China Business Guide

FOREIGN INVESTMENT

China began administering policies to encourage foreign businesses to invest in China in 1979, the first Sino-foreign joint venture was set up in 1980. Since then, following the gradual improvement of China' s investment environment, foreign investment to China has been increasing. Beginning from 1993, China has for seven consecutive years become the world' s second biggest country in receiving foreign direct investment, second only to the USA.

I. General Conditions

By the end of December of 2000, the actual number of foreign-investment enterprises has reached 203.2 thousand, 4.34% less than that of the end of last year. The total investment amounts to US$824.675 billion, an increase of 5.92%. The registered capital is US$483.95 billion, an increase of 4.40%. The amount of foreign contracted capital is US$337.199 billion, an increase of 6.48%. Of all the foreign-investment enterprises, the number of Chinese-foreign joint ventures has reached 102.209 thousand, the Chinese-foreign co-operative enterprises 25.835 thousand, the wholly foreign-owned enterprises 74.946 thousand, Chinese-foreign joint-stock companies 218.

In 2000, the newly registered foreign-investment enterprises in China are 20.727 thousand, with a total investment amount of US$69.973 billion, a registered capital of US$39.887 billion and an amount of foreign contracted capital US$31.992 billion. Of all the enterprises, the ones with a total investment amount between US$10 million and US$30 billion amount to 1354 and over US$30 million 118.

Besides, 30.2 thousand foreign-investment enterprises were cancelled or revoked business lisence.

Sector Distribution Registered of Foreign-Funded Enterprises at the End of 2000  

II. The Characteristics of the Newly Registered Foreign-funded Enterprises in 2000

There is an 32.13% increase in the number of newly registered enterprises above that of the corresponding period of the last year, the first positive increase since 1994. The total investment amount is 46.65% increase; registered capital, 53.99%; foreign contracted capital, 65.15%. After the foreign-investment enterprises have experienced a continuous decline for six years running since 1994, they gained a development close to that of 1994, presenting a recovery increase. First of all, excluding South America and Africa, there is an increase of investment from Asia, Europe, North America and Oceania above that of the last year. Secondly, except geological prospecting enterprises, there sees an increase in absorbing foreign investment in all the other trades. Thirdly, with Tianjin, Heilongjiang, Sichuan, Shaanxi, Ningxia, Xingjiang and Chongqing declining in absorbing foreign capital, there is an increase in all other provinces and municipalities.

1. Foreign capital still takes manufacturing industry as its major investment area, while transport, telecommunications and storage leap for the first time to second place.

In manufacturing industry, the electronics and communications facilities manufacturing, oil processing and coke making, the garment and other fiber products manufacturing absorb foreign capital the most, being US$4.972 billion, US$1.485 billion and US$1.063 billion respectively.  

2. Investment from Asia, Europe and North America Increase the Most.

Seen from the point of investment source and graded according to the amount of contracted capital, the first ten countries and territories are: Hong Kong, US$10.201 billion; America, US$3.141 billion; Taiwan, US$2.071 billion; Germany, US$1.338 billion; South Korea, US$1.195 billion; Japan, US$1.174 billion; Holland, US$1.049 billion; Singapore, US$927 million; Canada, US$416 million; Macao, US$353 million.

3. Foreign Capital Mainly Invests in East and Central China While West Absorbs Comparatively Less.

Graded according to the amount of foreign contracted capital, the first ten places absorbing foreign capital are: Guangdong, US$6.319 billion; Jiangsu, US$3.690 billion; Shanghai, US$3.589 billion; Liaoning, US$2.731 billion; Shandong, US$2.576 billion; Fujian, US$1.714 billion; Zhejiang, US$1.407 billion; Beijing, US$1.349 billion; Tianjin, US$900 million; Henan, US$813 billion.

4. Foreign-funded Enterprises Develop Rapidly

The following three aspects can demonstrate the fact that the foreign enterprises develop rapidly:1. Seen from the registration, the amount of the foreign contracted capital of the newly registered foreign-funded enterprises is 2.3 times above that of in the joint-ventures, which was another leap in development since the first time in 1998 when the contracted of foreign-funded enterprises exceeded that of Chinese-foreign joint ventures. The development speed of foreign-funded enterprises had exceeded that of the Chinese-foreign joint ventures and Chinese-foreign co-operative enterprises by a big margin.(2)Seen from the capital increase, the amount of the net capital increase of foreign-funded enterprises was US$7.529 billion, accounting for 62.76% of the total capital increase of foreign-investment enterprises.(3)Seen from the investment scale, the number of the enterprises with an investment of US$10 million to US$30 million was 617, an increase of 12% above that of last year, accounting for 45.57% of the total, while the number of the enterprises with an investment of over US$30 million reached 54, an increase of 16% above that of last year, constituting 45.76% of the total.

Foreign-funded enterprises directed their investment mainly to: manufacturing industry, which was 8270 in number, an increase of 46.94% above that of last year; public service industry, which was 1473 in number, an increase of 128.4% above that of last year; wholesale and retail trade, which was 624 in number, an decrease of 2.19% below that of last year; agriculture, forestry, animal husbandry and fishery, which was 378 in number, an increase of 7.69% above that of last year.

5. Foreign-investment enterprises modified their capital investment actively.

In 2000, the registered capital increase US$16.152 billion, of which the amount of foreign contracted capital is US$13.978 billion, 2.1 times more than that of last year. The capital increase of foreign enterprises is still one of the key ways of China's using foreign capital.  

III. The Commercial Opportunity for the Development of Foreign-investment Enterprises

China' s reform and opening up and modernization drive have provided good opportunities for the development of foreign investors. It can be seen from the following aspects:

China continues to carry out policies of enlarging the domestic demands and speed up the strategic adjustment of economic structure, providing a wide space for the foreign investors in agriculture, water conservancy, energy, transport, communications, raw material, environmental protection, high-tech, etc.

China is carrying out Western Development Programme. The current industrial base, technical power, rich natural and human resources have provided favorable conditions for the foreign investors to take part in the co-operative development of Midwest China.

China' s state-owned enterprises are exploring ways of changing the management system and enhancing the vigor of enterprises according to the objective request of setting up modern enterprise system, of which, absorbing foreign capital to reorganize and transform them was one of the important measures.

China' s new and high technological industries have a broad marketing prospect. Transnational companies can make full use of China' s technology and high quality people available to set up research and development center, invest in high-tech industries and technical research projects, and participate in the technical transformation of the traditional industries and the application of high and new technology to production, enjoying relevant favorable policies.

Enlarging the scope of opening up of the service trades is one of the important measures to coordinate the economic development. Foreign investors can introduce their rich experience and advanced management in service trades to promote the new development of such intermediary organizations as banking, insurance, commercial retail, foreign trade and accounting firm.

