded enterprise for seeking loan or providing bond for it;

(3)

Establishing scientific development centre or department within the territory of China, engaging in the research and development of new products and new technique, transferring the achievements of research and development, and providing the corresponding technological services;

(4)

Providing consulting service for the investors, and providing consulting service such as market information, investment policies related to its investment for the relevant companies;

(5)

Carrying on the outsourcing business of its parent company and relevant company.

Article 11

The enterprise funded by the investment enterprise mentioned in the provisions means the enterprise meeting the following requirements:

(1)

The enterprise directly invested by the investment company, or jointly invested by the investment company and other foreign investors and (or) Chinese investors. The proportion of the foreign investor's investment exclusively by himself or jointly with other investors discount to the investment company shall be no less than 25 percent of the investment company's registered capital;

(2)

The proportion of the foreign investor's investment exclusively by himself or jointly with other investors discount to the investment company shall be no less than 25 percent of the investment company's registered capital, after the investment company partly or completely purchasing the stock right of the enterprises having been established in the territory of China invested by its investor or the relevant companies of its investor, other investors and the investors in the territory of China;

(3)

The amount of investment of the investment company shall be no less than 10 percent of the registered capital of the enterprise funded by the investment company.

Article 12

The investment company may provide financial support to the enterprise invested by it after being approved by China Banking Regulatory Commission.

Article 13

The investment company may sponsor to establish an foreign-funded limited-liability company or hold the legal person shares of other foreign-funded limited-liability companies that haven't been listed for circulation. The investment company may also hold the legal person shares of other limited-liability companies in the territory of China that haven't been listed for circulation. The investment company shall be treated as the foreign sponsor or shareholder of the limited-liability company.

Article 14

If the established investment company operates according to the laws, has no record of violating the laws, pays the registered capital on schedule according to the provisions of the articles of association, the registered capital actually paid by the investors being no less than U.S.D30, 000,000 and having been used according to the provisions of Article 8 , it may engage in the following business according to the actual need when engaging in operational activities in China after being consented to by the competent authority of commerce of the province, autonomous region, municipality directly under the Central Government, or city directly under state planning where the investment company is established upon preliminary examination, making application to the Ministry of Commerce and being approved by it:

(1)

Conducting the following business under the written authorization (adopted unanimously by the board of directors) of the enterprise invested by it:

i.

Selling the products produced by the funded enterprise by the way of distribution in the markets both at home and abroad;

ii.

Providing comprehensive services such as transportation and storage of goods for the enterprise funded by it.

(2)

Exporting the commodities within the territory of China by the way of agency, distribution, or establishing export procurement organization (including internal organizations), and completing the drawback of duties paid for export according to the relevant provisions;

(3)

Purchasing the products produced by the funded enterprise and selling them both at home and abroad after systematically integrating them, if the products of the funded enterprise cannot meet the need of systematically integrating, permitting it to purchase the auxiliary products for systematical integration from home and abroad, but the value of the purchased products shall not exceed 50 percent of the total value of the products needed to be systematically integrated;

(4)

Providing relevant technological training for the internal distributors and agents of the products of the enterprise funded by it, and the domestic companies and enterprises which have signed agreement on transfer of technology with the investment company, its parent company or its relevant companies;

(5)

Before the funded enterprise going into operation or new products of the funded enterprise putting into production, permitting the investment company to import the products related to products produced by the funded enterprise from the parent company and conducting trial marketing at home;

(6)

Providing operational leasing services of machine and office equipments for the funded enterprise, or establishing an operational leasing company according to the laws;

(7)

Providing services after selling for the products produced by the parent company.

(8)

Participating in overseas contracted projects of the Chinese enterprises that have the right to operate overseas contracted projects.

Article 15

The investment companies importing products according to Paragraph 3 and Paragraph 5 of Article 14 shall go through the formalities according to the relevant provisions of the state. The funds used for import as mentioned above accumulated every year shall not exceed the amount of the registered capital having been paid by the company.

Article 16

The investment company applying for operating the business of Article 14 of the provisions shall submit the following documents to the Ministry of Commerce:

(1)

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

(2)

The agreement of the board of directors of the investment company;

(3)

The revised articles of association of the investment company;

(4)

The approval certificate (duplicated), the business license (duplicated) and the report of assets examination issued by a Chinese registered accountant (duplicated) of the investment company;

(5)

The report of assets examination of the funded enterprises issued by a Chinese registered accountant;

(6)

Other documents required by the Ministry of Commerce.

Article 17

The period of operation of the investment company shall be verified based on the nature of the project it intends to establish according to the provisions of the State on the duration of the foreign-funded enterprises.

Article 18

The investment company investing to establish an enterprise shall report for examination and approval according to the competence and procedure for examination and approval of the foreign-funded enterprise.

