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LAWS, RULES AND REGULATIONS OF FOREIGN DIRECT
INVESTMENTS IN CHINA

Provisions on the Establishment of
Investment Companies by Foreign Investors

Decree [2003] No. 1 of the Ministry of Commerce of the People's Republic of China
June 10, 2003

Article 1 In order to promote foreign investors to invest in China, 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 An investment company herein means a company established by a foreign investor in the form of either wholly-owned enterprise or Sino-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:

(1) 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-invested enterprise inside the territory of China, with the amount of registered capital it has actually contributed being USD10m 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-invested enterprises inside the territory of China engaged in the production or infrastructure construction, with the amount of registered capital it has actually contributed being USD 30m or more;

(2) 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 RMB100m;

(3) The registered capital of an investment company shall be no less than USD30m.

The foreign investor that applies to establish an investment company shall be a foreign company or 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 (1) of Paragraph 1 of the present Article.

Article 4 A foreign investor who meets the conditions prescribed in Item (1) 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 (1) of Paragraph 1 of Article 3 of the present Provisions, it must issue a letter of warranty to the 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 department of foreign trade and economic cooperation of the province, autonomous region, municipality directly under the Central Government, municipality separately listed on the State plan where the investment company under planned establishment is located for verification and consent, and then submit them to the Ministry of Commerce for examination and approval.

(1) In the case of establishing a joint venture, a project proposal on the establishment of a joint venture investment company, a feasibility study report, contracts and articles of association signed by all parties to the investment;

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

(2) 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;

(3) (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;

(4) The balance sheets of all parties to the investment in the latest three years which have been lawfully audited;

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

(6) 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 proceeds 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 certification documents and the tax payment receipts. The investments shall be fully contributed within two years as of the day when the business license is issued.

Article 8 In the registered capital of an investment company, there shall be at least USD 30m which should be regarded as investments to the newly established foreign-invested enterprise, or be regarded as the incompletely contributed amount of investments to the foreign-invested enterprise invested and established by the parent company or associated company (with the formalities of stock right transfer having been lawfully finalized), or the increased part of investments, or be used to purchase the stock rights of a shareholder of a domestic company inside the territory of China.

Article 9 If the registered capital of an investment company is no less than USD 30m, 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 USD 100m, 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:

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

(2) 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:

a. Assisting or representing the said enterprise in purchasing machinery equipment, office equipment and raw materials, components and parts needed in production for the enterprise 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;

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

c. 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.;

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

(3) 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.

(4) 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.



Article 11 An enterprise herein invested by an investment company means an enterprise meeting the following conditions:

(1) 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;

(2) 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;

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

Article 12 An investment company may, upon approval by the People Bank of China, provide financial supports to the enterprise it invests in and establishes.

Article 13 An investment company may act as an initiator to initiate the establishment of a foreign-invested share limited company or to hold the unlisted corporate shares of the foreign-invested 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 14 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 USD 30m and has been used as investment of the enterprise it invests in, the investment company shall, after obtaining the consent of the department of foreign trade and economic cooperation 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:

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

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

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

(2) Exporting domestic commodities involving neither export quota nor permit administration by means of agency, distribution or by establishing an export purchasing institution;

(3) 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;

(4) 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;

(5) 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 a small quantity of products which are identical or similar to those manufactured by the enterprise it invests in but are not under import quota administration for domestic trial sale for the purpose of developing the products market;

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

(7) Providing after-sale service for the products manufactured by its parent company;

(8) Participating in overseas contract projects undertaken by Chinese enterprises having the right to run overseas contract projects in accordance with the relevant provisions of the state.

Article 15 An investment company shall, if importing auxiliary products for system integration or products for trial sale, go through the formalities in accordance with the relevant provisions, and shall use the spot exchange investment in the registered capital of the investment company, the foreign exchange profits or overseas foreign exchange loans. The above accumulative imported amount of each year shall not exceed 35% of the spot exchange investment in the registered capital of the company. The part of imported amount in the current year remaining apart from 35% of the spot exchange investment in the registered capital of the company shall not be transferred to the next year for use.

Article 16 An investment company shall, if applying for running the business prescribed in Article 14 of the present Provisions, submit the following documents to the Ministry of Commerce:

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

(2) The resolution of the investment company board of directors;

(3) The investment company amended articles of association;

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

(5) The capital verification report issued by Chinese CPA on the enterprise it invests.

Article 17 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-invested enterprises duration of business operation.

Article 18 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-invested enterprises.

Article 19 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-invested enterprises, and be issued the approval certificate of foreign-invested enterprise and the business license of foreign-invested enterprise.

Article 20 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:

(1) 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 USD 30m; or the investment company has invested and established or has owned 10 or more foreign-invested enterprises;

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

Article 21 The investment activities of an investment company inside the territory of China are not be limited by its registration place.

Article 22 The taxation of investment companies shall be governed by the relevant laws and regulations of China.

Article 23 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 record 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 combined annual inspection.

Article 24 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 25 The investment companies and the enterprises they have invested and established shall abide by the laws, regulations and rules of China, and may not avoid administration or tax payment by any means.

Article 26 An investment company may not directly engage in production activities.

Article 27 The investors of Taiwan, Hong Kong and Macao regions who invest in the mainland to establish investment companies shall be subject to quasi governance of the present Provisions.

Article 28 The responsibility to interpret the present Provisions shall remain with the Ministry of Commerce.

Article 29 The present Provisions shall come into force 30 days after their promulgation. The Interim Provisions on the Establishment of Investment Companies by Foreign Investors, the Interpretation on the Relevant Issues Concerning the Interim Provisions on the Establishment of Investment Companies by Foreign Investors, the Supplementary Provisions to the Interim Provisions on the Establishment of Investment Companies by Foreign Investors, the Supplementary Provisions to the Interim Provisions on the Establishment of Investment Companies by Foreign Investors (II), the Decision on Amending the Interim Provisions on the Establishment of Investment Companies by Foreign Investors and the Supplementary Provisions Thereof shall be simultaneously repealed on the date of entry into force of the present Provisions.

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