With the acceleration of China' s entry into WTO, its opening up will enter a new stage. To be specific, firstly, it will convert from an opening up in limited area and limited field to an opening up in all directions; secondly, it will convert from an opening up of policy with the characteristics of pilot project to a predictable opening up under the legal framework, that is opening up in light with the promised time table; thirdly, it will convert from an one-way self opening up to a two-way opening between China and members of WTO. Chinese government will heighten consistently its opening up level in accordance with the promises to the outside world and the demands of the national economic development to participate actively in the course of economic globalization.

Section I: Basic China Policies for Attracting Foreign Investment

I. Industrial Policies

1.Interim Provisions and Guide Catalogue

    In order to make foreign investment further meet the national industrial development direction and avoid blind investment, in June 1995, China Goverment formulated and published Interim Provisions for Directing Overseas Investment and Guide Catalogue of Industries for Foreign Investment, announcing the industrial policies of attracting foreign investment in the form of regulations, and lightened the transparency of policies. The provisions and list divide in dustrial items into four kinds including the encouraged-the permitted the restricted and the forbidden, making investors clear at first sight.

   According to the development of China' s economy, in Dec. 1997, the State planning Commission the State Economy and Trade Commission and the Administration of Foreign Trade and Economic Co-operation jointly revised the Master list for Foreign Investment Industries. The revised Guide Catalogue (please refer to Appendix II) has broaden the scope of foreign investment encouraged by the state, Laying stress in key industrial points, further meeting the demands of industrial structure adjustment and the principle of favoring absorbing advanced technologies, and fully embodied the policies of encouraging foreign investors to invest in the middle-and-Ivestern regions. The revised list encourages foreign investors to set up export enterprises and has put the permitted items 100 per cent of whose products are for export into the encouraged items.

2. Items in which foreign investment is encouraged

  Current items of this kind mainly include: items in new agricultural technology, comprehensive agricultural development, energy,transportation and important taw and semifinished materials industry; items with high technology; export-oriented items; items in comprehensive utilization of resources and renewable resources, environmental pollution protection; items which can exploit the advantages of the middle-and-western regions to the full, etc. Positively guide foreign investment to the technical transformation of traditional industries and old industrial bases, and further develop labor-intensive items in accord with industrial policies.

3. Service trade

  For the foreign investment utilization in the field of service trade (please refer to Chapter III), experiments should be made first. On the base of experiments, we sum up the experience, formulate laws and regulations, normalize the development and expand gradually.

  At present,the fields such as Business, foreigntrade, finance,insurance, transportation, international transportation agency,legal service, tourism, advertisement, medical health, accountancy, property valuation, education, leasing, engineering design, consultation, real estate and so on hoe been opened to foreign investors in varying degrees; the opening of service has formed an entire structure initially.

II. Regional Policies

China' s opening-up endeavor began first in the eastern coastal region, and moved to interior regions gradually in phases and tiers. The eastern region enjoys a fairly favorable investment environment and many preferential policies. That is why most reform measures were initiated in the eastern region, which is home to the five special economic zones, 14 coastal open cities and the Pudong New Area in Shanghai. So, to date, the overwhelming majority of overseas-funded enterprises have been established in the region. In contrast, foreign companies have launched fewer investment projects in China' s central and western region.

In recent years, with the strategic focus of China' s economic development shifting gradually westward, the Chinese Government has formulated relevant policies on assistance regarding the central and western region, vigorously increased investment in the region, and speeded up construction of infrastructure such as water conservancy, transport and telecommunications there. Meanwhile, it has been encouraging foreign companies to invest in the region.

In order to direct the foreign investment to the central and western parts, the State Development and Planning Commission and Ministry of Foreign Trade and Economic Cooperation have jointly formulated List of Advantageous Industries for Foreign Investment in Provinces, Autonomous Regions and Municipalities Directly under the Central Government in the Central and Western Parts (please refer to Appendix II) on June 16, 2000 for implementation. The List provides the advantageous industries in the central and western parts respectively for 20 provinces (prefectures and cities). The List is focusing on areas such as processing of farming and animal husbandry products, development of tourist, forestation, exploitation of mineral resources, construction of communications and infrastructures, and development and manufacturing of new-type electronic components, where foreign investment is encouraged. Projects in the List that utilize foreign investment enjoy preferential policies such as exemption of duties for self-use equipment imported within the total volume of investment and import-linked value-added tax.

The current policies encouraging foreign investors to invest in the middle-and-western region mainly are as follows.

1. The middle-and-western regions may choose really advantageous industries and items, enjoy the policy for the encouraged items stipulated in the Guide Catalogue with the government approval; establishment conditions and market opencig degree for the restricted items and items in which foreign stock proportion is restricted may be wider to some degree than in eastern regions.

2. Properly increase domestic supporting fund loan for the middle-and-western regions to draw foreign investment, loans from foreign government and preferential loan from in serration financial administrations and mainly pa put into items of great basic facilities and environmental protection construction;

3. For the state-encouraging foreign investment enterprises in the middle-and-western regions, during the three years after the expiration of current preferential tax policy, their business income tax may be collected at the lower rate of 15 percent.

4. Encourage the foreign investment enterprises in the eastern regions to reinvest to the middle-and-western regions; the items in which foreign funds amount to over 25 per cent may enjoy relevant treatment to foreign investment enterprises;

5. Permit the foreign investment enterprises in the coastal regions to go to the middle-and-western regions to contract and operate foreign investment enterprises and national-funded enterprises;

6. Permit the middle-and-eastern provinces,autonomous regions,municipalities directly under the Central Government may choose a built development zone,in their capital cities to apply for a national-grade economic and technical development zone;

7. The state will priory allow a batch of items in agriculture,water conservancy, transportation, energy, raw and semi finished materials and environment protection to draw foreign investment in the middle-and-western regions, and tighten the support for item supporting funds and relevant measures.

III. The Financial Support

1. In line with Chinese law, foreign-funded enterprises, in raising part of the funds needed for production and operation, are eligible to apply to banks in China for borrowing loans. Foreign-funded enterprises are covered by similar terms, interest rates and handling charge rates on loans with domestically-funded enterprises. After going through the formalities for the registration of foreign debts in line with relevant regulations, foreign-funded enterprises can directly borrow loans from banks outside China. Foreign-funded enterprises shall report the funds in foreign currencies they have borrowed from overseas banks to State foreign exchange control authorities for records.

2. When foreign investment enterprises circulate funds domestically, Chinese-funded banks may be allowed to accept the guarantee from foreign stockholders. Foreign investment enterprises may apply to domestic specified-exchange Chinese-funded banks for Renminbi Loan in the way of exchange pledge. All the exchange funds of foreign in vestment enterprises may be used for pledge; overseas financial authorities or domestic foreign-funded financial authorities may provide credit guarantee for Renminbi loan under the guarantee in exchange. Abolish the registration step under exchange pledge and exchange guarantee as well as the special control for credit grade of foreign-funded banks offering exchange guarantee. The foreign Renminbi loan with exchange guarantee or with stockholders guarantee should meet the industrial policies, which may be used to satisfy the needs of fixed investments and fund circulation but not to buy exchange.

3. Special industrial investment funds are established to relieve the shortage of Chinese stock at the tame of capital increase of current foreign investment enterprises, and mean while, allow domestic Chinese-founded Comerica banks give Chinese stockholders a certain stock loan with the prerequisite of the synchronous arrival of the stocks which should be increased by foreign stockholders of Chinese-foreign joint ventures and co-operative enterprises.

4. Permit domestic foreign investment enterprises to provide mortgage for overseas branch of domestic Chinese-funded banks with their overseas estate, and loan is delivered by overseas or domestic branch of Chinese-funded commercial banks.

5. The foreign investment enterprises fitting the conditions may of ask to issue stock A or B

6. According to the principle "positive and safe", insurance's such as political risk insurance, performance insurance guarantee insurance should be provided for foreign investors who invest in energy and transportation greatly encouraged by the state.

Section II: Tax System Involving Foreign Interests and Tax Preferential Terms

China implements a low-lax policy for foreign investment enterprises and implements preferential tax policies in the industries and regions where investment is encouraged by the state. At present, there are 13 types of taxes applicable to foreign-funded enterprises, foreign enterprises and foreign individuals (apart from the agricultural tax, tariffs and ship tonnage tax). They are the value-added tax, the consumption tax, the business tax, the income tax on foreign-funded enterprises and foreign enterprises, the personal income tax, the resource tax, the land value-added tax, the stamp tax, the tax on urban real estate, the tax on the use of automobile and ship plates, the slaughter tax, the contract tax and construction fees for cultural undertakings. Laws and regulations related to these tax types and the Law of the People' s Republic of China on Managing the Levy and Collection of Taxes have constituted China' s tax legal system involving foreign interests.

I. Income Tax on Foreign-Funded Enterprises and Foreign Enterprises

The Income Tax Law for Foreign-Funded Enterprises and Foreign Enterprises is China's only tax law involving foreign interests which is applicable to foreign-funded enterprises and foreign enterprises.

1. Tax rates

In view of different forms of incomes, the Income Tax Law for Foreign-Funded Enterprises and Foreign Enterprises adopts different proportionate tax rates.

(1) For taxable incomes derived by enterprises engaged in production and operations, a 30% proportionate tax rate is adopted. In addition, a 3% local income tax is levied and collected according to the taxable income amount. The two tax rates combined equal 33%.

(2) As regards foreign companies, enterprises and other economic organizations which have not set up agencies or sites within the territories of China but have stock dividends, interests, rents and royalties and other incomes derived from within the territories of China, the income tax with a 20% proportionate rate is levied and collected through deduction in advance.

2. Provisions on tax preferential terms

(1) Preferential terms for aiding new enterprises

For productive foreign-financed enterprises with an operational duration of more than ten years, the enterprise income tax shall not be levied and collected from the first year to the second year beginning from their first profit-making year and shall be levied and collected at a reduced rate of 50% from the third year to the fifth year. The productive foreign-funded enterprises referred to here mean foreign-funded enterprises engaged in the following industries:

a.         Machine-building and electronic industries;

b.         Energy industry (excluding pumping petroleum and natural gas);

c.         Metallurgy, chemical and building industries;

d.         Light, textile and packaging industries;

e.         Medical equipment and pharmaceutical industries;

f.          Agriculture, forestry, livestock breeding, fisheries and water conservancy;

g.         Building industry;

h.         Transport industry (excluding passenger transport);

i.           Scientific and technological development, geological prospecting and industrial information consultancy industries, as well as the production equipment and precision meter maintenance and service industries that serve production directly; and

j.           Other industries designated by the competent taxation department of the State Council.

(2) Preferential terms to investors in special economic sectors and special areas

a. For foreign-financed enterprises engaged in agriculture, forestry and livestock breeding and for foreign-financed enterprises established in underdeveloped remote areas, in addition to enjoying the same preferential term of tax reductions and exemption in the first five profit-making years beginning from the first profit-making year as newly-established enterprises, they can also continue to enjoy the preferential term of a 15-30% cut in the income tax over the next ten years to come.

b. Manufacturing Foreign-invested enterprises that engage in such infrastructural projects as energy and transportation, upon submission to and approval from the State Taxation General Administration, may pay their corporate income tax at a reduced tax rate of 15%.

For foreign-funded enterprises established in the Shenzhen, Zhuhai, Shantou, Xiamen and Hainan special economic zones, for foreign-funded enterprises that have set up agencies or sites in the special economic zones to engage in production and operations, for productive foreign-funded enterprises established in economic and technological development zones, and for foreign-funded enterprises established in state high and new technology and industrial development zones designated by the State Council which are designated as high- and new-tech enterprises, the enterprise income tax shall be levied and collected at the reduced tax rate of 15%.

c. With regard to productive foreign-financed enterprises established in open coastal economic areas and in the old urban areas where special economic zones and economic and technological development zones are situated or foreign-financed enterprises established in other areas designated by the State Council, those projects encouraged by the state, the enterprise income tax can be levied and collected at the reduced tax rate of 15%.

d. For productive foreign-financed enterprises established in coastal open economic areas and in the old urban areas where special economic zones and economic and technological development zones are situated, the enterprise income tax shall be levied and collected at the reduced tax rate of 24%.

e. As regards Sino-foreign joint ventures with an operational duration of more than 15 years which are engaged in port and wharf construction, after applications are filed by such ventures and upon approval by the local taxation department, starting from their first profit-making year, the enterprise income tax shall not be levied and collected from the first year to the 5th year, and shall be collected at the reduced tax rate by 50% from the 6th to the 10th year.

f. With respect to foreign-financed enterprises established in the Hainan Special Economic Zone which are engaged in such infrastructure projects as airports, ports, wharves, railways, highways, power stations, coal mines and water control facilities and with respect to foreign-financed enterprises engaged in agricultural development and operations, if they?have an operational duration of more than 15 years, after applications are filed by such enterprises and upon approval by the Hainan provincial taxation department, beginning from their first profit-making year, the enterprise income tax shall not be levied and collected from the first year to the 5th year, and shall be levied and collected at the reduced tax rate by 50% from the 6th year to the 10th year.

g. As for foreign-funded enterprises established in the Shanghai Pudong New Area which are engaged in energy and transport construction projects such as airports, ports, railways, highways and power stations, and which have an operational duration of more than 15 years, after applications are filed by such enterprises and upon approval by the Shanghai municipal taxation department, beginning from their first profit-making year, the enterprise income tax shall not be levied and collected from the first year to the 5th year and shall be levied and collected at the reduced tax rate by 50% from the 6th year to the 10th year.

h. For foreign-financed banks, Sino-foreign joint banks, branches of foreign banks and financial companies and other financial institutions,?established in special economic zones and other areas approved by the State Council, provided that foreign investors invest capital worth more than ten million U.S. dollars or operating funds allocated by the head office of a bank to a branch exceed 10 million U.S. dollars, if they have an operational duration of more than ten years, starting from their first profit-making year, the enterprise income tax shall not be levied or collected in the first year and shall be levied and collected at the reduced tax rate by 50% from the second year to the third year.

