LAPRES & ASSOCIES - International law firm in Paris, cabinet d'avocats internationaux è Paris

DANIEL ARTHUR LAPRES

Cabinet d'avocats

Supplementary Provisions to the Provisions on the Establishment of Investment Companies by Foreign Investors

(adopted at the 5th executive meeting of the MOFCOM on May 17, 2006, promulgated with effect as of July 1, 2006)

I. Article 7 of the No. 22 Order shall be modified as: "A foreign investor shall use a convertible currency or the Renminbi profits it obtains within the territory of China or the lawful Renminbi proceeds it obtains due to share transfer or liquidation, etc. as the registered capital it contributes to the investment company. A Chinese investor may invest in Renminbi. If a foreign investor uses its lawful Renminbi proceeds as the registered capital and contributes to the investment company, it shall submit the Certificate of Verification issued by foreign exchange departments on the Renminbi proceeds within the territory of China and foreign exchange businesses under the capital account based on the re-investment of other lawful Renminbi proceeds and other relevant evidential documents and tax payment receipts. At least 30,000,000 US dollars of the investment shall be contributed within two years from the day when the business license is issued. And the rest of registered capital shall be fully contributed in five years as of the day the business license is issued."

II. An investment company is allowed to undertake the share business outsourcing of companies outside the territory of China.

III. Article 11 of the No. 22 Order shall be modified as: "The investment company undertaking goods import & export or technology import & export shall conform to Measures for the Record-keeping and Registration of Foreign Trade Operators; an investment company can handle the formalities of export refund in accordance with relevant provisions.

Investment companies may sell goods imported abroad by themselves and purchased at home by means of commission agency (with the exception of auction) or by wholesale. Sales of goods that are special or sold in the way of retailing or franchising shall be done in accordance with relevant provisions."

IV. An investment company shall be allowed to make strategic investment in listed companies in light of relevant provisions, and shall be considered as stockholders outside the territory of China of joint stock limited companies.

V. For the purpose of developing the product market, the investment companies satisfying the requirements as prescribed in the Order No. 22 may sell relevant products on trial before the enterprises they have invested start producing or new products thereof go into production.

VI. Article 16 of the Order No. 22 shall be deleted.

VII. Where a foreign investor contributes (or increases) capitals to an investment company with Renminbi profits it obtains within the territory of China or the lawful Renminbi proceeds it obtains due to share transfer or liquidation, etc., it may invest the whole or part of the registered capital to establish enterprises within the territory of China. An enterprise established with the aforesaid registered capital may apply for handling the formalities of foreign exchange registration of foreign enterprises and confirmation of registered capital verification to local foreign exchange administrations on the strength of the documents of approval issued by the examination and approval organ, by which an enterprise is set up with the above registered capital, and the documents of examination and approval on foreign exchange businesses under the capital account issued by foreign exchange administrations, by which a foreign investor contributes or increases the capital with the Renminbi proceeds and other lawful Renminbi proceeds, and the documents of written explanation issued by the investment company that the Renminbi investment is from the aforesaid registered capital. And it is unnecessary for the enterprise to handle the formalities of getting the document of examination and approval on foreign exchange businesses under the capital account once more.

Where an investment company of Chinese-foreign equity joint venture establishes an enterprise in China with the registered capital contributed by the Chinese investor in terms of Renminbi, it is unnecessary to conduct the formalities of foreign exchange registration of foreign-funded enterprises, foreign exchange registration of foreign investment in the form of foreign exchange upon transfer of stock rights, confirmation request for capital verification, foreign exchange registration of foreign investment, and other formalities related to foreign exchange control; it may normally conduct the procedures for confirmation of registered capital verification in light of relevant provisions on ordinary enterprises within the territory of China.

VIII. Subparagraph (1) of Paragraph (2) of Article 22 in the Order No. 22 shall be modified as: "The business as prescribed in Articles 10, Article 11 and Article 15 of these Provisions."

IX. Upon approval of the Ministry of Commerce, the investment company determined as the regional headquarter is allowed to engage in services of operative lease and financial lease.

X. The investment company determined as the regional headquarter is allowed to entrust other domestic company with producing or processing its products and selling them at home and abroad, and engage in processing trade of selling all products abroad.

XI. With approval of foreign exchange administrations, the investment company functioning as the financial center or capital management center and determined as the regional headquarter may have central management on the foreign exchange capital of its associated companies within the territory of China, and may open an offshore account at banks within the territory of China and have central management on the foreign exchange capital of its associated companies outside the territory of China and the foreign exchange capital of its associated companies within the territory of China approved by foreign exchange administrations to lend loans abroad. Businesses between offshore accounts and other accounts shall be managed as transactional capital.

XII. An investment company shall report the information on investment and operation of the last year to the Ministry of Commerce for archival purposes in compliance with the prescribed contents, format and means. And it shall report relevant information to the Ministry of Commerce in a timely manner. The Ministry of Commerce shall undertake the obligation to keep confidential as to the information reported by investment companies.

XIII. Where an investment company fails to report the relevant information as requested in Article 12, the Ministry of Commerce shall handle it in accordance with the relevant provisions.

XIV. These Provisions shall come into force as of July 1, 2006. In case any discrepancy exists between the Order No. 22 and these Provisions, the latter shall prevail.