Article 19

When an investment company invests to establish an enterprise, the proportion of the foreign investor's investment exclusively by himself or jointly with other investors discount to the investment company shall be no less than 25 percent of the investment company's registered capital. The enterprise invested by it shall enjoin the treatment of foreign-funded enterprise, and be issued with the approval certificate and business license of the foreign funded enterprise.

Article 20

The establishment of branch offices by the investment companies shall report to the Ministry of Commerce for examination and approval. The investment company applying to establish a branch company shall meet the following requirements:

(1)

The registered capital of the investment company having been paid on schedule according to the provisions of the contract and articles of association, and the amount having been paid shall be no less than U.S.D30, 000,000; or the investment company has invested to establish or own more than 10 foreign funded enterprises;

(2)

The locality where the branch company is to be located shall be the areas where the investment or sales of products of the investment company are centralized.

Article 21

The investment company meeting the requirements may apply for being identified as the regional headquarter of a multinational corporation (hereinafter referred to as the regional headquarter), and complete the procedure of change.

(1)

The investment company applying for being identified as the regional headquarter shall meet the following requirements:

i.

The registered capital having been paid is no less than U.S.D100, 000,000, or; the registered capital having been paid is no less than U.S.D50, 000,000, the total amount of the assets in the year before the application shall be no less than RMB3, 000,000,000, and the total amount of the profit shall be no less than RMB100, 000,000(accounted by merging the relevant provisions of the statements);

ii.

Meeting the provisions of Article 8 of the provisions;

iii.

Having established more than 2 science research and development organizations (among them at least an organization shall be the entity of legal person)

(2)

The investment company having been identified as the regional headquarter may engage in the following business according to the actual need when engaging in operational activities in China:

i.

The business provided in Article 10 ,Article 14 of the provisions;

ii.

Importing and selling the products of the multinational corporation at home;

iii.

Importing raw and auxiliary materials, parts and fittings of machines which are needed when providing maintenance services for the products of the funded enterprises and the multinational corporation;

iv.

Carrying on the outsourcing business of the enterprises both at home and abroad;

v.

Engaging in goods delivery service according to the relevant provisions;

vi.

Establishing financial company and offering relevant financial services to the investment companies and the enterprises invested by them after being approved by China Banking Regulatory Commission;

vii.

After being approved by the Ministry of Commerce, engaging in overseas contracted projects business and overseas investment, and establishing leasing company for seeking funds and offering the relevant services;

viii.

Other business having been approved.

(3)

Procedure for examination and approval:

i.

The investment company makes application to the competent authority of commerce of the province, autonomous region, municipality directly under the Central Government, or city directly under state planning for preliminary examination, then report to the Ministry of Commerce;

ii.

The Ministry of Commerce shall make examination and reply in 30 days since having received all the documents for application, and issue the changed Approval Certificate of the Foreign-funded Enterprise (adding to mark "the Regional Headquarter") to those being identified as the regional headquarters;

iii.

The investment company shall apply for going trough the registration for the change.

(4)

Documents for application

i.

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

ii.

The agreement of the board of directors of the investment company and its multinational corporation;

iii.

The revised articles of association or contract of the investment company;

iv.

The approval certificate (duplicated), the business license (duplicated) and the report of assets examination issued by a Chinese registered accountant (duplicated) of the investment company;

v.

The approval certificates (duplicated) and business license (duplicated) of the funded enterprises;

vi.

The report of assets examination of the funded enterprises issued by a Chinese registered accountant;

vii.

The major financial statement audited by a Chinese registered accountant;

viii.

Other documents required by the Ministry of Commerce.

Except having been marked as the duplicated copies, the above-mentioned documents shall uniformly be formal documents.

The "multinational corporation" mentioned in this Article means the parent company of the corporation group to which the foreign investor who establishes the investment company belongs.

Article 22

The investing activities of the investment company within the territory of China shall not be limited for the registered place of the company.

Article 23

The taxation of the investment companies shall be taxed according to the relevant laws and regulations of China.

Article 24

The investment company shall conscientiously execute the project investment plan, and report the information of investment and operation of the first year to the Ministry of Commerce for archival purpose according to the provided content and form in the first three months of the next year. The above-mentioned material shall be regarded as one of the necessary materials for the investment company to report when conducting the united annual examination.

Article 25

The investment company and the enterprises invested by it shall be independent legal persons or entities. The business intercourse between them shall be treated as the business intercourse of the independent enterprises.

Article 26

The investment company and the enterprises invested by it shall obey the laws, regulations and provisions of China, and shall not adopt any means to escape the management and tax payment.

Article 27

The investment company shall not directly engage in the production activities.

Article 28

The investors from Hong Kong Special Administrative Region, Macao Special Administrative Region, and Taiwan Region investing to establish the investment company in mainland of China shall meet the provisions.

Article 29

The Ministry of Commerce shall be responsible for the interpretation of the provisions.

Article 30

The Provisions shall take effect after 30 days as of the date of promulgation.