Posts Tagged ‘Diversity’

In order to create a favorable investment environment and to encourage overseas firms to invest in China, since the year of 1979 the Chinese government has gradually set up a relatively complete legal system, and constituted a foreign investment policy system, which mainly includes industrial policies, regional policies, tax policies and financial polices.

Legal Framework
The main laws and regulations for foreign investments in China include:
Major foreign investment laws and regulations
International Treaties
Major foreign investment laws and regulations
The law of P.R.C on Chinese-Foreign Equity Joint Ventures and its implementation regulations;
*The law of P.R.C on Chinese-Foreign Contractual Joint Ventures and its implementation regulations;
*The law of P.R.C on Wholly Foreign-Owned Enterprise and its implementation regulations;

The law of P.R.C on Foreign-invested enterprises, the income tax and its implementation regulations;
*Provisions on Guiding Foreign Investment Direction; Industrial Catalogue for Foreign Investment; Catalogue of Advantageous Sectors for Foreign Investment in Central and Western Regions;

The law of P.R.C on the Protection Taiwan Compatriots’ Investment.
(Notes: the related laws and regulations also apply to the investments from Hong Kong. Macao and Taiwan in China mainland.)
General Laws and Regulations

*The Company Law of the People’s Republic of China;
* The Contract Law of the People’s Republic of China;
*The Insurance Law of the People’s Republic of China;
*The Arbitration Law of the People’s Republic of China;
*The Labor Law of the People’s Republic of China;

Provisional Regulations of the People’s Republic of China on value-added Tax;
* Provisional Regulations of the People’s Republic of China on Consumption Tax;
* Provisional Regulations of the People’s Republic of China on Business Tax.
International Treaties

* Bilateral Investment Treaties
* Bilateral Agreement on the Avoidance of Double Taxation
Forms of Foreign Investment
Chinese-Foreign Equity Joint Ventures, China-Foreign Contractual Joint Ventures, Wholly Foreign-Owned Enterprise is the three main forms of Foreign Direct Investment in China for absorbing foreign capital. Other investment forms include Share Company with Foreign Investment, Foreign Invested Holding Company, Joint Exploitation, BOT, etc.
Chinese-Foreign Equity Joint Ventures
Chinese-Foreign Equity Joint Ventures are also called as Share Company with Foreign Investment. They are enterprises jointly established within Chinese territory by foreign companies’ enterprises, other economic entities or individuals on one side and Chinese companies, enterprises or other economic entities on the other side.

An equity joint venture shall be invested and operated jointly by both foreign and Chinese investors, who shall share the profits and losses, as well as risks, in proportion to their respective shares in the registered capital. Chinese-Foreign Equity Joint Ventures are Limited Liability Company, and possess the status of Chinese legal person.

In such an enterprise, the proportion of the investment contributed by the foreign party shall in general not be less than 25% of the total. The partner could offer cash or other kinds of things instead such as building, workshop, machinery, industrial property right, special technique, and field utilization right. The profits and other legal interests that foreign investors have shared can be remit out or reinvest in China.

Chinese-Foreign Contractual Joint Ventures
Chinese-Foreign Contractual Joint Ventures are enterprises Jointly established within Chinese territories by foreign companies, enterprises, other economic entities or individuals and Chinese companies, enterprises or other economic entities, according to their cooperative conditions.

The both parties to a contractual joint venture should prescribe in the contract their respective conditions, rights, obligations, incomes distribution, responsibilities for risks and debts, the company management and negotiations on the property transaction at the expiration. When establishing China-Foreign Contractual Joint Ventures, the foreign party usually provides all or major part of capital, while the Chinese party provides land, factory buildings, certain usable machines and facilities, and in some cases a certain amount of capital as well. Chinese-Foreign Contractual Joint Ventures may posses the status of conventional person or not.

Preface
In accordance with China’s WTO accession commitments to opening its commercial (distribution) sector and based on wide solicitation of opinions and suggestions from the business community including foreign invested enterprises (FIEs), Chinese and foreign investors and government agencies at various levels, relevant departments of the Chinese government made comprehensive amendments to the Measures on Pilot Foreign Invested Commercial Enterprises of 1999. 

Upon the endorsement of the State Council, the Ministry of Commerce promulgated the Administrative Measures on Foreign Investment in Commercial Fields on April 16, 2004, which fulfilled the liberalization of commercial services (distribution) right on the timetable China was committed to during its WTO accession.

To facilitate overseas investors and already existing FIEs to better understand Chinese regulations on foreign investment in commercial fields (distribution), we have developed this Guiding Manual on Applications Regarding Foreign Invested Commercial (Distribution) Enterprises (hereinafter referred to as the Guiding Manual) based on existing laws and regulations. 

As a reference for investors, this Guiding Manual devotes separate sections to articulating on the approval authorities, application procedures, submissions and the time limits for approval.
The Ministry of Commerce (MOFCOM) already published this Guiding Manual on its official website (http//:www.mofcom.gov.cn) on September 1, 2005. 
Investors are welcome to use this to bring themselves up to speed with the regulations governing foreign investment in commercial fields (distribution) and the information relating to applications and submissions.
Table of Contents
I. Approval/Administrative Authorities And Their Mandates
(I)  Approval and Administrative Authorities
(II)  Mandates for Review and Approval
(III)  Listing of Approval and Administrative Authorities

II. Application Procedures and Time Limits for Review and Approval
(I)  Procedures for General Commodity Distribution Applications
(II)  Procedures for Special Commodity Distribution Applications
Time Limits for Review and Approval
(I)  Time Limits for a Competent Provincial Commerce Authority
(II)  Time Limits for the Ministry of Commerce

III. Application Submissions
(I)  Submissions for a General Commodity Distribution Application
(II)  Submissions for a Special Commodity Distribution Application

IV. Others
(I)  Taxation for Foreign Invested Commercial (Distribution) Enterprises
(II)  Applications by FIEs in Bonded Zones for Distribution Business
(III)  Franchised Outlets

Annexes: Policies and Regulations on Foreign Investment In Commercial Fields (Distribution):

I. Approval/Administrative Authorities and Their Mandates
(I) Approval/Administrative Authorities
The Ministry of Commerce (MOFCOM) is the competent authority overseeing foreign investment in commercial fields (distribution).
MOFCOM and competent provincial commerce authorities are the approval/administrative authorities for foreign investment in commercial fields (distribution).
(II) Mandates
1. Mandates of Review and Approval of a Competent Provincial Commerce Authority
(1) The application for a foreign invested commercial enterprise which opens outlets to engage in retailing shall be reviewed and approved by the competent provincial commerce authority of where the enterprise is located, with a notification made to MOFCOM for file-keeping, provided the following conditions are met.

a. The business scope of the enterprise does not cover the distribution of TVs, telephones, mail order, Internet, automatic vender machines and special commodities (listed in Articles 17 and 18 of this Administrative Measures on Foreign Investment in Commercial Fields, applicable hereinafter);
b. The operating area of a single outlet does not exceed 3,000 square meters

and the total number of outlets not over 3.  The number of outlets in China of the same nature opened by its foreign investor via an already existing commercial FIE shall not exceed 30; or the operating area of a single outlet does not exceed 300 square meters and the total number of outlets not over 30.  The number of outlets in China of the same nature opened by its foreign investor via an already existing commercial FIE shall not exceed 300.

(2) The application for a Chinese-foreign joint-equity or contractual commercial (distribution) enterprise where the Chinese side holds majority shares and owns the trademark and trade name and whose business scope does not cover special commodities and the application for the opening of outlets by such commercial enterprise shall be reviewed and approved by the competent provincial commerce authority of where the proposed enterprise is located;

(3) Distribution of audiovisual products (excluding wholesaling)
Applications in this category are subject to MOFCOM review and approval.  They may also be approved by a competent provincial commerce authority in the presence of an authorization from MOFCOM.

2. Mandates of MOFCOM
(1) Any application other than those described in the preceding paragraph, which is subject to the review and approval of a competent provincial commerce authority, shall be reviewed and approved by MOFCOM.
(2) Applications for the distribution of autos, processed oil, drugs, books, newspapers and periodicals and for the wholesaling of audiovisual products shall be reviewed and approved by MOFCOM.

II. Application Procedures and Time Limits for Review and Approval
(I) Application Procedures and Time Limits for Review and Approval (Provincial Approval)
1. General Commodity Distribution
Application Procedures

1) In cases where a new commercial (distribution) enterprise is applied for, or an already existing enterprise applies for additions to distribution scope, or an enterprise reinvests to become a commercial (distribution) enterprise, the applicant shall make the required submissions to a competent commerce authority of where the FIE is registered;
2) The competent commerce authority of where the FIE is registered shall conduct a preliminary review of the submissions before forwarding them to a provincial commerce authority;

3) The provincial commerce authority examines and reviews the contract of a Chinese-foreign joint-equity or contractual enterprise and its articles of association (only the articles of association is needed in the case of a foreign invested commercial enterprise) and the submissions, and whether the proposed enterprise or outlets comply with the urban commercial network planning;

4) In the event that the location of where the enterprise operates and where the FIE is registered do not fall under the jurisdiction of the same province, autonomous region, municipality or city under direct state planning, the competent provincial commerce authority of where the FIE is registered shall seek the consent of its counterpart of where the FIE operates whilst examining the submissions;

5) In the case of a centrally managed enterprise intends to establish a commercial FIE with a foreign investor (foreign investors) in the form of a joint equity or contractual venture, the application which is within provincial approval mandate, shall be reviewed and approved by a competent provincial commerce authority in accordance with the preceding procedures, with a notification made to the Ministry of Commerce for record-keeping.

