Laws of the People's Republic of China

The Ministry of Foreign Trade and Economic Cooperation

Reply of the Ministry of Foreign Trade and Economic Cooperation to the Letter of Sichuan Foreign Trade and Economic Commission for Instructions on Several Legal Issues

WaiJingMaoFaHanZi [1998] No.82

September 18, 1998

Commission of Foreign Trade and Economic Cooperation of Sichuan:

We have studied your request for instructions (ChuanWaiJingMaoZiZi [1998] No.113) on several legal issues and now reply in principle as follows:

1.

The ways of financial contributions to be adopted by investors of Chinese-foreign equity joint ventures should be limited within the range prescribed in Article 24 of the Company Law, Article 5 of the Law of the People's Republic of China on Chinese-foreign Equity Joint Ventures and Article 25 of the Regulations for the Implementation of the Law of the People's Republic of China on Chinese-foreign Equity Joint Ventures. Investors should not contribute capital in the form of priced stock equity.

2.

In accordance with existing provisions relating to the establishment of investment companies with foreign capital, the scope of business of these investment companies should be limited to the prescription of Article 5 of the Interim Provisions on the Establishment of Investment Companies with Foreign Capital. Investment companies should actively participate in the management of the companies they invest in. With a view to standardizing and strengthening the administration and guidance on investment companies, currently investment companies should, under no circumstance, be founders of stock companies or buy and hold shares (listed and non-listed) of stock companies or engage in stock business of any kind.

3.

In accordance with the Company Law and the Interim Provisions on Several Issues Concerning the Establishment of Joint Stock Limited Companies with Foreign Investment, the registered capital of stock companies should be the actual amount of capital stock received by competent registration authorities, namely the paid full amount of capital stock. The concept of total investment is inapplicable to joint stock limited companies.

4.

The Ministry of Foreign Trade and Economic Cooperation will, jointly with other related departments, conduct research on the issue of reinvestment by enterprises with foreign investment in conjunction.

That is hereby the reply.