i. As regards Sino-foreign joint ventures established in the state high- and new-tech industrial development zones designated by the State Council which are considered high- and new-tech enterprises and which have an operational duration of more than ten years, after applications are filed by such ventures and upon approval by the local taxation department, starting from their first profit-making year, the enterprise income tax shall not be levied and collected in the first two years.

j. For foreign-financed enterprises established in special economic zones which are engaged in the service sector, whose foreign investment exceeds five million U.S. dollars and which have an operational duration of more than 10 years, after applications are filed by such enterprises and upon approval by the special economic zone taxation department, beginning from their first profit-making year, the enterprise income tax shall not levied and collected in the first year and shall be levied and collected at the reduced tax rate by 50% in the second and third years.

k. If the annual export value of a foreign-funded export-oriented enterprise, after the expiration of the term of exemption from and the reduction of the enterprise income tax granted in accordance with provisions, exceeds 70% of its product output value in the same year, the enterprise income tax may be levied and collected at the reduced prescribed tax rate by 50%. However, if export-oriented enterprises in special economic zones and economic and technological development zones and those which have already paid the enterprise income tax at the 15% tax rate comply with the above-mentioned requirements, the enterprise income tax shall be levied and collected at the 10% tax rate.

l. If foreign-financed technologically advanced enterprises remain as technologically advanced enterprises after the expiration of the term of exemption from and reduction of the enterprise income tax granted in accordance with provisions, the enterprise income tax may be levied and collected at the reduced tax rate by 50% for another three years.

(3) Preferential terms for encouraging re-investment

If a foreign-investor in a foreign-funded enterprise directly re-invests the after-tax profits he/she draws from his/her enterprise in that enterprise, increases the registered capital or takes his/her profits as capital to invest in establishing another foreign-funded enterprise with an operational duration of not less than five years, with the investor's application and approval by the taxation department, 40% of his/her re-investment part of the paid income tax shall be refunded. (the local income tax is not included in the preferential terms).

(4) Preferential terms for offsetting losses

The annual losses incurred by foreign-funded enterprises and agencies and sites established by foreign enterprises within the territories of China which are engaged in production and operations may be offset by the income made in the next tax payment year. If the losses cannot be fully offset in the next year, they may continue to be offset in the following year, but the longest offsetting period shall not exceed five years.

(5) Preferential terms in pre-deduction of income tax

     a. Profits obtained by foreign investors from foreign-funded enterprises are exempt from the income tax.

     b. Incomes from the interests on loans extended by international financial institutions to the Chinese government and the incomes made by state-owned banks from interests are exempt from the income tax.

     c. Incomes made by foreign banks from the interests of loans with preferential interest rates extended to Chinese state-owned banks are exempt from the income tax.

     d. With respect to the royalties derived by providing patented know-how for scientific research, energy development, the development of the transport sector and production of agriculture, forestry and animal husbandry, as well as the development of important technology, with the approval of the competent taxation department of the State Council, the income tax may be levied and collected at the reduced rate of 10%; and those with advanced technology or with preferential terms can be exempted from the income tax.

In terms of the local income tax, people's governments at all levels have also set preferential terms for reduction of and exemption from the local income tax.

(6) Encourage foreign investment in technical development and innovation

a. For the technical transformation of the established encouraged, Class B foreign invest mont. Enterprises, foreign-invested Research and Development Centers and foreign investment enterprises with advanced technology and whose products are for export, if the enterprises need to import device which can't be made internally or whose functions can't satisfy their need and the supporting technology, attachments and accessories with in the former manufacture scope, the import tariff and import tax may be exempted according to the Information for Adjusting Import Device Tariff by the State Council.

For foreign-invested Research and Development Centers, with the total amount of investment, imports of equipment for their own use and matching technology, spare parts and components ( excluding the commodities specified in the Catalogue of Import Commodities Subject to No Tax Exemption in Foreign-incested Enterprises, vessels, aircraft, special kinds of vehicles and construction machinery ), which are also used for labortories that do not reach a production scale or fall into the scope of intermediate angents, are exempted from the import tariff and the import stage tax.

b. If the foreign investment enterprises belonging to the encouraged or the restricted class B want to purchase domestic device within the total investment value, and if the device belongs to the scope in which import tax can be exempted, their domestic-device value0added tax can be filled returned. If foreign investment enterprises perform technical transformation in accord with national industrial policies and produce hi-tech products, the business income tax of the device purchased may be exempted according to relevant regulations.

c. If the research and development centers established by foreign investors import self-use device which can't be made domestically or whose functions can satisfy their needs, as well as the supporting technology, accessories and attachments within the total investment value, their import tariff and import tax can be exempted according to the Information for Adjusting Import Device Tariff by the state Council.

d. Exempt business tax of foreign enterprises transferring technology to China; if their technology is advanced and conditions are preferential, their business income tax can be exempted approved by the State Council Taxation Authority, The business tax for the technical transformation income of foreign investment enterprises (including research and development Centers) can be exempted.

e. If the technical development cost of foreign investment enterprises rises by 10 per cent than last year, with the approval of taxation authorities, 50 per cent of the real technical development cost may balance the income tax of current year, just according to the Administrate Measures for Before-tax Deduction of Enterprise Technical Development Cost by the State Tax Burma.

In terms of the local income tax, people's governments at all levels have also set forth more preferential terms for reduction of and exemption from the local income tax.

II. Tariffs  

To further increase the use of foreign funds, as of January 1, 1998, China does not levy tariffs or the import link value-added tax on?imported equipment and technology and a reasonable amount of imported accessories for importers own use and parts imported together with the equipment in accordance with contracts for the projects involving foreign investment that fall under the category of encouragement and the category B of restriction in the Guidance Catalog for Industries Seeking Foreign Investment, as well as foreign government loans and loans extended by international financial institutions, except for the commodities listed in the Catalog of Imported Commodities Not Subject to Tariff Exemption for Projects Involving Foreign Investment.

What should be noted is that China's tax laws provide for many preferential terms and that foreign investors enjoy a whole range of preferential terms. They are advised to employ a public accountants office with a good knowledge of China's tax laws to make arrangements from the commencement of their investment.

Section III:?Forms of Investment

I. Frame of Foreign Investment Laws

Laws and regulations for foreign investment enterprises mean the total of legal norms formulated by China to readjust the economic relations of foreign investment in the Process of establishment,alteration,termination and management control.

Laws and regulations for foreign investment enterprises mainly in dude The three basic laws: Chinese-foreign Joint Ventures Law The Chinese-foreign Co-operative Enterprise Law The Foreign-funded Enterprise Law and their implementing regulations. For foreign investment limited liability companies, adapting to The Company Law; but if there are any other regulations in the above-mentioned three, adapts to them. The contracts of Chinese and foreign investors in establishing foreign investment enterprises are foreign economic contracts, bound by The Company Law of our Country.

Besides, aiming at the establishment, management, termination and dearing of foreign investment enterprises, our country have correspondingly formulated a series of laws, regulations, rules and measures, formed a whole set of more complete system of laws and regulations, and effectively protected the legal rights of domestic and foreign investors.

In order to heighten the investment security sense of foreign investors and protect the legal rights of enterprises, Chinese government, with relevant countries, has signed a treaty to encourage and mutually protect investment and a treaty to avoid double taxation.

II. Basic Forms of Foreign Direct Investment

Our country attract foreign investment, direct investment generally in ways of and other ways. Mostly adopted direct investment ways are Sino-foreign joint ventures Sino-foreign co-operative enterprises, wholly foreign-owned enterprises and cooperative development Other investment includes compensation trade, processing and assembling, etc.

1. Sino-Foreign Joint Ventures

Sino-Foreign Joint Ventures may also be called equity joint ventures. It is established by foreign companies, enterprises and other economic organizations or individuals and Chinese counterparts to invest to invest together in China (Rights and duties of each bide are stipulated in the contracts signed by different sides ).

Its characteristics are as follows:all joint side invest together, manage together, share risks according to the investment proportion and share losses and benefits,Investment of every side should be converted to investment proportion and the proportion of foreign investment can't shill ranks a considerable proportion in attracting foreign investment.

2. Sino-Foreign co-operative enterprises

It can also be called contractual joint ventures.

In establishing this kind of enterprises, usually foreigners provide all or most of funds, Chinese enterprises or individuals provide land,factory buildings,available device and facilities, some of which also provide some fund.

3. Wholly foreign-owned enterprises

It means enterprises established in china by foreign companies,enterprises,other economic organist or individuals, according to china's Laws, in which all the funds are invested by foreign investors.

According to the stipulation of the foreign Investment Enterprise Law, establishing this kind of enterprises should favor the development of our national economy, and at least meets with one of the following: adopting advanced international technology and device, most or au products exported. The form of it is commonly Limited Liability Company.

4. Cooperative development

It is the short form of offshore and Land co-operative oil prosecution and development 2t is now a way of economic co-operation widely adopted in international natural resource field. 2t5 characteristics are high risk,high investment and high benefits. The process is usually divided in to three stages: prosecution-development and manufacture. 2t only rank s a small rate compared with the former three kinds.

5. New investment means

When we gradually broaden investment fields and further open domestic markets, we also positively explore and broaden new means to utilize foreign funds.

(1) BOT: The BT Items in the field of projects for basic facilities have been tried For example, the BOT Item in Guangxi Laibin Electric Power Plant has been approved.

(2) Investment Company: In April 1995, the Foreign Trade and Economic Administration published Temporary Provisions On Foreign Investment Running Investment Companies, so as to encourage Large overseas companies to develop their serial investment plans. Up to now, more than 160 investment companies have been set up, whose investment activities have been constantly broadened.

(3) Foreign Investment stock Company: Stock companies may be set up in ways of initiation or collection. The present foreign investment limited liability companies may apply for alteration in to joint stock companies limited.

(4) Incorporative purchase: Trans-international inoperative purchase has come to one of the main ways of direct international investment. At present, our country is researching and formulating relevant policies. 

III. Establishment and Termination of Enterprises

1. Establishment Procedure

According to the current rational laws and regulations, in establishing foreign investment enterprises, a term wise government approval and registration system is being carried out, In applying for establishment of China-faeigu joint ventures and co-operative enterprises, four steps are generally needed:

(1) Submit item propositions for establishing enterprises; after the approval from relevant Departments C Project admin is triton or technical transformation administration, investors may embark on work with item feasibility study as center;

(2) Submit reports on item feasibility study. After approval, investors may negotiate and sign Laws and documents such as contracts and statutes of establishing enterprises;

(3) Submit contracts and statutes of establishing enterprises; after approval from foreign trade administrations, the Approving authorities may issue approval license to foreign investment enterprises.

(4) Investors may go through formalities in industrial and commercial administrations with the approval license issued by approving authorities.

The procedure of establishing foreign funded enterprises is easy, After initial item application is approved in a written form by the governmental approving authorities, relevant documents such as formal application and company statutes may be submitted. After approval, investors may go through formalities of registration with approval license.

2. Time limit for operation and enterprise termination

(1)    Time limit for operation

The time limit of foreign investment enterprises, usually 10-30years, 20years at longest, may be stipulated by investors through negotiation under national regulations in terms of specific conditions of different industries and items. If particularly approved by the State Council, time limit needs no stipulation. For foreign investment enterprises with appointed time limit for operation, when the expiration comes, their termination comes, If investors want to prolong the time of operation, they may apply to approving authorities for approval at least 180 days before the former time limit.

During the Period of enterprise operation, enterprises have self-operation power, and the government can't implement nationalization and collection about foreign investment enterprises, under special conditions, any collection in line with the need of social public interests should be done in accord with law procedures, and some relevant Compensation should be given to the enterprises.

(2) Termination

If any terminal conditions appear in foreign investment enterprises, the enterprises should submit termination application to approving authorities, with the approval date as that of enterprise termination.

3. Limits of approval powers

Our country implements Level-to-Level administration for foreign in vestment, the provinces, municipalities directly under the Central Government autonomous regions and singly-planned cities have powers to approve the investment value not more than US & 30 million. The items of restricted-class and above the limited level should be approved by the Foreign Trade and Economic Cooperation Administration.

Where projects fall into the category of projects constraining foreign investment, where projects fall into the category of projects whose conditions for construction and production are subject to comprehensive balancing by the State, where the export of products of projects is subject to the limitation of quotas or licensing, or where the approval of projects is beyond the jurisdiction of local authorities, competent authorities under the State Council the highest governing body of China shall be responsible for their approval.?Where projects fall into the category of projects of service trades whose establishment is restricted, such as projects for the construction of airports, hotels and commercial retail outlets, projects of leasing, cargo transportation agency, banking and insurance, and projects for the incorporation of investment companies and joint stock companies, competent authorities under the State Council shall be exclusively responsible for their approval.

For projects which do not fall into the aforesaid categories, governments of Chinese provinces, autonomous regions or provincial-level municipalities concerned or government agencies authorized by them shall be responsible for their approval. The jurisdiction of local governments for the approval of foreign-funded projects only covers projects with a total investment of no more than 30 million U.S. dollars each. After a foreign-funded project is established with the approval of a local government, the party concerned shall submit relevant documents to competent authorities under the State Council for record in line with relevant regulations. In order to simplify the procedure for official approval of foreign-funded projects and shorten the time for the approval, Chinese provinces, autonomous regions or provincial-level municipalities may transfer the power of approval to lower levels within their jurisdiction in accordance with concrete local conditions.

Section IV: Bilateral Investment Protection Agreements and Bilateral Taxation Agreements  

I. Bilateral Investment Protection Agreements

Since 1982, China has signed investment protection agreements with 70-plus countries including Britain, Germany, France, Japan, Australia, the Republic of Korea and Malaysia. Up to Dec. 31, 1999, China has signed Bilateral investment protection agreements with 93 countries( regions ).