Time Limit for the Review and Approval
Within 3 months of receipt of the complete set of application submissions, a competent provincial commerce authority shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

(II) Application Procedures and Time Limits for Review and Approval (MOFCOM Approval)
1. General Commodity Distribution
Application Procedures

1) In cases where a new commercial (distribution) enterprise is applied for, or an already existing enterprise applies for additions to distribution scope, or an enterprise reinvests to become a commercial (distribution) enterprise, the applicant shall make the required submissions to a competent commerce authority of where the FIE is registered;

2) The competent commerce authority of where the FIE is registered shall conduct a preliminary review of the submissions before forwarding them to a provincial commerce authority;

3) The provincial commerce authority examines and reviews the contract of a Chinese-foreign joint-equity or contractual enterprise and its articles of association (only the articles of association is needed in the case of a foreign invested commercial enterprise) and the submissions, and whether the proposed enterprise or outlets comply with the urban commercial network planning;

4) In the event that the location of where the enterprise operates and where the FIE is registered do not fall under the jurisdiction of the same province, autonomous region, municipality or city under direct state planning, the competent provincial commerce authority of where the FIE is registered shall seek the consent of its counterpart of where the FIE operates whilst examining the submissions;

5) Upon an affirmative preliminary review result, the competent provincial commerce authority shall forward the submissions to MOFCOM for one-off approval;
6) In the case of a centrally managed enterprise intends to establish a commercial FIE with a foreign investor (foreign investors) in the form of a joint equity or contractual venture, the application submissions may be directly made to MOFCOM for approval provided the application is within the approval mandate of MOFCOM.

Time Limit for the Review and Approval
After a preliminary review of the submissions, a competent provincial commerce authority shall forward the whole set of submissions within one month of receipt.  MOFCOM, within 3 months of receipt of the complete set of application .submissions, MOFCOM shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

II. Special Commodity Distribution
Application Procedures

1) Auto Distribution
Pursuant to the Implementing Measures on the Management of Auto Brand Distribution, applications of FIEs whose business scope relates to auto distribution, including general dealership and brand dealership, shall be forwarded to the Ministry of Commerce after a preliminary review is conducted by a competent provincial commerce authority or centrally managed company.  The Ministry of Commerce shall further examine the application and approve after seeking the opinion of the State Administration for Industry and Commerce.

In the case that a domestic auto producer farms outs the distribution side of its business to other legal entities, not only the approval from the Ministry of Commerce but also a further examination and approval from the former approval authority of the project is needed.

(2) Distribution of Processed Oil
In the case that the business scope of an FIE relates to the distribution of processed oil, the application shall be forwarded to the Ministry of Commerce for approval after a preliminary review is conducted by a competent provincial commerce authority or centrally managed company.

(3) Distribution of drugs
In the case of an application whereby the business scope of an FIE relates to the distribution of drugs, the competent provincial commerce authority shall seek the opinion of the drug supervisory administration of the same level or the enterprise applicant shall present an opinion issued by a competent drug supervisory administration endorsing the establishment of the enterprise or a drug distribution license. 

The application shall be forwarded to the Ministry of Commerce for approval after a preliminary review is conducted by a competent provincial commerce authority.

4) Distribution of audiovisual products
a. An application for a Chinese-foreign contractual wholesaling enterprise for audiovisual products shall be filed with the Ministry of Culture for acceptance review after a competent provincial cultural authority concedes to accepting the application upon an examination.

b. Upon the acceptance of the Ministry of Culture to file the application, the Chinese partner shall make an application to the competent provincial commerce authority for the establishment of the enterprise.  The application shall be forwarded to MOFCOM for approval after the provincial authority examines and approves it.

(5) Distribution of books, newspapers and periodicals
The applicant shall first make an application with a provincial press and publication administration, which, within 15 working days of receipt of the application, shall produce a review opinion, to be notified to the press and publication administration of the State Council for approval. 

The press and publication administration of the State Council shall, within 30 working days of receipt of the application with the review opinion, make a decision as to whether or not accept the application. 

The decision will be notified to the applicant via a press and publication administration of a province, autonomous region or municipality in writing.  If an application is rejected, a statement justifying the decision has to be provided. 

Upon receipt of the acceptance notice from the press and publication administration of the State Council, the applicant shall make a formal application with a provincial commerce authority, which shall form a review opinion within 15 working days of receipt of the application, to be submitted to the commerce authority of the State Council for approval.

Once the approval comes through, the applicant shall, within 90 days of receipt of the approval notice, claim the Permit for Distribution of Publications from a provincial press and publication administration against the approval documents and the FIE Approval Certificate. 

The applicant shall then claim its business license from the local administration for industry and commerce against the Permit and FIE Approval Certificate.

II. Special Commodity Distribution
Application Procedures
Distribution of Audiovisual Products (Excluding Wholesaling)
1) The Chinese partner shall make an application to a competent provincial cultural authority, requesting approval to file the application;

2) Within 6 months of the approval of the competent provincial cultural authority of the filing of the application, the Chinese partner shall make an application to a competent provincial commerce authority for approving the establishment of an enterprise.

3) Within 30 days of receipt of the FIE Approval Certificate from a competent commerce authority, the Chinese partner shall claim the Permit for Distribution of Audiovisual Products for the proposed China-foreign contractual audiovisual product distribution enterprise from the competent cultural authority against the acceptance document issued by a competent cultural authority and the FIE Approval Certificate.

4) Within 30 days of receipt of the Permit for Distribution of Audiovisual Products from a competent cultural authority, the Chinese partner shall proceed to registration against the Permit and FIE Approval Certificate.

Time Limit for the Review and Approval
Within 30 working days of receipt of the complete set of application submissions, a competent provincial commerce authority shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

Time Limit for the Review and Approval
(1) Auto Distribution
After a preliminary review of the submissions, a competent provincial commerce authority shall forward the whole set of submissions within one month of receipt.  MOFCOM, within 3 months of receipt of the complete set of application submissions, MOFCOM shall reach a decision as to whether or not approved the application jointly with the State Administration for Industry and Commerce (SAIC). 

In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.
(2) Distribution of Processed Oil

After a preliminary review of the submissions, a competent provincial commerce authority shall forward the whole set of submissions within one month of receipt.  MOFCOM, within 3 months of receipt of the complete set of application submissions, MOFCOM shall reach a decision as to whether or not approved the application. 

In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

(3) Distribution of Drugs
After a preliminary review of the submissions, a competent provincial commerce authority shall forward the whole set of submissions within one month of receipt.  MOFCOM, within 3 months of receipt of the complete set of application submissions, MOFCOM shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

(4) Distribution of Audiovisual Products

Within 60 working days of receipt of the complete set of application submissions, MOFCOM shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

(5) Distribution of Books, Newspapers and Periodicals
Within 30 working days of receipt of the complete set of application submissions, MOFCOM shall reach a decision as to whether or not approved the application.  In the case of an affirmative decision, the FIE Approval Certificate will be issued.  In the case of a negative decision, a statement justifying the decision shall be provided.

   III. Application Submissions
(I) Submissions for a General Commodity Distribution Application
1. Establishment of a new commercial (distribution) enterprise

1) Application form
2) Feasibility study report signed by all investing parties
3) Contract and Articles of Association (only the latter is needed in the case of a commercial FIE application, applicable hereinafter) and their attachments

4) Bank-issued credit standing certificates for all investing parties, registration documents (copies) and paper of the legal representative (copies).  If the foreign investor is an individual, a valid ID shall also be provided.
5) Auditing reports of all investing parties by accounting firms for the most recent year.  (Enterprises established less than one year ago may skip this requirement).

6) Appraisal report for state-owned assets proposed to be invested by the Chinese investor into a China-foreign joint equity or contractual commercial enterprise
7) Catalogue of import and export commodities for the proposed commercial FIE
8) Listing of directors on the board of the proposed commercial FIE and letters from various investing parties to appoint the directors

9) A prior review and approval notice on the name of the enterprise provided by the competent administration of commerce and industry
10) Land use right documents (copies) for the premise of the proposed outlet and/or rental agreements (copies), with the exclusion of outlets which operate on less than 3,000 square meters (the active operating area of the outlet does not include the office area, storage area and communal area of the enterprise, applicable hereinafter)

11) Documents issued by the competent local commerce authority of where the proposed outlet is to be located which demonstrates the compliance with urban development and urban commercial development requirements (in the case that the proposed outlet is in a city of prefecture level or below, the document demonstrating the compliance with local commercial planning is unnecessary, applicable hereinafter)

In the event that the documents are signed by parties other than the legal representative, the power of attorney from the legal representative must be presented (applicable hereinafter)

2. Merger or acquisition with a domestic commercial (distribution) enterprise

1) Application form
2) Consensual decision of the shareholders, or a decision from the shareholders’ meeting of the target domestic corporate entity of limited liabilities endorsing the equity merger or acquisition with the foreign investor

3) Contract and Articles of Association of the new FIE as a result of the merger or acquisition (only the latter is needed in the case of a commercial FIE application, applicable hereinafter) and their attachments
4) Bank-issued credit standing certificates for all investing parties, registration documents (copies) and paper of the legal representative (copies).  If the foreign investor is an individual, a valid ID shall also be provided.

5) Agreement on the foreign investor’s purchase of shareholders’ equity from the domestic enterprise or capital injection subscription to the target domestic firm
6) Financial auditing report of the target domestic firm for the most recent fiscal year; auditing reports of all investing parties by accounting firms for the most recent year.  (Enterprises established less than one year ago may skip this requirement).

