On 21 January 2005, Ministry of Commerce (“MOC”) circulated a notice to related commerce administration authorities of all provinces, autonomous regions, municipalities and separately listed cities, Shanghai Foreign Investment Committee，all the Economic and Technological Development Zones of state level (“the Circular”), in which MOC has further clarified the following points:

I.PRC’ s legal system in attracting foreign investment

II.MOC’ s main functions in attracting foreign investment

III.Items of administrative examination and approval subjected to MOC

IV.Division and delegation of approving authority between MOC and local counterparts

I PRC’ s legal system in attracting foreign investment

Firstly the Circular gives a retrospective view on the legislation and legal system of our foreign investment in the past 25 years and summarizes our existing legal system for foreign investment as consisting of three laws and their corresponding implementing rules/procedures, namely Sino-foreign Equity Joint Venture Law of PRC, Sino-foreign Cooperative Joint Venture Law of PRC, Wholly Foreign Owned Enterprise Law of PRC promulgated/revised by the National People’ s Congress and Implementing Procedures of Sino-foreign Equity Joint Venture Law of PRC, Implementing Rules of Sino-foreign Cooperative Joint Venture Law of PRC and Implementing Rules of Wholly Foreign Owned Enterprise Law of PRC promulgated/revised by the State Council.

II MOC’ s main functions in attracting foreign investment

As the supervising authority of attracting foreign investment, MOC is responsible for guiding the works related to foreign investment nationwide and supervising foreign investment throughout the country from a macroscopic aspect. Its responsibilities including:

1、Analyzing and investigating the situation of foreign investment, reporting the developments and proposals to State Council periodically, formulating foreign investment policies, formulating and implementing reform schemes, taking part in formulating the medium/long-term developing plans in utilizing foreign investment;

2、Approving the establishment and modification of foreign-invested enterprises relating to beyond local approving authority, restricted investment, quota and license administration;

3、Approving the contracts, articles of association and other material modifications (capital increase and reduction, shares transfer, merger) of large foreign-invested projects in accordance with law;

4、Supervising foreign-invested enterprises to implement relevant laws, regulations, contracts and articles of association;

5、Guiding and administering the matters of attracting foreign capital, investment promotions, examining and approving foreign-invested enterprises and import and export operations;

6、Synthetically harmonizing and supervising the tasks of national economic and technology development zones and the work of Suzhou Industrial Zone;

7、Collecting the statistics of foreign investment.

8、Besides, the functions previously exercised by Ministry of Foreign Trade & Economic Cooperation in accordance with existing laws and regulations shall be taken by MOC.

“Foreign-invested Industrial Guidance Catalogue” is formulated by the National Development and Reform Commission and MOC in collaboration with other related departments, and jointly released by the National Development and Reform Commission and MOC.

III Items of administrative examination and approval subjected to MOC

Based on Administrative Licensing Law and related regulations concerning the reform of administrative examination and approval system, the State Council released instrument in late 2004 and clarified the events in which MOC shall take charge of the administrative license (examination and approval) of foreign investment, mainly including:

1、The examination and approval of establishment and modification of foreign-invested enterprises which were previously the responsibilities of Ministry of Foreign Trade & Economic Cooperation and are now the responsibilities of MOC;

2、The record-filing of the establishment and modification of the foreign-invested enterprises approved by local government;

3、The examination and approval and record-filing of the petroleum, natural gas, coal bed gas foreign-cooperative exploitation contracts, exploration and cooperative research agreements and their modification;

4、The examination and approval of the foreign (regional) enterprises to contract in managing Sino-foreign equity joint ventures or manage them as the entrusted party;

5、The examination and approval of the establishment of projects relating to export-quota and license of foreign-invested enterprises;

6、The examination and approval of foreign-invested enterprises to set up non-legal-person branches abroad;

7、The examination and approval of the import-quota and the license of foreign-invested enterprises.

IV Division and delegation of approving authority between MOC and local counterparts

In addition, the Circular also further clarified the division and delegation of approving authority between MOC and local commerce administration authorities in terms of foreign investment and investment made by Hong Kong, Macao and Taiwan (“HMT”).

1、In principle, the modification procedures of foreign-invested enterprises and HMT-invested enterprises that are already established shall be examined and approved by the original authority who has examined and approved its establishment formerly;

2、MOC examines and approves the capital increase over US$ 100 million of the established foreign-invested enterprises and HMT-invested enterprises within the “encouraged” and “permitted” categories, as well as the capital increase over US$ 50 million for the enterprises within the “restricted” category;

3、Where the modification procedures (such as expansion of business scope) of foreign-invested enterprises and HMT-invested enterprises that related to the State’ s specific provisions and were subjected to the examination and approval of the local responsible authorities of Ministry of Foreign Trade & Economic Cooperation as authorized by State Council, they should now be examined and approved by MOC.

The background for such clarification of the approving authority between MOC and local commerce administration authorities is: National Development and Reform Commission promulgated on 9 October 2004Verification and Approval of Foreign-invested Projects Tentative Administrative Procedures, which only states the delegation of administrative authority in terms of the establishment of a project. However, as for the division of authority in the approval of a project, the approving authority MOC had no specific corresponding provisions.

The promulgation of this Circular has resolved the issue of coordination of legal matters between different government authorities in the practice of operating a foreign-invested project. In accordance with Verification and Approval of Foreign-invested Projects Tentative Administrative Procedures promulgated by National Development and Reform Commission and the Circular, it could be literally construed in the following way: as for the capital increase not exceeding US$ 100 million for foreign-invested enterprises and HMT-invested enterprises within the encouraged and permitted categories, and the capital increase not exceeding US$ 50 million for foreign-invested enterprises and HMT-invested enterprises within the restricted categories, the establishment and approval of project shall be approved and handled by the authorized local authorities of foreign trade and commerce administration.

In addition, the Circular also enumerates in detail newly promulgated/revised laws and regulations concerning more than 40 areas of foreign and HMT investment in terms of service trade, which are formulated in accordance with the three main laws and implementing procedures/rules in the field of foreign investment and cover finance, insurance, securities, commercial sector, travel, telecommunication, construction, medical care and health, transportation, advertisement, exhibition, film & TV production etc. (CEPA’ s related commitments have also been incorporated into the aforesaid laws and regulations upon request of the State Council).

In short words, the Circular has not only further clarified MOC’ s functions, the items of administrative examination and approval within its capacity and the division of approval authority between MOC and the local corresponding authorities, but also provided the mass foreign investors and legal practitioners a concise index of laws and regulations in the field of foreign investment.