In accordance with the principle of Chinese laws, investment protection agreements fall under the category of international treaties, with their validity being higher than domestic laws.

Bilateral investment protection agreements China has signed cover the contents in the following areas:

1. Types of investment property under protection

The agreements stipulate explicitly that property within the scope of jurisdiction of the investment protection agreements includes movable property, estate, corporate shares, stocks, copyrights, industrial property rights and royalties.

2. Terms offered by host country to investors investment and their business activities related to investment

In the investment protection agreements, the Chinese government commits itself to granting fair and reasonable treatment to foreign investors investment and their business activities pertaining to investment, and to treating investors from all countries equally, namely, foreign investors can enjoy the most favored nation status in accordance with the investment protection agreements.

3. Measures of requisition and nationalization of investment property of foreign investors and related compensation

In the investment protection agreements, to protect foreign investors interests, China commits itself not to nationalize investment property of foreign investors. If, under special circumstances, it is necessary to requisition such property in the social and public interests, China will offer fair and reasonable compensation in accordance with applicable domestic legal procedures and on the non-discriminatory basis. The compensatory amount will be paid in a freely convertible currency and is permitted to be remitted abroad freely.

4. Remittance of investment and related proceeds

The investment protection agreements state that a foreign investor's investment and legitimate proceeds can be remitted out of China freely from the foreign currency bank account of a foreign-financed enterprise.

5. Settlement of investment disputes

Investment disputes incurred by foreign investors in China with the government currently can be resolved, in principle, only in a court within China's jurisdiction. To take foreign investors interests into account, as regards compensation for requisition and nationalization, the Chinese Government permits the submitting of disputes for international arbitration. China now has joined the Convention on Solving Investment Disputes between States and Nationals of Other Countries. So, the Chinese Government is also considering expanding the scope of permitting the submitting of disputes for international arbitration.

Apart from the above stipulations, investment protection agreements include clauses in which a host country promises to honor its commitments, seeks compensation for investment insurance, and the use and validity of the agreements. Investment protection agreements can be described as a macro-guarantee system encompassing all investors investment activities.

II. Bilateral Taxation Agreements

To solve taxation problems between countries, since September of 1983, the Chinese Government has officially signed agreements on comprehensively avoiding dual taxation and preventing tax evasions with 65 countries/regions ( till Dec. 31, 1999 ) including Japan, France, and Britain, etc.

1. Scope of agreements application

The scope of the agreement's application to persons is limited to residents of signatory countries, including legal person residents and natural person residents. The range of tax categories applicable to the agreements mainly covers categories of the income taxes levied and collated. The tax categories listed by China so far are the enterprise income tax, the local income tax and the personal income tax.

2. Contents of taxation agreements and agreement-provided treatment beneficial for investment

The taxation agreements China has signed with other countries adopt the model for the clause structure of the United Nations and the model for the Organization for Economic Cooperation and Development (OECD), whose focus is on stipulating, according to different types of incomes, a number of taxation terms beneficial for investment.

(1) Tax levy on business profits takes the permanent office as the limit. As for the profits made from within the territories of China by enterprises of a signatory country which have not set up permanent offices in China, they may choose not to pay the income tax in China. Likewise, Chinese enterprises also enjoy the same treatment in other signatory countries.

(2) With regard to incomes derived from stock dividends, interests and the use of royalties, the country which is the origin of the incomes will enjoy priority in exercising the tax-levying right and will levy taxes at restricted tax rates, so that residents of one signatory country can pay taxes at a fairly low tax rate on the incomes derived from investment in the other signatory country. Restricted tax rates set by the tax agreements China has signed with other countries generally do not exceed 10% of the total of stock dividends, interests and the fees for the use of royalties.

(3) For the levy of taxes on incomes derived from property and proceeds from property, the country where estate lies exercises the tax-levying right.

(4) For the levy of taxes on the incomes derived from remuneration for personal labor services, in principle, only the country whose residents the earners are can levy the taxes; but for the incomes made from labor service in the other signatory country, if they meet the restricted requirements, taxes can be levied in the other signatory country.

3. Methods to eliminate dual tax levy

China takes the tax revenue deduction method to eliminate dual tax levy. The tax agreements China has signed with other countries generally contain clauses that regard reduced and exempted tax as the whole amount of tax collected and permits that amount as deduction, i.e., as regards taxes of investors that are either exempted or reduced in China, after the investors return home, the other signatory country should grant reduction and exemption according to the absence of tax payment, that is, the whole amount of tax should be deducted from the taxes paid by the investors in that country.

4. Procedures on enjoying agreement-provided terms

To enjoy tax terms as granted by tax agreements, trans-national investors shall observe the rules governing the procedures formulated by the signatory countries for the implementation of tax agreements, provide relevant certificates and handle necessary procedures for applications.

Section V: Points for Observation Concerning Management of Enterprises

As independent corporations, foreign-funded enterprises can independently operate their business once they are approved by the government's reviewing and approving authorities and once they are registered by competent administrative authorities for industry and commerce. There is no relationship of administrative affiliation between the Chinese government and foreign-funded enterprises, but foreign-funded enterprises, in their production and business operation, must accept the guidance and supervision by the Chinese government in line with law, government regulations and relevant policies.

I. Use of Land

China applies the system of public ownership of land, which comes in two forms the ownership of land by the State and the ownership of land by collectives. The land in urban areas is owned by the State while the land in suburban and rural areas is owned by collectives except for the part otherwise defined by law as owned by the State.

1. There are generally five ways in which foreign-funded enterprises can obtain the right to use State-owned land:

(1) Compensated Transfer: The State, in the capacity of the owner of land, transfers to foreign-funded enterprises the right to use land for a number of years, and the latter shall pay the land-use right transfer fee in one lump. Foreign-funded enterprises can obtain the right to use land transferable through the invitation of tenders and auctions or in the form of signing agreements. In obtaining the right to use land, foreign-funded enterprises shall sign contracts on the transfer of land-use right with land administration authorities, fully pay the land-use right transfer fee in line with relevant provisions of the contracts, and go through the formalities for the registration of land before receiving the certificate of land-use. The right to use land obtained in this way can be re-transferred, leased or mortgaged.

(2) Administrative allocation: In this way, foreign-funded enterprises shall sign contracts for land-use with land administration authorities, go through the formalities for registration and obtain the certificate of land-use. Under such an arrangement, users of land shall pay the government the land development fee in one lump and are liable to pay the land-use fee on an annual basis.

(3) Offer of land by Chinese partners as investment in equity joint ventures or contractual joint ventures: This way refers to the approach that Chinese partners buy shares or propose conditions for cooperation by offering their workshop buildings, equipment and land through evaluation as investment to form with foreign investors equity joint ventures or contractual joint ventures.