7) A state-owned assets appraisal report and documentation shall be provided for a target domestic firm in possession of state-owned assets
8) Catalogue of import and export commodities of the new enterprise as a result of the merger/acquisition
9) Listing of directors on the board of the new FIE and letters from various investing parties to appoint the directors

10) Land use right documents (copies) for the premise of the proposed outlet and/or rental agreements (copies), with the exclusion of outlets which operate on less than 3,000 square meters
11) Documents issued by the competent local commerce authority of where the outlet is to be located which demonstrates the compliance with urban development and urban commercial development requirements

12) Factual statements of enterprises with investment from the target domestic firm
13) Business licenses (duplicate) of the target domestic firm and of the enterprises receiving investment from the domestic firm
14) Displacement plan for employees of the target domestic firm

3. An already established enterprise applying for additions to its distribution scope
1) Application form
2) A consensual decision reached by the board of directors of the FIE on the addition to the distribution scope
3) Agreement on the amendment to the contract and Articles of Association of the FIE
4) Catalogue of import and export commodities for the FIE

5) Certificate for the approval of the FIE and the business license (copies)
6) Copies of the original contract and Articles of Association of the FIE
7) A registered capital review report issued by a legally authorized capital review body showing full capitalization.

4. An enterprise applying for reinvestment in establishing a commercial (distribution) enterprise

1. Application form
2. Bank-issued credit standing certificates for all investing parties, registration documents (copies) and paper of the legal representative (copies).  If the foreign investor is an individual, a valid ID shall also be provided.

3. Auditing reports of all investing parties by accounting firms for the most recent year.  (Enterprises established less than one year ago may skip this requirement).
4. A prior review and approval notice on the name of the enterprise provided by the competent administration of commerce and industry
5. Land use right documents (copies) for the premise of the proposed outlet and/or rental agreements (copies), with the exclusion of outlets which operate on less than 3,000 square meters

6. Documents issued by the competent local commerce authority of where the proposed outlet is to be located which demonstrates the compliance with urban development and urban commercial development requirements
7. A consensual decision reached by the board of directors of the FIE on the investment plan
8. Certificate for the approval of the FIE and the business license (copies)

9. A registered capital review report issued by a legally authorized capital review body showing full capitalization
10. Documents on income tax status of the FIE including tax reductions or exemption
11. Articles of Association of the company receiving the investment
12. Certificate for the approval of the FIE and the business license (copies)

(II) Submissions regarding the distribution of special commodities

1. Auto distribution
For a general dealer:
1) An official notification document from the competent provincial commerce authority of where the proposed enterprise is located or a business group under direct state planning

2) Application document signed by all investing parties for the establishment of the enterprise.  It mainly covers:
A. Project profile: name of the enterprise and where it is registered, addresses of its subsidiaries, total investment, registered capital, profiles of the investing parties, shareholding structure and form, business scope, size and term of the enterprise
B. Construction and related information: major facilities, sources of the distributed commodities, mode of purchasing and delivery, environmental friendliness and fire prevention and security contingencies.

C. Professional auto marketing capability analysis: market research, marketing plan, advertising and promotion, network building and guidance, product related services, technical training and consulting, accessory supply, logistics management, organizational structure, staffing and type of employees.
In particular, the layout, scale and progress of the network building shall be clearly indicated in the network building section.

) The General Auto Dealer Authorization Letter issued by the auto producer (see Annex 1 for a sample).  In the case that the auto producer is an overseas company, its registration documents (copies) and the paper of the legal representative (copies) shall be provided.
4) Bank-issued credit standing certificates for all investing parties, registration documents (copies) and paper of the legal representative (copies).  If the foreign investor is an individual, a valid ID shall also be provided;
Auditing reports of all investing parties by accounting firms for the most recent year

5) Appraisal report for state-owned assets proposed to be invested by the Chinese investor into a China-foreign joint equity or contractual commercial enterprise
6) Listing of directors on the board of the proposed commercial FIE and letters from various investing parties to appoint the directors
7) A prior review and approval notice on the name of the enterprise provided by the competent administration of commerce and industry

For a brand dealer:
1) An official notification document from the competent provincial commerce authority of where the proposed enterprise is located or a business group under direct state planning
8) Application document signed by all investing parties for the establishment of the enterprise.  It mainly covers:

A. Project profile: name of the enterprise and where it is registered, addresses of its subsidiaries, total investment, registered capital, profiles of the investing parties, shareholding structure and form, business scope, size and term of the enterprise

B. Construction and related information: number of subsidiaries (including outlets), operating area, opinion issued by the competent local commerce authority on the compliance of a proposed outlet with urban commercial development planning, major facilities, sources of the distributed commodities, mode of purchasing and delivery, environmental friendliness and fire prevention and security contingencies.

C. Analysis relating to the scope, scale and location of the auto distribution, facilities and professional technical staff
2) Auto Brand Dealership Authorization Letter (see Annex 2 for a sample) issued by an auto supplier (auto producer or general auto dealer, applicable hereinafter).  In the case the distributed autos are imported, an Auto Brand Dealership Authorization Letter issued by the domestic general dealer of the auto supplier shall be provided.

) Contract and Articles of Association (only the latter is needed in the case of a commercial FIE application) and their attachments
4) Bank-issued credit standing certificates for all investing parties, registration documents (copies) and paper of the legal representative (copies).  If the foreign investor is an individual, a valid ID shall also be provided;
Auditing reports of all investing parties by accounting firms for the most recent year

5) Appraisal report for state-owned assets proposed to be invested by the Chinese investor into a China-foreign joint equity or contractual commercial enterprise
6) Listing of directors on the board of the proposed commercial FIE and letters from various investing parties to appoint the directors
7) A prior review and approval notice on the name of the enterprise provided by the competent administration of commerce and industry

8) Land use right documents (copies) for the premise of the proposed outlet and/or rental agreements (copies), with the exclusion of outlets which operate on less than 3,000 square meters

2. Distribution of processed oil
Besides submissions required in a general commodity distribution application, the following shall also be submitted for an application of a processed oil wholesaling enterprises:

1) Documents demonstrating stable channels of supply of processed oil;
2) Documents demonstrating the possession of a wholly foreign-owned or majority foreign-held processed oil storage with a capacity of no less than 4,000 cubic meters and that the storage was constructed in accordance with the Oil Storage Design Specifications (GBJ74—84);
3) Documents demonstrating the existence of facilities such as transmission pipelines, special rail lines or water transport docks for receiving or unloading processed oil;

4) Documents demonstrating that the storage and other facilities comply with the national standards for safe production and environmental protection;
5) Documents demonstrating the availability of professional technical staff for processed oil testing, measuring, storage and fire prevention operations;
6) Documents demonstrating the compliance with the development of network for processed oil wholesaling;
7) Miscellaneous documents on managerial affairs.

Besides submissions required in a general commodity distribution application, the following shall also be submitted for an application of a processed oil retailing enterprises:
1) Stable channels of supply of processed oil and an oil supply agreement with a processed oil distributor with wholesaling qualifications;
2) Documents demonstrating the compliance with the development of local gas stations

3) Documents demonstrating the compliance of the design and construction of the gas station with relevant state standard requirements.
4) Documents demonstrating the compliance of the construction of the gas station with relevant station regulations on land management, fire prevention and security and environmental protection;
5) Documents demonstrating the availability of professional technical staff for processed oil testing, measuring, storage and fire prevention operations;

6) In the case of an on-water gas station (supply vessel) supplying processed oil to ships, documents demonstrating the compliance with port and water transport safety and water pollution prevention regulations shall also be provided in addition to the above-mentioned documents.

Annexes: Policies and Regulations on Foreign Investment in Commercial Fields (Distribution)
Administrative Measures on Foreign Investment in Commercial Fields
 Implementing Measures on Management of Automobile Brand Marketing
Order of the General Administration of Press and Publication and the Ministry of Foreign Trade and Economic Cooperation

Administrative Measures on Foreign Investment in Commercial Fields
Foreign companies, enterprises and other economic organizations or individuals (hereinafter referred as “foreign investors”) that establish the foreign invested commercial enterprises in the territory of China and are engaged in the business operations shall abide by the Measures.

The “foreign invested commercial enterprises” here refer to foreign invested enterprises engaged in the following business operations:
(I) Commission agency: sales agents, brokers, auctioneers or other wholesalers selling other’s goods and providing relevant auxiliary services based on the contract for gaining commission fee;

(II) Wholesale: selling the goods of the retailers and industrial, commercial and institutional users or other wholesalers and providing relevant auxiliary services;
(III) Retail: selling goods and providing auxiliary services for consumption by individuals and groups at fixed location or through television, telephone, mail order, the Internet and vending machine;

(IV) Franchise: authorizing others to use one’s own trademark, trade name and business model by signing a contract for the purpose of receiving compensations or royalities.  
Foreign companies, enterprises and other economic entities or individuals shall undertake business operations outlined in aforementioned (I), (II), (III) and (IV) through the foreign invested enterprises established in the territory of China.

As a general rule, the operating term of foreign invested commercial enterprises shall not exceed 30 years and the operating term for foreign invested commercial enterprises established in central and west China shall not exceed 40 year.

Foreign invested commercial enterprises concurrently applying for establishment of the commercial enterprises and stores shall meet relevant regulations on urban development and urban commercial development.

Foreign invested commercial enterprises may authorize others to open stores by means of franchise. After approval, foreign invested commercial enterprises may engage in one or more line(s) of distribution business, and the types of the commodities sold shall be specified in the business scope in the contract and Articles of Association.

The Ministry of Commerce reserves to right to the interpretation of the Measures

 Foreign Trade Law of The People’s Republic of China has been revised and adopted by the 8th Session of the Standing Committee of the 10th National People’s Congress of the People’s Republic of China. The revised Foreign Trade Law of The People’s Republic of China is hereby promulgated and shall be implemented as of July 1, 2004.
Chapter 1 General Provisions

    Article 1 This Law is formulated with a view to expanding the opening to the outside world, developing foreign trade, maintaining foreign trade order, protecting the legitimate rights and interests of foreign trade dealers and promoting the sound development of the socialist market economy.

Article 2 This Law applies to foreign trade and the protection of trade-related aspects of intellectual property rights.
      For the purposes of this Law, “foreign trade” refers to import and export of goods and technologies and the international trade in services.
       Article 3 The authority responsible for foreign trade under the State Council is in charge of the administration of the foreign trade of the entire country pursuant to this Law.

Article 4 The State shall pursue a uniform foreign trade regime, encourage the development of foreign trade and maintain fair and free foreign trade order.
    Article 5 The people’s Republic of China shall, on the principle of equality and mutual benefit, promote and develop trade relations with other countries and regions, enter into or participate in such regional economic trade agreements as customs union agreement, free trade agreement and participate in regional economic organizations.

Article 6 The People’s Republic of China shall, in accordance with the international treaties and agreements to which it is a contracting party or a participating party grant the other contracting parties or participating parties, or on the principle of reciprocity grant the other party most-favored-nation treatment or national treatment in the field of foreign trade.

Article 7 In the event that any country or region applies prohibitive, restrictive or other like measures on a discriminatory basis against the People’s Republic of China in respect of trade, the People’s Republic of China may, as the case may be, take counter-measures against the country or region in question.
Chapter 2 Foreign Trade Dealers
Article 8 For the purposes of this Law, “foreign trade dealers” refers to legal persons, other organizations or individuals that have fulfilled the industrial and commercial registration or other practicing procedures in accordance with laws and engage in foreign trade dealings in compliance with this Law and other relevant laws and administrative regulations.

Article 9 Foreign trade dealers engaged in import and export of goods or technologies shall register with the authority responsible for foreign trade under the State Council or its authorized bodies unless laws, regulations and the authority responsible for foreign trade under the State Council do not so require. The specific measures for registration shall be laid down by the authority responsible for foreign trade under the State Council.

Where foreign trade dealers fail to register as required, the Customs authority shall not process the procedures of declaration, examination and release for the imported and exported goods.

Article 10 The international trade in services shall be carried out in compliance with the provisions of this Law and other relevant laws and administrative regulations.
    The units engaged in foreign contract of construction project or foreign labor cooperation shall be equipped with corresponding eligibility or qualification. The specific measures therefore shall be laid down by the State Council.

Article 11 The State may implement state trading on certain goods. The import and export of the goods subject to state trading shall be operated only by the authorized enterprises unless the state allows the import and export of certain quantities of the goods subject to state trading to be operated by the enterprises without authorization.

The lists of the goods subject to state trading and the authorized enterprises shall be determined, adjusted and made public by the authority responsible for foreign trade under the State Council in conjunction with other relevant authorities under the State Council.

In the event of importation of the goods subject to state trading without authorization in violation of paragraph 1 of this Article, the Customs shall not grant release.

Article 12 Foreign trade dealers may accept the authorization of others and conduct foreign trade as an agent within its scope of business.

Article 13 Foreign trade dealers shall, in accordance with the regulations laid down by the authority responsible for foreign trade under the State Council or other relevant authorities under the State Council in accordance with law, submit the documents and materials relevant to their foreign trade dealings to relevant authorities. The authorities concerned shall keep business secrets confidential for the providers thereof.
Chapter 3 Import and Export of Goods and Technologies
Article 14 The State permit free import and export of goods and technologies unless the laws or administrative regulations provide otherwise.
    Article 15 The authority responsible for foreign trade under the State Council may, in accordance with the need to supervise import and export, implement automatic import and export licensing certain goods subject to free import and export and make public the list thereof.

Where the consignee or the consigner of the imported or exported goods subject to automatic licensing submits the automatic licensing application before going through the Customs declaration procedures, the authority responsible for foreign trade under the State Council or its authorized authorities shall grant approval. In case of failure to accomplish automatic licensing procedures, the Customs shall not grant release.   
   

In the case of importing or exporting technologies subject to free import and export, the contracts thereof shall be registered with the authority responsible for foreign trade under the State Council or its authorized authorities.

Article 16 The State may restrict or prohibit the import or export of relevant goods and technologies for the following reasons that: 
    (1) the import or export needs to be restricted or prohibited in order to safeguard the state security, public interests or public morals,

(2) the import or export needs to be restricted or prohibited in order to protect the human health or security, the animals and plants life or health or the environment
    (3) the import or export needs to be restricted or prohibited in order to implement the measures relating to the importations and exportations of gold or silver,

(4) the export needs to be restricted or prohibited in the case of domestic shortage in supply or the effective protection of exhaustible natural resources
    (5) the export needs to be restricted in the case of the limited market capacity of the importing country or region,

(6) the export needs to be restricted in the case of the occurrence of serious confusion in the export operation order   
    (7) the import needs to be restricted in order to establish or accelerate the establishment of a particular domestic industry.   
    (8) the restriction on the import of agricultural, animal husbandry or fishery products in any form is necessary.

(9) the import needs to be restricted in order to maintain the State’s international financial status and the balance of international payment.   
    (10) the import or export needs to be restricted or prohibited as laws and administrative regulations so provide, or
   

(11) the import or export needs to be restricted or prohibited as the international treaties or agreements to which the state is a contracting party or a participating party so require.

Article 17 The State may, in the case of the import or export of the goods and technologies relating to fissionable and fissionable materials or the materials form which they are derived as well as the import or export relating to arms, ammunition and implements for war, take any measures as necessary to safeguard the state security.
   

The State may, in the time of war or for the protection of international peace and security, take any measures as necessary in respect of import or export of goods and technologies.

Article 18 The authority responsible for foreign trade under the State Council in conjunction with other relevant authorities under the State Council shall, in accordance with the provisions of Articles 16 and 17 in this Law, establish, adjust and publish the list of goods and technologies of which the import or export is subject to restrictions or prohibitions.

The authority responsible for foreign trade under the State Council independently or in conjunction with other relevant authorities under the State Council may, with the approval from the State Council, decide, on a temporary basis, to impose restrictions or prohibitions on the import or export of goods and technologies not included in the list provided in the above paragraph within the meaning of Article 16 and Article 17 in this Law.

Article 19 Goods subject to import or export restriction shall be subject to quota and/or licensing control; technologies whose import or export is restricted shall be subject to licensing control.
   

 Import or export of any goods and technologies subject to quota and/or licensing control will be effected only with the approval of the authorities responsible for foreign trade under the State Council or the joint approval of the foregoing authorities and other relevant authorities under the State Council in compliance with the provisions of the State Council.    

Certain imported goods may be subject to tariff rate quota control.
Article 20 Quotas and tariff rate quotas of the imported and exported goods shall be distributed on the principles of transparency, equity, impartiality and efficiency by the authority responsible for foreign trade under the State Council or the relevant authorities under the State Council within their respective responsibilities. Specific measures for the distribution shall be laid down by the State Council.

Article 21 The state shall implement the commodity assessment system in a uniform manner and in accordance with the provisions of relevant laws and administrative regulations carry out certification, inspection or quarantine in respect of imported and exported commodities.

Article 22 The state shall implement origin management in respect of the imported and exported goods. Specific measures therefore shall be laid down by the State Council.
    Article 23 Where the import or export of cultural relics, wildlife animals, plants and the products thereof are prohibited or restricted by other laws or administrative regulations, the provisions of relevant laws and regulations shall be observed.
Chapter 4 International Trade in Services
Article 24 In respect of international trade in services, the People’s Republic of China shall, in accordance with the commitments made in international treaties or agreements to which the People’s Republic of China is a contracting party or a participating party, grant the other contracting parties or participating parties market access and national treatment.

Article 25 The authority responsible for foreign trade under the State Council in conjunction with other relevant authorities under the State Council shall, pursuant to provisions of this Law and other laws and administrative regulations, administer the international trade in services.

Article 26 The State may impose restrictions and prohibitions on the international trade in services for the reasons that:
    (1) restrictions or prohibitions are needed to safeguard the state security, public interests or public morals

(2) restrictions or prohibitions are needed to protect the human health or security, the animals and plants life or health or the environment.   
    (3) restrictions are needed to establish or accelerate the establishment of a particular domestic service industry.   
    (4) restrictions are needed to maintain the balance of international payment of the state,

(5) restrictions or prohibitions are needed as laws and administrative regulations so provide, or (6) restrictions or prohibitions are needed as the international treaties or agreements to which the state is a contracting party or a participating party so require.

Article 27 The State may, in the case of military-related international trade in services, as well as the international trade in services relating to fissionable and fissionable materials or the materials form which they are derived, take any measures as necessary to safeguard the state security.
    The state may, in the time of war or for the protection of international peace and security, take any measures as necessary in respect of international trade in services.

Article 28 The authority responsible for foreign trade under the State Council in conjunction with other relevant authorities under the State Council shall, in accordance with the provisions of Articles 26 and 27 in this Law and other relevant laws and administrative regulations, determine, adjust and publish the market access list of international trade in services.

Chapter 5 Protection of Trade-Related Aspects of Intellectual Property Rights
Article 29 The State shall, in accordance with laws and administrative regulations relevant to intellectual property rights, protect trade-related aspects of intellectual property rights.

Where the imported goods infringe intellectual property rights and impair foreign trade order, the authority responsible for foreign trade under the State Council may take such measures as prohibiting the import of the relevant goods from being produced or sold by the infringer within a certain period.

Article 30 Where the intellectual property right owner is involved in any one of such practices as preventing the licensee form challenging the validity of the intellectual property right in the licensing contract, conducting coercive package licensing or incorporating exclusive grantback conditions in the licensing contract,

which impairs the fair competition order of foreign trade, the authority responsible for foreign trade under the State Council may take measures as necessary to eliminate such impairment.

