1.Forms of Investment

A. Sino-foreign joint ventures

Sino-foreign joint ventures are limited liability companies jointly set up in China by foreign companies, enterprises or other economic organizations or individuals and Chinese companies, enterprises or other economic organizations in which the participants share the profits and risks while jointly responsible for their operations. The parties to a joint venture shall share the profits, risks and losses in proportion to their respective contributions to the registered capital of the joint venture.

B. Sino-foreign cooperative ventures

Sino-foreign cooperative ventures are contract ventures jointly set up in China by foreign economic enterprises or other economic organizations or individuals and Chinese enterprises or other economic organizations. The contract for such a venture shall specify items including the conditions for participation, the sharing of the profits, risks and losses, recovery of the investment, management and business operations of the venture, and ownership of the remaining assets upon expiration or termination of the contract. A cooperative venture is different from a joint venture, in that in a coopertative venture, the capital contributions and the conditions for participation are not covered into shares, and that even if these are converted into shares, the cooperative venture's profits, risks, debts and the remaining assets upon termination or expiration of the contract may not necessarily be shared by the parties in proportion to their respective capital contributions. Besides, a cooperative ventures are more flexible in ways of capital recovery and business management.

C. Enterprises of sole foreign proprietorship

Enterprises of sole foreign proprietorship are enterprises set up in China by foreign enterprises or other economic organizations or individuals with the capital investment made exclusively by the foreign investors. Their owners are entitled to all the profits generated by such enterprises.

D. Foreign-funded joint stock companies

The entire capital of a foreign-funded joint stock company is composed of shares of equal value. The shareholders are responsible for the joint stock company by subscribing to shares, and the joint stock company is responsible for the shareholders by means of its assets in their entirety. A foreign shareholder shall be the legal representative of the joint stock company provided it has subscribed to and actually holds an amount of shares which, in value, are equivalent to at least 25% of the joint stock company's registered capital. The company may be started either by promotion or by placing.

E. Foreign-funded investment companies

These are limited liability companies engaging in direct investment, with the starting capital either exclusively contributed by the foreign investors or through joint venture with Chinese investors.

F. Foreign-funded financial organization

These refer to branches set up in China by foreign financial organizations, financial organizations of sole foreign proprietorship in China and with status of Chinese legal entity, and Sino-foreign joint venture financial organizations. Foreign-funded financial organizations already set up in China include banks, financial companies and insurance companies of sole foreign proprietorship. To qualify for application for permission to set up a foreign-funded financial organization in China, a foreign financial organization must own an amount of assets verified by the proper Chinese authorities as great enough. Besides, the applicant must be in a country where stringent financial control and administration are exercised, and have a representative office in China which has been operational for at least two years. To set up a foreign-funded financial organization in China, an application must be submitted to the proper authorities in accordance with the relevant laws and government decrees, and the application shall be forwarded to the financial authorities of the state for examination and approved.

G. BOT

For BOT (build-operation transfer), a typical case in point is found in the singing of a contract between the government and a privately-owned project company ( a foreign investor as in China) which obliges the project company to raise the funds for the construction of an infrastructure facility and actually undertakes its building. The project company shall own the facility within the contract period and be responsible fot its operation and maintenance while recovering the capital investment and reaping an appropriate amount of profits by collecting fees for use of the facility or for the services it renders. Upon expiration of the contrac, the ownership of the facility shall be transfered to the government gratuitously. BOT is used mainly for construction of infrastructure facilities such as highways, electric power facilities, railways, sewage treatment plants and urban underground railways.

H. Compensation trade

In a compensation trade project, the foreign party shall supply the equipment and technologies while purchasing a fixed amount of products produced by the Chinese party. The Chinese party shall pay for the equipment and technology in installments. Within the consensus of opinion reached through consultation between both parties, the loans used to import the equipment and technologies can be repaid with the products other than those produced with the imported equipment and technologies.

I. Processing with supplied materials and assembling with supplied parts

The foreign party shall provide the equipment, technologies, raw and auxiliary materials and parts for processing or assembling. The products thus produced shall be exported by the foreign party and the Chinese party shall be entitled to the processing or assembling fees. Meanwhile, the Chinese party may pay for the equipment and technologies in installments when buying them from the foreign party.

J. Leasing

Leasing means acquisition by a Chinese enterprise of the right to use advanced foreign equipment through payment of the rent prescribed in the leasing contract. Upon expiration of the leasing period, The Chinese enterprise may buy the equipment and, in that case, the leasor or the foreign party may provide technical services, raw materials, fuels and parts.

The following conditions shall have to be met in case of a foreign investor applying for approval to set up an investment company in China:

The applicant must have a good credit standing and be financially powerful enough to start an investment company. To be specific, the aggregate value of the assets owned by the applicant in the year prior to the application shall be no less than US$400 million, the applicant has already started an enterprise of sole foreign proprietorship in China to whose registered capital the applicant has contributed no less than US$10 million, and the applicant has own an approval for at least three projects in which the applicant intends to invest. The applicant may also be qualified for starting an investment company if he has already started at least tne production or infrastructure constructuction enterprises of sole foreign proprietorship in China to whose registered capital he has contributed no less than US$30 million.

The Chinese party to a joint venture investment company has to enjoy a good credit satnding and be financially powerful enough, owning an amount of assets valued at no less than 100 million yuan.

With the approval of the proper authorities, an investment company may engage in following business operations:

1. Investing in industries, agriculture, development of infrastructure facilities, energy development and other areas where foreign investment is allowed or encouraged by the state.

2. An investment company may, upon commissioning in written form by an enterprise in which it has invested and with unanimous agreement of its own board of directors, render the following services:

A. Assisting the said enterprises or acting as its agent in purchasement from abroad machinery, equipment and office facilities for its own use and raw and processed materials, parts, devices and accessories needed for its own production, and in marketing its products in and outside Chian while providing post-sales services.

B. With the approval and under supervision of the foreign exchange control authorities, helping the said enterorise balance its receipts and expenditures of foreign exchange.

C. Assisting the said enterprises in recruitment of personnel, technical training and market development and offering it consulting services.

D. Assisting the said enterprises in obtaining loans while providing guarantee for such loans.

3. Providing consulting services to its own investors.

2. Procedures for Establishing Foreign-Funded Enterprises

Examination and Approval of
the Contract and Articles of Association
Examination and Approval of Primary: