Laws of the People's Republic of China

The Ministry of Foreign Trade and Economic Cooperation

Order of the Ministry of Foreign Trade and Economic Cooperation

No. 1

The Supplementary Provisions (2) of the Interim Regulations on Establishment of Investment Companies with Foreign Investment are promulgated. The provisions shall enter into force as of the date of promulgation.

Minister of the Ministry of Foreign Trade and Economic Cooperation Shi Guangsheng

May 31, 2001

Supplementary Provisions (2) of the Interim Regulations on Establishment of Investment Companies with Foreign Investment

To encourage transnational corporations to invest in China, introduce advanced technology and managerial experience from other countries and improve the functions of investment companies, the following are the supplementary provisions concerning the Interim Regulations on Establishment of Investment Companies with Foreign Investment promulgated by the Ministry of Foreign Trade and Economic Cooperation:

1.

Investment companies are allowed to provide relevant technical training to domestic distributors and agents responsible for sale of products of companies invested by them and domestic companies and enterprises which sign agreements on technology transfer with them and their parent companies.

2.

Investment companies are allowed to establish limited-liability companies with foreign investment as promoters or hold unlisted corporate shares of limited-liability companies with foreign investment. Investment companies shall be regarded as overseas promoters of limited-liability companies.

3.

After investment companies are allowed to purchase products manufactured by enterprises invested by them for system integration, they can sell them at home and abroad. If products manufactured by enterprises invested by them cannot meet the needs of system integration, they are allowed to purchase accessory products for system integration at home and abroad. But the value of purchased accessory products for system integration shall not exceed 50% of the value of all products needed for system integration.

4.

Before enterprises invested by investment companies go into operation or new products of enterprises invested by them are put into production, to facilitate market development for their products, investment companies are allowed through the approval of the original examining and approving organs to import from their parent companies a small quantity of products for domestic trial sale which are not placed under import quota management and which are the same as or similar to products manufactured by enterprises invested by them.

5.

In importing the above-mentioned accessory products for system integration or products for trial sale, investment companies shall use the cash investment from their registered capital, foreign exchange profits or overseas foreign exchange borrowings. The annual cumulative sum of money for the above-mentioned imports cannot exceed 20% of the cash investment in the registered capital of the companies. If the sum of money for imports for the current year does not exceed 20% of the cash investment in the registered capital of the companies, the remainder cannot be transferred to the sum of the next year for use.

6.

If investment companies are engaged in business activities listed in 1, 3 and 4 of the provisions, their modified contracts, articles of association and other application documents shall be presented to the Ministry of Foreign Trade and Economic Cooperation for approval according to prescribed formalities and shall meet the following requirements:

(1)

The registered capital of investment companies has been paid on schedule according to the provisions of their contracts and articles of association, and the registered capital which has been actually paid cannot be lower than US$30 million.

(2)

They shall conduct lawful business operation and have no criminal record.

7.

Investment companies shall present their documents on annual investment and business operation to the Ministry of Foreign Trade and Economic Cooperation for record according to prescribed content and form within three months prior to the next year. The above documents shall be part of the indispensable documents for enabling investment companies to participate in joint annual examination applications.

8.

If the provisions run counter to the provisions of the Explanation of the Problems Concerning the Interim Regulations on Establishment of Investment Companies with Foreign Investment promulgated by the Ministry of Foreign Trade and Economic Cooperation on February 16, 1996, the provisions shall prevail.

9.

The provisions shall enter into force as of the date of promulgation.