Article 31 If other countries or regions do not grant the legal persons, other organizations and individual from the People’s Republic of China national treatment in respect of the protection of intellectual property rights, or cannot provide adequate and effective protection of intellectual property rights for the goods, technologies or services from the People’s Republic of China, the authority responsible for foreign trade under the

State Council may, in accordance with the provisions of this Law and other relevant laws and administrative regulations and the international treaties or agreements to which the People’s Republic of China is a contracting party or a participating party, take measures as necessary in respect of the trade with the country or region in question.

Chapter 6 Foreign Trade Order
Article 32 In foreign trade dealings, monopolistic behavior in violation of relevant provisions of anti-monopoly laws and administrative regulations is not allowed.
    In foreign trade dealings, any monopolistic behavior with the effect of eliminating market fair competition shall be disposed of in accordance with relevant provisions of anti-monopoly laws and administrative regulations.

Where any activities in violation of laws set forth in the former paragraph occur with the effect of impairing foreign trade order, the authority responsible for foreign trade under the State Council may take measures as necessary to eliminate the impairment.

Article 33 In foreign trade activities, such unfair competition activities as selling the products at unreasonable low prices, colluding with each other in a tender, producing and releasing false advertisements and conducting commercial bribery and others like are not allowed.    
   

Any unfair competitive practice conducted in the foreign trade activities shall be disposed of in accordance with relevant laws and administrative regulations against unfair competition.

Where any illegal activities as provided in the previous paragraph occur with the effect of impairing foreign trade order, the authority responsible for foreign trade under the State Council may take such measures as prohibiting the dealer from importing and exporting relevant goods and technologies to eliminate the impairment.

Article 34 The following practices are not allowed in foreign trade activities:
    (1) forgery, distortion of origin marks of the imported and exported goods; forgery, distortion or trading of origin certificates of imported or exported goods, import and export licenses, certificates of import and export quota or any other certificate for import and export;

(2) defrauding the State of the refunded tax on exports;
    (3) smuggling;
    (4) evading certification, inspection and quarantine inspection as provided by laws and administrative regulations;
    (5) other activities in violation of the provisions of laws and administrative regulations.

Article 35 In foreign trade activities, foreign trade dealers shall act in compliance with relevant provisions of foreign exchange administration of the state.
    Article 36 The authority responsible for foreign trade under the State Council may give a notice to the public the activities in violation of this Law for impairing foreign trade order.
Chapter 7 Foreign Trade Investigation
Article 37 In order to maintain the foreign trade order, the authority responsible for foreign trade under the State Council may carry out investigations on the following matters in accordance with laws and administrative regulations at its disposal or in conjunction with other relevant administrations:

(1) the impact on the domestic industry as well as the competitive strengths of import and export of goods, import and export of technologies and international trade in services;

(2) trade barriers of relevant countries or regions;
(3) matters needed to be investigated on in order to determine whether such foreign trade remedies as anti-dumping, countervailing or safeguard measures shall be taken;

(4) activities that circumvent foreign trade remedies;
    (5) matters in relation to state security in foreign trade;
    (6) matters needed to be investigated on in order to enforce the provisions of Articles 7, 29(2),30,31,32(3) and 33(3).
(7) Other matters which may have impact on foreign trade order and need to be investigated

Article 38 The authority responsible for foreign trade shall give a notice in case of initiating foreign trade investigations.    
    The investigation may take the form of questionnaires in writing, hearings, on-the-spot investigations, entrusted investigations and otherwise.
   

The authority responsible for foreign trade under the State Council shall, on the basis of the findings, submit investigation reports or make determinations and give public notices.

Article 39 Relevant units and individuals shall provide the foreign trade investigation with cooperation and assistance.   
The authority in charge of foreign trade and other authorities under the State Council as well as their staff members shall have the obligation to keep the state secrets and business secrets known to them confidential during foreign trade investigations.
Chapter 8 Foreign Trade Remedies
Article 40 The State may take appropriate foreign trade remedies on the basis of the findings of foreign trade investigation.   
   

Article 41 Where a product from other countries or regions is dumped into the domestic market at a price less than its normal value and under such conditions as to cause or threaten to cause material injury to the established domestic industries, or materially retards the establishment of domestic industries, the State may take anti-dumping measures to eliminate or mitigate such injury, threat of injury or retardation.

Article 42 Where the export of a product from other countries or regions to the market of a third country causes or threatens to cause material injury to the established domestic industries, or materially retards the establishment of domestic industries, the authority responsible for foreign trade under the State Council may, on the request of the domestic industries, carry out consultations with the government of that third country and require it to take appropriate measures.

Article 43 Where an imported product has directly or indirectly accepts any specific subsidiary granted by the exporting country or region and under such conditions as to cause or threaten to cause material injury to the established domestic industries, or materially retards the establishment of related domestic industries, the State may take countervailing measures to eliminate or mitigate such injury or threat of injury or retardation.

Article 44 Where a product is being imported in substantially increased quantities and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products, the State may take safeguard measures as necessary to eliminate or mitigate such injury or threat of injury and provide the industry concerned with necessary support.

Article 45 Where the increase of services provided to China by the service suppliers from other countries or regions causes or threatens to cause injury to the domestic industries that provide like or directly competitive services, the State may take remedies as necessary to eliminate or mitigate such injury or threat of injury and provide such industry with necessary support.

Article 46 Where the restriction imposed by a third country on the import of a certain product causes the increase in quantities of such product imported into the domestic market and under such conditions as to cause or threaten to cause injury to the established domestic industry, or materially retards the establishment of related domestic industries, the state may take remedies as necessary to restrict the import of the product concerned.

Article 47 Where any country or region that enters into or participate in the economic and trade treaties or agreements with the People’s Republic of China deprives the People’s Republic of China of or impairs her interests under such treaties or agreements, or hinders realization of the object of such treaties or agreements,

the People’s Republic of China has the right to request the relevant country or region to take appropriate remedies and has the right to suspend or terminate its performance of relevant obligations in compliance with relevant treaties and agreements.

Article 48 The authority responsible for foreign trade under the State Council shall carry out bilateral or multilateral foreign trade consultations, negotiations and settle disputes in accordance with this Law and other relevant laws.

Article 49 The authority responsible for foreign trade under the State Council and the other relevant authorities under the State Council shall establish the pre-warning and emergency system for import and export of goods, import and export of technologies and international trade in services so as to cope with the unexpected and unusual situations in foreign trade for the purpose of safeguarding the economic security of the State.

Article 50 The State may take necessary anti-circumvention measures against the activities circumventing the foreign trade remedies provided under this Law.
Chapter 9 Foreign Trade Promotion
Article 51 The State formulates foreign trade expansion strategies, establishes and improves the foreign trade promotion mechanism.   
Article 52 The State shall establish and improve financial institutions for foreign trade and establish funds for foreign trade development and risk as the development of foreign trade requires.

Article 53 The State may take such measures as import and export credit, export credit insurance, export tax refund and other foreign trade promotion measures for the purpose of developing foreign trade.    
    Article 54 The State establishes the foreign trade public information service system, providing foreign trade dealers and the public with information services.

Article 55 The State shall take measures to encourage foreign trade dealer to explore international market, and develop foreign trade by adopting various forms such as foreign investment, foreign contract of construction project and foreign labor cooperation.

Article 56 Foreign trade dealers may organize or participate in relevant associations or chambers of commerce for importers and exporters in accordance with the law.
   

Relevant associations or chambers of commerce shall abide by relevant laws and regulations, provide in compliance with their articles of association their members with foreign trade related services in aspects of manufacturing, marketing, information and training, play a positive role in coordination and self-discipline, submit applications for relevant foreign trade remedies, safeguard the interests of their members and the industry, report to the relevant authorities the suggestions of their members with respect to foreign trade promotion, and actively promote foreign trade.

Article 57 The organization for the promotion of international trade in China shall, in accordance with its articles of association, engage in developing foreign trade relations, sponsoring exhibitions, providing information and advisory services and carry out other foreign trade promotion activities.

Article 58 The State shall support and facilitate the foreign trade carried out by small and medium-sized enterprises with small or middle scale.
    Article 59 The State shall support and promote the development of foreign trade in national autonomous areas and economically under-developed areas.
Chapter 10 Legal Liabilities
Article 60 Anyone who imports or exports the goods subject to the state trading without authorization in violation of Article 11 of this Law may be imposed on a fine of not more than RMB 50,000 yuan by the authority responsible for foreign trade under the State Council or other authorities under the State Council;

if the circumstances are serious, the aforesaid authorities may refuse to accept the application submitted by the trade dealer in violation of laws for carrying out imports or exports of the goods subject to state trading within three years from the date the administrative sanction decision takes effect or may withdraw the granted authorization of import and export of goods subject to state trading.

Article 61 Anyone who imports and exports the goods of which import and export is prohibited, or imports and exports the goods of which import and export is restricted without authorization shall be disposed of and punished by the Customs in accordance with relevant laws and administrative regulations; if the case constitutes a crime, he shall be prosecuted for criminal liabilities in accordance with the law.

Anyone who imports and exports the technologies of which import and export is prohibited, or imports and exports the technologies of which import and export is restricted without authorization shall be disposed of and punished in accordance with relevant laws and regulations;

Where no laws or regulations are available to apply to such activities, the authority responsible for foreign trade under the State Council shall order him to make a rectification, confiscate the illegal proceeds and impose a fine from one to five times the amount of the illegal gains.

If there are no illegal proceeds or the illegal proceeds are less than RMB 10,000 yuan, a fine from RMB 10,000 yuan to RMB 50,000 yuan shall be imposed; if the case constitutes a crime, he shall be prosecuted for criminal liabilities in accordance with the law.

The authority responsible for foreign trade under the State Council and other relevant authorities under the State Council may, from the date when the administrative sanction decision or criminal penalty judgment takes effect as provided in paragraphs 1 and 2 of this Article, refuse the applications for import and export quotas or licenses submitted by the law-breaker, or prohibit the law-breaker from engaging in the import and export of relevant goods and technologies within a period from one to three years.

Article 62 Anyone who engages in the international trade in services subject to prohibition or engages in international trade in services subject to restriction without authorization shall be disposed of and punished in accordance relevant laws and administrative regulations;

Where no laws or regulations are available to apply to such activities, the authority responsible for foreign trade under the State Council shall order him to make a rectification, confiscate the illegal gains and impose a fine from one to five times the amount of the illegal proceeds.

If there are no illegal proceeds or the illegal proceeds are less than RMB 10,000 yuan, a fine from RMB 10,000 yuan to RMB 50,000 yuan shall be imposed; if the case constitutes a crime, he shall be prosecuted for criminal liabilities in accordance with the law.

The authority responsible for foreign trade under the State Council may, from the date when the administrative sanction decision or criminal penalty judgment takes effect as provided in the previous paragraph of this Article, prohibit the law-breaker from engaging in relevant international trade in services within a period from one to three years.

Article 63 Anyone who acts in violation of the provision of Article 34 of this Law shall be punished in accordance with relevant laws and administrative regulations; if the case constitutes a crime, he shall be prosecuted for criminal liabilities in accordance with the law.

The authority responsible for foreign trade under the State Council may, from the date when the administrative sanction decision or criminal penalty judgment takes effect as provided in the previous paragraph of this Article, prohibit the law-breaker from engaging in relevant foreign trade activities within a period from one to three years.

Article 64 Where a foreign trade dealer is prohibited from engaging in the relevant foreign trade activities in accordance with Articles 61-63, within the period of prohibition the Customs authority shall not grant release to the relevant imported or exported goods of that foreign trade dealer in accordance with the decision made by the authority responsible for foreign trade under the State Council,

and the foreign exchange administration or designated foreign exchange banks shall not process the procedures of selling and purchasing foreign exchange.

Article 65 Any staff member serving in the authority responsible for foreign trade in accordance with this Law who neglects his duty, engages in malpractices for personal gains or abuses his power, shall be prosecuted for criminal liabilities if the case constitutes a crime, or shall be subject to administrative sanctions if the case dose not constitute a crime in accordance with the law.

Any staff member serving in the authority responsible for foreign trade in accordance with this Law, who extorts property from others with job convenience or illegally accepts others’ property and seeks advantages for them in return shall be prosecuted for criminal liabilities if the case constitutes a crime, or shall be subject to administrative sanctions if the case does not constitute a crime in accordance with the law.

Article 66 The parties in the foreign trade activities may apply for an administrative reconsideration or bring an administrative lawsuit before a people’s court in case of dissatisfaction with a specific administrative act by the authority responsible for foreign trade administration in accordance with this Law.
Chapter 10 Supplementary Provisions
Article 67 Where other laws or administrative regulations provide otherwise in respect of foreign trade administration of military supplies, fissionable and fissionable materials or the materials form which they are derived and import and export administration of cultural products, the provisions thereof shall be observed.

Article 68 The State applies flexible measures, provides preferential conditions and conveniences to the trade between the towns on the frontier and those towns of neighboring countries on frontier as well as trade among border residents. 
    Specific measures therefore shall be laid down by the State Council.

Article 69 This Law shall not apply to the separate customs territories of the People’s Republic of China.
 Article 70 This Law shall come into force as of July 1, 2004.
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http://policy.mofcom.gov.cn/lawinenglish.htm

Read following laws and regulations
Regulations for the Implementation of the Law on Sino-foreign Equity Joint Ventures (2001)(2001-07-22)
Provisions on the Establishment of Investment Companies with Foreign Investment(2004-02-13)
Measures for Administration of Chinese-foreign Cooperative Distribution Enterprises(2003-12-08)

INTERIM PROVISIONS ON GUIDING FOREIGN IMVESTMENT DIRECTION

Article 1 These provisions are formulated according to the related legal provisions on foreign investment and requirements of industrial policies of the State in order to guide the direction of foreign investment, to make foreign investment in accordance with the plan of the national economy and social development of our country, and to serve the purpose of protecting the legitimate rights and interests of the investors.

Article 2 These provisions shall apply to the projects of Sino-foreign joint ventures, Sino-foreign cooperative enterprises, wholly foreign owned enterprises , as well as to other forms of foreign investment (hereinafter referred to as “foreign investment projects” ) within the territory of China.

Article 3 The State Development and reform Commission in conjunction with the concerned departments of the State Council shall compile at regular intervals and revise in time and promulgate after approval of the State Council the Catalogue for the Guidance of Foreign investment industries according to these provisions and the development of the country’ s economy and technology.
 

Catalogue for the Guidance of Foreign Investment Industries shall be the basis for the guidance of examination and approval of foreign investment projects .

Article 4 Foreign investment projects shall be classified into four categories: encouraged, permitted, restricted and prohibited projects. Foreign investment projects belonging to encouraged, restricted and prohibited categories are listed in the Catalogue for the Guidance of Foreign Investment Industries.

Those permitted investment projects which do not belong to the above three categories are not to be listed in the Catalogue for the Guidance of Foreign Investment Industries.
The Catalogue for the Guidance of Foreign Investment Industries may list that foreign investment projects such as wholly foreign-owned enterprises are not allowed and that the State assets shall take the holding or leading position in the enterprises.

Aricle 5 Those foreign investment projects under the following circumstances shall be listed as encouraged foreign investment projects:
1.Projects for new agricultural technology and comprehensive agricultural development and for construction in energy, transportation and key raw materials industries ;

2. Projects of new and high technology, advanced technology which can improve performance of products, save energy and raw materials, and increase techno-economic efficiency of enterprises or produce new equipments or new materials that meet the demands of the market for which the domestic production capacity is deficient;

3. Projects that meet the demands of the international market, and can promote the quality of projects, enter into new markets, expand overseas sales, and increase exportation;
4.Projects adopting new technology and equipments for comprehensive utilization of resources and renewable resources, and for prevention of environment pollution ;

5. Projects that can make full use of the man power and resource advantage in the Mid-West region and are in accordance with the State’s industrial policies;
6.Other projects that are encouraged by laws and administrative regulations of the State .

Article 6 Those investment projects under the following circumstances shall be listed as restricted investment projects:
1. Projects involving technology that has been developed within or has been introduced into the country, and the production capacity can meet the demands of the domestic market ;

2. Projects in industries by the State for experiment to introduce foreign investment or industries under the monopolized sales of the State;
3. Projects for exploring or mining rare or precious mineral resources
4. Projects involving industries that need the State’s overall planning ;

5.Other projects that are restricted by laws and administrative regulations of the State .
The Foreign investment projects belonging to the restricted category are further classified into Restricted Group A and Restricted Group B according to the industrial policies and the need for macroeconomic control of the State.

Article 7 Those foreign investment projects under the following circumstances shall be listed as prohibited foreign investment projects:
1.Projects that endanger the safety of the State or damage social and public interests;

2. Projects that pollute the environment, destroy natural resources or impair the health of human beings;
3. Projects that occupy large amounts of arable land, unfavorable for protection and development of land resources, or endanger the safety of military facility and its performance;

4. Projects that utilize the unique craftsmanship or technology of the country to make projects;
5.Other projects that are prohibited by laws and administrative regulations of the State .

The foreign investment projects stipulated in the previous paragraph are not allowed to be sponsored out by any company, enterprise, either economy organization or individual.

Article 8 Encouraged foreign investment projects apart from the preferential terms stipulated in the relevant laws or administrative regulations of the State, may enlarge their scope of business operation with approval

if they are engaged in the construction and operation of infrastructure facilities related to energy or transportation (coal, electric power, local railway, highway, port) which need a large amount of investment and a long payoff period .

Article 9 Restricted foreign investment projects must comply with the relevant laws and administrative regulations of the State, as well as the following stipulations :
1. Sino-foreign joint venture projects belonging to the restricted category must have the operational termination period of the enterprises agreed upon.

2. In Restricted Foreign Investment Projects (Group A),the fixed asset investment by the Chinese party shall be the funds of his or her own assets owned by the Chinese party.

Article 10 Encouraged or permitted foreign investment projects shall be submitted for examination and approval, or put on file according to the existing procedures and measures.
      Projects belonging to the restricted foreign investment ( Group A) are subject to examination and approval or should be put on record according to existing procedures and measures.

Among the restricted foreign investment projects (Group A), those whose investment is lower than the competence limit stipulated by the State Council and therefore are not subject to examination or approval by the State Council shall be examined and approved by respectively

the planning departments or departments in charge of enterprises’ technical transformation in the provinces, autonomous regions,municipalities directly under the Central Government, or city of direct planning by the State.

 For restricted foreign investment projects ( Group B) , whose investment is lower than the competence limit stipulated by the State Council and therefore are not subject to examination or approval by the State Concil, the projects shall be subject to approval and examination by the relevant industry administrative departments of the State Council;

and the feasibility study reports of these projects shall be subject to examination and approval respectively by the planning departments or departments in charge of enterprises’ technical transformation in the provinces, autonomous regions, municipalities directly under the Central Government, or city of direct planning by the State

and shall be submitted to the State development and reform Commission or the ministry of commerce for the record. The authority of examination and approval of this category of projects shall not be allowed to be delegated to the lower levels.

For projects belonging to or higher than the competence limit stipulated by the State Council shall be examined and approved according to the procedures and measures of the current stipulations .