(4) Leasing of real estate and sites: In this way, foreign-funded enterprises directly lease real estate and sites from State-run enterprises, collectively-own enterprises in urban areas or township businesses, and pay rents to the latter. It is noteworthy that in this way, Chinese enterprises actually lease real estate together with the land-use right. Where the land leasable by Chinese enterprises has been obtained through the transfer of land-use right, the leasing shall fall into the category of legal business operations. Where the land leasable by Chinese enterprises has been obtained through administrative allocation, the parties concerned shall go through the formalities for the transfer of land-use right retrogressively and pay the land-use right transfer fee. Otherwise, the leasing shall be viewed as an illegal act.

(5) Retransfer:?In line with relevant regulations, foreign-funded enterprises can also obtain the right to use land for a number of years from other users of land in the form of retransfer.?Under such an arrangement, the number of years available to use the land retransferred shall be the remaining years from the total of years for using the land minus the number of years which have already elapsed.

2. There are generally two ways in which foreign-funded enterprises can obtain the right to use collectively-owned land:

(1) Under Chinese law, collectively-owned land shall first of all be converted into State-owned land through expropriation by the State before it can be transferred to foreign-funded enterprises for use. No collectively-owned land may be directly transferred or leased.

(2) Collectively-run economic organizations in rural areas or township businesses can buy shares or propose conditions for cooperation by offering their collectively-owned land through evaluation as investment to form with foreign investors equity joint ventures or contractual joint ventures. However, joint venture projects of such a nature are subject to approval by people's governments at the county level or higher.

3. Points for observation:

(1) Where investment projects involve the conversion of farmland into land for construction purposes, the conversion shall be required of prior approval by the Central Government no matter how small or large the land involved will be, and no matter whether the land involved will be expropriated.

(2) Where investment projects involve the expropriation of land from collectives of farmers, the expropriation shall be approved by the Central Government or provincial governments.

For the expropriation of basic farmland, it shall be approved by the Central Government;

For the expropriation of cultivated land other than basic farmland, it shall be approved by the Central Government where the expropriation involves land of more than 500 mu (33 hectares), or it shall be approved by provincial governments where the expropriation involves land of less than 500 mu (33 hectares);

And, for the expropriation of other types of land, it shall be approved by the Central Government where the expropriation involves land of more than 1,000 mu (67 hectares), or it shall be approved by provincial governments where the expropriation involves land of less than 1,000 mu (67 hectares).

(3) For the use of large areas of land for the construction of investment projects and line-shaped projects such as highways and railways, the expropriation shall be approved by the Central Government.

For the development of land for participation in implementing the general urban development planning on a unified basis, it shall be approved by the Central Government.

(4) No governments under the provincial level have the authority to approve the conversion of farmland into land for other purposes or the expropriation of all types of land.

II. Environment Protection

The protection of environment is a fundamental national policy of China. Over recent years, China has enacted and enforced a series of laws and regulations to protect the environment and natural resources, and to prevent the air, water and sea from pollution. When preparing feasibility study reports on the establishment of foreign-funded projects, the investors concerned shall have to submit to environment protection administration authorities reports on possible impacts of the projects upon the environment. The State will not approve any foreign-funded projects that will produce or will likely produce pollution of the environment. When projects are completed, the investors concerned shall have to report to the environment protection administration authorities which have originally approved the establishment of the projects. The latter will check the environment protection facilities of the projects to see whether they are technically acceptable. When the environment protection facilities of projects are found to be unacceptable, the projects may not be put into operation and production. In their routine operation, foreign-funded projects shall have to accept the supervision and management of environment protection administration authorities.

III. Management of Labor Force

Foreign-funded enterprises in China have the full decision-making power in employment, and no government authorities or institutions are entitled to interfere in this regard. However, in an effort to safeguard the legal rights and interests of workers, China has enacted the Labor Law of the People's Republic of China and the Decision of the State Council on Work Hours of Employees as well as other laws and regulations.

1. Enterprises can independently employ personnel. But they may not use child labor. Nor may they assign women to do work specified by the State as unsuitable for women.

2. Normally, foreign-funded enterprises are not allowed to employ general personnel overseas, including those from Hong Kong, Macao and Taiwan.

Where enterprises wish to employ needed personnel with special skills unavailable in China, including senior technicians and senior managers, they must apply to labor management authorities for approval before proceeding to employ personnel overseas and go through the formalities for their overseas employees to reside and work in China in line with relevant regulations.

3. To legally dismiss workers is a proper right of enterprises. However, in an effort to prevent enterprises from arbitrarily dismissing workers, the State has defined a category of conditions prohibiting the dismissal of workers, covering the period of medical treatment of workers suffering industrial injuries, pregnancy, childbirth and breast-feeding on the part of female workers, etc.

4. The monthly remuneration paid by enterprises to their employees may not be lower than the minimum level of salaries defined by local governments.

5. Employees shall work eight hours per day and 40 hours per week. The income of employees may not be cut back.

Out of necessity of production or operation, employers may extend the work hours after consultations with the Trade Union and workers concerned. Normally, the work hours may not be extended by more than one hour per day. Where the work hours have to be extended by more than one hour per day because of special reasons, the extension may be made under the condition that the health of workers is guaranteed, but it may not exceed the ceiling of three hours per day and a total of 36 hours per month.

Where workers are assigned to work overtime, the employer shall pay extra remuneration of no less than 150% of the normal wages. Where workers are assigned to work on days off and the employer can not arrange other days off for the workers, the employer shall pay extra remuneration of no less than 200% of the normal wages. Where workers are assigned to work on official holidays, the employer shall pay extra remuneration of no less than 300% of the normal wages.

Enterprises shall assume some legally defined responsibilities for the welfare, insurance and production safety for workers.

IV. Import and Export

In line with Chinese law and government regulations, foreign-funded enterprises have the right to independently operate the import and export trades as of the date of their establishment. They are eligible to independently import machines, equipment, raw materials, fuel, spare parts and components, auxiliary equipment, elements, devices, means of transportation, office equipment and other supplies needed for their production and operation within their scope of business approved, and independently export their products. They may also commission other foreign trade enterprises to import and export the aforesaid supplies and products on behalf of them. Presently, China does not allow foreign-funded enterprises to import supplies which are not needed by themselves or export products which are not produced by themselves. However, for the purpose of balancing their foreign exchange accounts, foreign-funded enterprises, with the approval of relevant reviewing and approving authorities, may purchase part of the products produced by other enterprises in China and export them to earn hard currencies. The volume of exports under such an arrangement is restricted to balancing the foreign exchange account only. Foreign-funded investment companies may act on behalf of the enterprises in China in which they have invested in importing supplies for their own use, and exporting products produced by themselves as well. Foreign-funded commercial retail enterprises may purchase part of the products produced in China and export them to earn hard currencies, with the approval of competent authorities.

In importing supplies and exporting products, foreign-funded enterprises can contact customs authorities to go through the formalities for import and export with import and export contracts under most of the circumstances. In importing and exporting commodities whose import and export are restricted by the State (including commodities whose export is restricted under bilateral agreements) under a few circumstances, foreign-funded enterprises shall have to apply for import and export quotas and obtain import and export licenses.

