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China's Attracting Foreign Investment Policy

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 China-foreign joint ventures China-foreign co-operative enterprises, wholly foreign-owned enterprises and cooperative development Other investment includes compensation trade, processing and assembling, etc.

(I) China-foreign joint ventures.

China-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. China-foreign ).

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.

(II)China-foreign co-operative enterprises

2t 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.

(III)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.

(IV)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.

(V)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. Management Procedures for Foreign Investment Enterprises

(I) 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.

(II) 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.

(III) 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.

IV. Basic China Policies for Attracting Foreign Investment

(I).Industrial policies

1. Temporary Provisions and Master List

In order to make foreign investment further meet the national industrial development

direction and avoid blind investment, in sune1995, our country formulated and published Temporary Provisions for Direction of Foreign In vestment and M aster List for Foreign Investment Industries, 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 our economy, in DECEMBER 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 list 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. For the foreign investment utilization in the field of service trade, 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

When further giving full scope to eastern regions in opening to the world and utilizing foreign investment and supporting eastern regions to develop fund-intensive and tech-intensive in dustries and export industries, we'll take powerful measures to guide and encourage foreign investment to the middle-and western regions.

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 Master List 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-Ivestern 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)Tax Policy

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, taxes for foreign investment enterprises and foreign individuals ( including compatriots in Hong Kong, Macao and Taiwan): business income tax,Personal income tax, turnover tax (value-added tax,Consumption tax and business tax included) ,tariff, land increment tax,,resource tax,urban real estate tax. etc.

1. Income tax

(1) Income tax rate: The government collect business in come tax from foreign investment enterprises at the rate of 33 per cent, but only 15 percent from enterprises in special economic zones, the national hi-tech industrial zones and national-grade economic and technical development zones: 24 percent from enterprises in open coastal regions and capital cities of local provinces.

(2) Reducing-tax policy: Foreign investment enterprises may enjoy the treat meat of which business income tax may not be collected during the first two years after their beneficial year and half collected during the next three years; for foreign investment enterprises encouraged by the state in the middle-and-western regions, after the expiration of 5 years' tax collection reduction or exemption, the government con prolong for another 3 years to collect half income tax. For advanced technology enterprises established by foreign funds, their income tax may be exempted For two yens and half collected for later six years; for export enterprises, apart from the preferential treatment of two years' exemption and three-year half reduction, if their yearly export value amounts to over to per cent of gross enterprise sales, they may enjoy the preferential treat meat that half of business in come tax is reduced; if foreign investment purchase domestic device in the range of investment sum, and if this kind of import device belongs to the list of device whose tax is exempted, their business income tax may be of credit.

2. Turnover tax

(1)Since January 1, 1994, we have implemented value-added tax, consumption tax and business tax for foreign in vestment enterprises in accordance with domestic enterprises, exempted business tax for the technical transformation of foreign enterprises and foreign investment enterprises, If foreign investment enterprises purchase domestic device in the range of total investment and the device belongs to the list among which import tax of goods can be exempts the value-added tax of dogmatic device can be completely given back.

3. Import tax

(1) Tariff rate: Chinese government has reduced import tariff rate for eight times since 1991, The current tariff rate is down to 16.5 per cent.

(2) Duty exemption of import device: At present, if device needs importing for foreign investment and domestic investment items encouraged and supported by the state, the tariff and import value-added tax can be exempted.

Current policies to encourage foreign investment

In order to further attract foreign funds, encourage the import of advanced device and technology, promote the adjustment of industrial structure and technical advance, maintain the fast constant healthy development of national economy, in August 1999, the Foreign Economic and Trade Administration, the State Planning Commission, the State Economic and Trade Commission, the National Ministry of Finance, the People's Bank of China, the Custom Bureau, the General State Tax Bureau, the State Exchange Authority and the State Entry and Exit Test Bureau formulated some relevant policies to further encourage foreign investment.

(I) Encourage foreign investment in technical development and innovation

1. For the technical transformation of the established encouraged, Class B foreign invest mont. Enterprises, foreign investment 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. In order to broaden the export of foreign investment enterprises, with the approval of the tax authorities, the old foreign investment enterprises established before 1993 can be permitted to export commodities and before the year 2000, adapt to the policy"No collection, No return or" "No balance"(one policy only)

(II) Lighten the financial support for foreign investment enterprises

1. 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.

2. 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.

3.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.

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

5.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.

(III) encourage foreign investors to invest in the middle-and -western regions

1. the list of advantageous foreign-investment-used industries and items formulated by the provinces, autonomous regions and municipalities directly under the central government in the middle-and-western regions may be complemented after approval of the state. The items in the list may enjoy the treatment the encouraged class in the Master list for Foreign Investment Industries; if they import self-use device that can't be made domestically or whose functions can't satisfy their need, as well as the supporting technology, accessioning and attachments, the import tariff and import tax may be exempted according to the Information for Adjusting Import Device Tax Policy by the state council.

2. Broaden the condition limits for the middle-and-western regions to establish foreign investment enterprises and broaden the field of their attracting foreign investment, breaded the stock proportion limit for foreign investors in establishing foreign investment enterprises in the middle-and-western regions.

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

4. If foreign investment enterprises reinvest in the middle-and-western regions and the foreign funds amount to 25per cent of the total of item, they may enjoy the treatment as foreign investment enterprises.

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

6. Permit provinces autonomous regions and municipalities directly and the central Government in the middle-and-western regions to choose a built development zone in their capital cities, applying for a national-grade economic and technical development zone.

(IV) perfect the administration and service for foreign investment enterprises

1. Readjust the Master hist for Foreign Investment Industries at proper time according to the development of economy. In order to meet the demands of broadening the opening up and of drawling foreign Investment, we should reduce the items which demand Chinese to keep stock and don't permit foreigners to invest solely in the above-mentioned list.

2. All the foreign investment items belonging to the encouraged and don't need the synthetic balance may be approved by provincial people's government and report to the State Planning Commission the State Economic and Trade Commission and the Foreign Economics and Trade Administration for arecord. After the three national authorities receive the report, they should give an answer within a month if there is any question. The relevant authorities and local people's governments should further simplify the approval procedure for foreign investment items and establishment of enterprises, and accelerate the approval.

3. Perfect the network checking system of bills of entry checking the authentity of exchange sale wider current account, and shorten the check time; ender special conditions, there may be no possibility of network check system of entry bill, and only correspondence can be used, the check should be speeded up. Foreign investment enterprises may change the deposit in foreign exchange account into fixed deposit within the limited range. According to lex Sinus, the approval rights of the settlement for capital item exchange in come may be sent out and cancel the record and registration system for the settlement of capital item exchange income.

4. Minimize the restrictive evaluation scope for foreign investment enterprises to import device and perfect ways of appraisal; don't implement restrictive evaluation for foreign-funded enterprises in importing device. Normalize the Customs administration, raise the efficiency and accelerate the customs passing. Stop the arbitrary charge. unformed check and unjustified financial levies, for foreign investment enterprises.

5. Foreign investment enterprises which attain land-use right in the way of selling needn't hand in land-use charge.

6. Clear the policies and regulations about foreign investment enterprises, be quick to readjust the policies and regulations not good for drawing foreign funds and perfect the policies and regulations about foreign investment.

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