 Foreign investment projects that involve issues of quota or license shall apply to the competent departments of foreign trade and economic cooperation for quota or license.

If laws or administrative regulations have otherwise stipulations concerning the procedures and measures of examination and approval of foreign investment projects, stipulations of those laws or administrative regulations shall be followed.

Article 11 Restricted foreign investment projects (Group A) within the category provided in subparagraph 1 of Article 6, may be deemed as permitted foreign investment projects, and not subject to the restriction of Article 9 of these provisions with approval,

if the export sales of products amount to over 70 percent of the total sales of products. Restrictions can be appropriately eased to the above mentioned foreign investment projects that can really make full use of the advantage of resources in the Mid-East region, and conform to the country’ s industrial policies of the State.

Article 12 Examination and approval organs of higher levels shall cancel the foreign investment projects that are examined and approved in violation of these provisions within 30 days after receiving the recorded files of the concerned projects. The contracts and articles of association shall be invalid.The enterprise registration organs shall not register these projects, or shall cancel the registration. And the Customs shall not handle import or export formalities for these projects .

Article 13 The relevant parties of foreign investment projects who have obtained approval of project proposals through swindle or other illicit means shall be investigated for legal responsibility in the light of the seriousness of cases according to law. The examination and approval organs shall cancel the approval of the projects, and relevant competent units should deal with these projects correspondingly according to the law.

Article 14 Staff of examination and approval organs who abuse their power, engage in malpractice for personal gains, neglect their duties, or examine and approve certain projects beyond their competence shall be given administrative sanctions.
If the violation is so severe as to constitute a crime, they shall be investigated and affixed criminal responsibility according to law.

Article 15 Investment projects sponsored by overseas Chinese and investors from regions of Hong Kong, Macao, and Taiwan shall be handled by reference of these Provisions.
Article 16 These provisions shall be implemented by the State development and reform Commission, and the Ministry of commerce.

Article 17 These provisions shall enter into force as of the date of promulgation .
NOTE: In case of differences of interpretation, the text in the English language should be considered as the text of reference.

Encouraged Foreign Investment Industries

I. Agriculture, Forestry, Animal Husbandry, Fishery and Related Industries
1. Reclaiming and development of wasteland, waste mountain, intertidal zone (except those with military facilities), as well as improvement of low-and medium- yielding field.

2. Development of new varieties of fine quality, high-yielding crops such as sugar-yielding crops, fruit trees, vegetables, flowers and plants, forage grass and related new techniques.

6. Breeding of famous, special and fine aquatic products.
7. New varieties of effective and safe agricultural chemicals and pesticides (over 80 percent insect death rate, safe to people, animals and crops).
8.High-density fertilizers (potash fertilizer, phosphate fertilizer) .

3. Serialization production of soilless cultivation of vegetables, flowers and plants
4. Planting of forest trees and introduction of fine strains of forest trees
5. Breeding of good strains of domestic animals, fowls and aquatic fingerlings (not including special, precious good strains of our country)

II.Light Industry
1.Design, processing, and manufacture of molds for non-metal products
2.Paper pulp ( with an annual production capacity of over 170 thousand tons of pulp and a related raw material base)
3. Post ornament and processing of leather and related new-tech equipment
4. Production of non-mercury alkali-manganese secondary battery and lithium- ion battery
5. Manufacturing of high-tech involved special industrial sewing machines
6. Production of polyamide film
7. Production of new- type, highly efficient enzymic preparations.

8. Production of synthetic spices, single ion spices
9. Research and popularization of the applied technology of freon substitution
10. Production of diacetate for cigarette making and processing of tows

â…¢ . Textile Industry
1.Production of wood pulp for textile chemical fibre( construction of raw material base with an annual output capacity of over 100 thousand tons)
2. Special textiles for industrial use
3. Printing and dyeing as well as post processing of high emulation chemical fibre plus material.
4. Production of assistant, grease, and dye-stuff for textile

â…£. Communication and Transportation as well as Post & Telecommunications Services
â…¤. Coal Industry
â…¥. Power Industry
â…§. Non-Ferrous Metal Industry
â…¨. Petroleum, Petrochemical and Chemistry Industries

â…©. Mechanical Industry
â…ª. Electronic Industry
â…«. Building Materials, Equipment and Other Non-metal Mineral Product Industries
X V . AeroSpace Industry
Xâ…£ . Medical Equipment Industry

Xâ…¥ . New Industries
1 . Microelectronic technology
2. New materials
3. Biological engineering techniques ( not including genetic engineering)
4. Network techniques of information, communications systems
5. Isotopic irradiation and laser techniques
6. Ocean and ocean energy development technology.
7. Seawater desalting and seawater utilization technology.
8. Development of energy-saving technology.
9. Technology for recycling and comprehensive utilization of resources.
10. Projects for improving polluted environment and related monitoring and improving technology.

Xâ…± . Service Business
1 . Information Consultation about information of international economy, science & technology and environmental protection.
2. Maintenance of precision instruments and equipment, service after sales.
3. Construction of new and high technology and building of new product developing center as well as incubation of enterprises.

Xâ…§. Permitted projects whose products are to be wholly exported directly .

“Today over two-thirds of foreign manufacturing in China is for the domestic market.” “The second wave of FDI is characterized by a two-fold shift:  from low knowledge base industries to medium and highly knowledge-intensive industries and geographically from the coastal and southern areas of the country inward.”. 

These seem to indicate a less coastal bound stage of development and a more domestic as opposed to export oriented economy than most other observers have reported.  Are these trends clear at this time and how certain are you of this change in economic development?

statistics only present part of the picture, and that it is necessary to take into account the whole picture that emerges, rather than just the slice presented. In this specific case, the fact that a lot of manufacturing is destined for the domestic market is only a sign of that market’s strength and size, and the collapse in global demand, especially from the first world. 

With regard to the shifts from low to high knowledge bases and from the coast to the inland, those are gradual trends which will take some time to be visible on a macro-level.  

“the non-state sector, which consists of private companies, self-employed businesses, shareholding corporations, joint ventures with foreign investment, and community-owned rural industries, how different is China today than many European countries in terms of state control and state intervention in the economy?

In fact the recent Party Congress in Beijing acknowledged this in allowing members of the private sector to come into the Standing Committee. This is a huge step forward, and does indicate a trend towards a more open, diverse economy.
While it is too early to say, it is possible to imagine a situation in which the Chinese economy is as diverse and possibly more flexible than  some of those in Europe today. 

all of you discuss the current weak banking sector in China but all of you conclude that although the current situation is unfortunate and even worrying, none of you believe that it will likely lead to a major banking crisis.  why do your all seem so confident that the problem is solvable?

While we cannot speak for the others, we attribute our confidence primarily to two factors. The first is that the problem is critical but will only have the possibility to “blow up” and instigate a large scale collapse in the medium term. The problem is definitely fundamental to developing a healthy functioning economy, but in the short term, China can get by, by “muddling through”. The second factor is that China is doing much more than just “muddling through” the problem, by pinpointing the sources of the problem and beginning to address those, even when politically dangerous (e.g. with corruption).   

Recent events in China, especially in the creation of a regulatory body specifically to oversee the banking sector, confirm that China is moving in the right direction.

The weakness of China’s current stock market in promoting corporate development and the problem with so much credit going to the state sector and sets out his prescription for China’s resolution of this problem by what he calls “a financial big bang.”  Could you explain exactly what this is and whether you both agree with Mr. Xie as to the problem and as to his proposed solution?

forthright action is needed to create a true market economy, although for sure people will interpret “big bang” in different ways. we do agree that coordinated action commensurate to the complex and large-scale nature of the problem is needed.  Only such action will enable the government to create a financial system that is robust and flexible enough to support the growth demands of the economy.

Administrative Monopolies in China are a greater danger than corruption of government officials and each year deprive Chinese citizens of much more money and create many more opportunities for corruption.  Can you give some examples of Administrative Monopolies in China today?  Lastly, do you feel that the Chinese government realizes the danger and if so could you give concrete examples of how it is moving to resolve the problem?

administrative monopolies as one of the drains on the economy, and in this regard, we do think that they raise a significant point.
However we do also note that the government is proactively moving to dismantle these and create a more competitive framework. Its approach is pragmatic and step-by-step, and is seen in its moves to inject competition into telecom services and break up the State Power Corporation of China. These are just two examples where the government is moving ahead, and we note that it is not just the WTO .

four issues that he feels will dominate China’s agenda in the 21st Century – economic modernization, particularly through enterprise reform, the future of Taiwan, the relationship with the United States and China’s Asian regional role.  Given the fact that without further progress in the first of these issues that China’s scope for progress in the three others will be somewhat hindered,
how internal focused do you see China being in the years ahead and why?

The trend today certainly seems to be of China becoming more outward looking and active internationally.
China has taken leading roles to push the concept of free trade areas in Asia, and has also been a strong voice for multilateralism in the resolution of international disputes, for instance in Iraq and North Korea. It is increasingly aware of the weight of its presence internationally.

China’s regional role and China’s efforts to work with Southeast Asia and Japan.  To date, it seems China’s approach to Southeast Asia has had much more initial success than its “competitive partnership” with Japan. 
Why is this so and do you see room for optimism that China and Japan can truly come to a closer working relationship?

The China-Japan relationship is one of Asia’s most important relationships and yet at the same time, one complicated by economic trends and historical weight. We must acknowledge these difficulties, and also realize that there is no choice but to try to focus on those areas where it is possible to make progress, and to build trust from those points. Victor Chu names several possible areas, and these are good places to start. 

At the 2001 ASEAN Plus Three (APT) meeting (10 ASEAN countries plus China, Japan and the Republic of Korea (ROK), China and ASEAN announced their intention to establish a Free Trade Area (FTA) within ten years.  Do you see such a goal as realistic and what implications does an Asian FTA have for both trade in the region and relations with the EU and the U.S?