1. Import management

Where the import of machines and equipment offered by foreign investors as investment is covered by import quotas and is managed with import licensing, the investors concerned shall apply for import licenses. Where foreign-funded enterprises plan to import supplies (except for special commodities) needed for producing goods destined for domestic sales within their scope of business approved, they shall obtain the quota certificate in advance and take the quota certificate to contact issuing authorities to apply for import licenses if the import of the supplies is covered by import quotas and is managed with import licensing. Where foreign-funded enterprises need to import supplies (except for special commodities) needed for implementing relevant contracts for export of products, they are generated exempted from obtaining the quota certificate and import licenses. The import of supplies under such a condition is supervised and managed by customs authorities, and the imports shall be checked in with relevant contracts of the enterprises or import-export contracts. In importing non-quota commodities which are subject to automatic registration, foreign-funded enterprises concerned shall obtain the registration certificate in advance before going through the customs formalities.

2. Export management

For the establishment of foreign-funded projects designed to produce goods to be covered by export quotas and to be managed with export licensing, the investors concerned shall gain prior approval from competent authorities for foreign trade and economic cooperation in the period of registering the projects. When the projects are put into operation, the operators concerned shall apply for obtaining export licenses once every six months, in keeping with the total export volume approved by competent authorities for foreign trade and economic cooperation. Since 1994, China has been adopting the approach of inviting tenders for part of the quotas of exports. All foreign-funded enterprises meeting relevant requirements are eligible to offer tenders for the part of export quotas, to obtain them through open competition.

Before handling business affairs involving supervision or management by customs authorities, foreign-funded enterprises shall first of all accept examination and approval by customs authorities and go through customs formalities for the registration of enterprises.

V. Foreign Exchange Control

The Chinese yuan, or Renminbi, has so far not been a freely exchangeable currency. Therefore, in accordance with the Regulations on Foreign Exchange Control of the People's Republic of China and the Rules for the Implementation of Foreign Exchange Control Regulations Relating to Enterprises with Overseas Chinese Capital, Foreign-Capital Enterprises and Chinese-Foreign Equity Joint Ventures as well as other official regulations, competent authorities exercise supervision and control over foreign exchange.

For foreign-funded enterprises whose establishment has been approved by competent authorities, when they have obtained the business license issued by the authorities for industry and commerce, they are required to contact local authorities for foreign exchange control to have their foreign exchange registered. Then, the local authorities for foreign exchange control will examine and check the basic conditions of the foreign-funded enterprises concerned, including their investment forms and ratios, sources of funds, sources of revenue and expenditure of operating foreign exchange, proportions of products for domestic sales and exports, forms to shares the foreign exchange profits and measures to reach the foreign exchange equalization. After examining and approving all these conditions, the local authorities for foreign exchange control will go through the procedure for the enterprises concerned to register their foreign exchange before issuing them the Certificate on Foreign Exchange Registration for Foreign-Funded Enterprises.

With the Certificate on Foreign Exchange Registration for Foreign-Funded Enterprises, foreign-funded enterprises may directly open their foreign exchange accounts with a foreign exchange bank designated by Chinese authorities or a foreign-funded bank in China.?According to relevant official regulations, all activities of foreign exchange receipts and disbursements of a foreign-funded enterprise must be conducted through its foreign exchange account with a bank in China, except for those otherwise approved by the State.

Starting on July 1, 1996, China will include overseas-funded enterprises in the foreign exchange selling-and-buying system, overseas-funded ventures can sell and buy foreign exchange to or from designated banks. Compared with the domestic firms, overseas-funded ventures still enjoy some preferential treatment. They can still trade their foreign exchange at swap centres. Meanwhile, overseas-funded ventures are allowed to open foreign exchange settlement accounts for the transaction under current account and special foreign exchange accounts for transaction under capital accounts. The State Administration of Exchange Control set the ceiling amount for the foreign exchange settlement accounts according to overseas-funded ventures paid-out capital and demands for fund circulation. Foreign banks, their branches and Sino-foreign joint ventures are allowed to act as designates banks.

The authorities for foreign exchange control conduct annual examinations and routine spot-checks on the operation of foreign exchange accounts of foreign-funded enterprises. 

VI. Others

Foreign-funded enterprises are also required to thoroughly understand and abide by China's systems governing the management of financial affairs, business accounting, taxation and industrial and commercial affairs, etc.

Section VI: Establishment of Representative Offices in China

Where foreign enterprises need to establish permanent representative offices in China, they shall apply to competent authorities for approval and go through the formalities for registration. Without prior approval and registration, no foreign enterprises may establish permanent representative offices in China.

I. Applications of foreign enterprises for the establishment of representative offices in China shall be filed with the following competent authorities in accordance with the corresponding trades:

1. For enterprises of trade, commerce, manufacturing and cargo transportation agency, applications shall be filed with the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China for approval;

2. For enterprises of banking and insurance, applications shall be filed with the People's Bank of China for approval;

3. For enterprises of maritime transportation and maritime transportation agency, applications shall be filed with the Ministry of Communications of the People's Republic of China for approval;

4. For enterprises of air transportation, applications shall be filed with the Civil Aviation Administration of China for approval;

5. And, for enterprises of other trades, applications shall be filed with competent commissions, ministries and administrations of the Government of the People's Republic of China for approval, in accordance with the nature of their business.

II. In applying for the establishment of a representative office in China, the foreign enterprise concerned shall submit the following certificates and other materials:

1. An application signed by the president or managing director of the enterprise, which shall include the name of the representative office to be established, information on its top leaders, its scope of business, the duration of stay, its address, etc;

2. An official license to do business issued by competent authorities of the country or region where the enterprise is based;

3. Certificates of the credibility rating of the enterprise issued by financial institutions which have regular business relations with the enterprise;

4. And, letters of authorization for the personnel with the representative office appointed by the enterprise and the resume of the personnel.

For enterprises of banking and insurance applying for the establishment of representative offices in China, they shall also submit the annual statement of assets and liabilities, the annual statement of losses and gains, the charter of incorporation and the list of the members of the board of directors, in addition to the certificates and other materials required by preceding Items 1, 2, 3 and 4.

III. After the approval of the application of a foreign enterprise for the establishment of a representative office in China, the enterprise shall take the certificate of approval to contact the State Administration for Industry and Commerce of the People's Republic of China to go through the formalities for registration within 30 days counted from the date of approval. In going through the formalities for registration, it shall fill in a registration form and pay a registration fee before obtaining a registration certificate. Where a foreign enterprise fails to go through the formalities for registration by the deadline, it shall have to return the certificate of approval for revocation.

Appendix A:

Various Types of Special Economic Regions, Development Areas and Others of China Open to Foreign Investment

?/span>Appendix B:

A List of the Countries/Regions Signed Bilateral Economy and Trade Agreements, 
Investment Protection Agreements or Investment Protection Agreements with China  
(till Dec. 31, 1999)

Note:

A: bilateral economy and trade agreements

B: investment protection agreements

C: agreements on comprehensively avoiding dual taxation

2004-11-10 12:24