A free trade area in Asia would do much to solidify trade within the region and also present the region as a larger market—in consumers and suppliers—to do business with countries and firms overseas. It also makes possible the idea of an integrated pan-Asian supply chain, and could be one huge unexploited competitive advantage.

Geographic Location and Natural Condition
1.Geographic Location
   Shanghai is located in the foreside of the Yangtze River Delta, which is the richest place of China. Bordering on Jiangsu and Zhejiang Provinces on the west, Shanghai is washed by the East China Sea on the east and Hangzhou Bay on the south. North of the city, the Yangtze River pours into the East China Sea. It also assumes the central location along China’s coastal line.

Thanks to its advantageous geographic location, Shanghai has today become an excellent sea and river port, boasting easy access to a vast hinterland. Shanghai has a total area of 6,340 square kilometers.

2.Climate

   With a pleasant northern subtropical maritime monsoon climate, Shanghai enjoys four distinct seasons, generous sunshine and abundant rainfall every year. The average annual temperature is about 16 degrees Celsius.
3.Natural Condition
  Except for a few hills lying in the southwest corner, most parts of the Shanghai area are flat and belong to the alluvial plain of the Yangtze River Delta.
The average sea level elevation is about four meters.
Dotted with many rivers and lakes, the Shanghai area is known for its rich water resources, with the water area accounting for 11% of its total territory.

Huangpu River and Suzhou Creek are the main waterways in the Shanghai area. The city’s Chongming Island is the third largest island in China.
Social Resources
 1.Educational Conditions
   Shanghai boasts not only an adequate educational system, which consists of various universities, colleges, middle schools, primary schools and adult education schools, for domestic education, but many schools for the children of working staff from overseas, Hong Kong, Macao and Taiwan.

A survey in 2002 showed that there were 25 international schools covering kindergartens, primary schools, junior schools and senior schools in Shanghai.
2.Human Resources
the city has a total population of 16.74 million (including the floating population).
By the end of 2001, Shanghai had employed 7.52 million people.
Of the total, 24.5% were hired by the state-owned enterprises and institutions, 35.5% were employed by collectively owned units, and 40% found jobs in foreign invested companies, private units and other economic entities.

Shanghai’s talent qualification is at the leading position of China, and the productivity of unit human cost is rather high.
Shanghai is well known not only as a city possessing abundant talent reserves, but also as one gathering talents from both at home and abroad. Some 50 universities and colleges are located in Shanghai and the students have exceeded 330 thousand. Shanghai has different level of the technical personnel up to 696.8 thousand,

and in average there are 525 different kinds of technical personnel per 10000 persons. More than 1000 research and development institutions are located in Shanghai.

3.Talents Attracting

So far Shanghai has taken practical measures, with Talents Flexible Flow and Shanghai Green Card as the most famous ones, to attract demanded talents. Talents Flexible Flow encourages free-flow of talents, while Shanghai Green Card provides them with residence permit.
In Shanghai there are over 32 thousand talents coming from overseas, accounting for 20% of the total in China

nearly 50 thousand permanent experts from overseas, Hong Kong and Macao, taking up 40% of the aggregate.

4.Urban transportation
Shanghai has built 2 subway lines and 1 light railway line. Furthermore, it has the 1st magnetic levitation railway in China. It is scheduled that the total length of rail transportation will increase to 233 kilometers in 2005 from the present 65 kilometers and the lines of rail transportation will grow to 15 with the length totaling 400 kilometers.
5.Foreigners in Shanghai

   Shanghai is an ideal city to live in for foreign investors. According to the survey by the famous journal Economists, Shanghai has been appraised as the city that is most suitable for foreigners to live in.

At present, the number of foreigners living and working in Shanghai is far ahead of that in other cities of China. According to statistics, in 2002 lived in Shanghai about 100 thousand foreigners and 250 thousand Taiwanese, among which some 34,735 foreigners, coming from 126 countries, were employed.

There are 2 main reasons for so many foreigners choose to live in Shanghai: first, convenient and leisure life; second, they are optimistic about the future development of Shanghai.
6.Entertainments and Travel
As a historic city, by the end of 2001, there had been 16 state key protective relics,
110 city key protection relics,
21 historic memorial spots
15 protective spots in Shanghai.

Among the relics and spots, stand as the most famous the 1000-year-old Longhua Ancient Temple, the Three Kingdoms period built-in Jing’an Ancient Temple, the world-known Jade Buddha Temple, the famous eastern China’s Garden Yuyuan,

as well as Jiading Confucian Temple, Songjiang Square Pagoda and Songjiang Zuibai Pond, retaining the historic relics and preserving the typical Chinese garden elites that originated in the Dynasties of Tang, Song, Yuan, Ming and Qing.

the People’s Square, called the city green lung
the Oriental Pearl Broadcasting & Television Tower that has made 10 world records
the Jinmao Mansion, the highest building in China.
Nanjing Road Pedestrian Street, the Shanghai Museum, the Shanghai Grand Theater and the Shanghai City Plan Exhibition Hall.

In addition, there are over 20 golf courses and several hundreds gyms in Shanghai and around areas. What’s more, Hengshan Road and Xin taindi, which are famous for their bars, often attract foreigners.
Government Efficiency
Practical and Efficient
   Shanghai Government actively changes its function and tries to support foreign invested companies from different ways and improve the transparency and efficiency.
Shanghai is the first city in China to establish an investment promotion organization – Shanghai Foreign Investment Development Board to provide foreign investors with comprehensive services.
Office Automation
  Shanghai goes ahead in terms of government efficiency. Investors can make enquiries, file consultations and lodge complaints through logging on the gateway website (www.shanghai.gov.cn) of Shanghai Municipal Government.
Shanghai has made achievements on examination and approval system and the time to examine and approve foreign-invested projects in Shanghai has been cut from 5 weeks to 3 weeks.
“Great Clearance” Program
As the reform and opening up is progressing, the import and export volume of Shanghai Port has increased a lot, and the delivery efficiency has become one key factor in appraising trade and investment environment. So in June 2000, Shanghai government started a project, which is called “Great Clearance” Program, to speed up port delivery.

Through “Great Clearance” Program, the time of Customs Clearance for sea transport has been reduced from 120 hours to 24 hours, and for air transport, form 72 hours to 12 hours. Songjiang Export Processing Zone enjoys the shortest time, only 4 hours for air transport.

Comprehensive Economic Development
 1.Macro-economic Indices
   At the very beginning of last century, Shanghai was the biggest industrial city in China and the financial center in the Fareast.
In the 1990s, taking the opportunity of the development and opening-up of Pudong, Shanghai deepened the economic reform process and expanded opening-up, which have made great achievements.

From 1998 through 2002, total GDP and per capita disposable income increased by two digitals. By 2002, the GDP of Shanghai had reached USD65 billion with per capita GDP standing at about USD5000. According to our expectation, by 2007, our per capita GDP will be USD7500.
At the same time, the rate of unemployment will be below 3%-5% and the ratio of inflation below 2%-4%.

Shanghai’s infrastructure input in 2002 amounted to RMB58.3 billion, which accounted for 27% of Shanghai’s total fixed assets input and was much higher than that in other major Chinese cities. In the past 5 years, the average increasing rate for infrastructure input was 11% while the major fields fell within urban construction, transportation, post and telecommunications and public facilities construction.

2.Industrial Development

   Shanghai used to be an industrial center and have a very solid industry base. In recent years, the tertiary industry has developed rapidly, with annual increasing rate at 12% and took up 51% of the GDP of Shanghai in 2002.
Compared with other major foreign investment cities, Shanghai puts its priorities in industrial and service sectors.

Six key industries (IT, motor, petrochemicals, fine chemicals, complete set of equipment, biopharmaceuticals) realized 58% of the total industrial output while the four primary sectors in the tertiary industry (finance and insurance, real estate, transportations, post and telecommunication, wholesale and retailing) achieved 62% of the total output in this industry, in which finance occupies 21%, staying first.

In the next five years, Shanghai will take measures to develop its secondary and tertiary industries ,mainly focusing on IT, finance, trade and commerce, motors, real estate, complete set of equipment, cultivating new industries such as biopharmaceuticals, modern logistics, new materials, environmental protection and simultaneously developing fine steels, petrochemicals and fine petrochemicals.

Finance will be core industry, accounting for 18% of total GDP. As for commerce, we will encourage chain operation and information management.
What’s more, 2010 Expo will bring enormous opportunities for complete set of equipment.

Focusing on the upgrade of industrial and commercial structure, Shanghai will fully promote four centers, which are respectively located in the north, south, east, and west part of Shanghai. The north will become the base for fine steels while the east IT base, west part as the comprehensive motor base and south part mechanical base. Those will bring a lot of investment opportunities.
3.Foreign Direct Investment (FDI)
   I. Summary
During the past decade, the Shanghai’s FDI rapidly increased with a rate up to 36%, 10% higher than that in China as a whole. The increase rate in Shanghai has been the top one for many years. In 2002, Shanghai’s FDI accounted for 19.3% of total fixed assets input.

II. Industrial Structure
As of the end of 2002, foreign investment in the tertiary industry accounted for 46.5% of the total, while in China the figure is 32.7%.
Real estate accounted for half of the tertiary industry, mainly from Hong Kong investors.
while investment in other fields like finance, insurance, culture and media was relatively small due to entry restriction.

In the second industry, more than 95% of the investment is in manufacturing industry and in particular, the labor-intensive and assembly companies used 60% of the total foreign capital in the secondary industry.

III. Investment Modes

   In 1991, WFOEs only accounted for 24%, and during the past years, the proportion of WFOE increased very rapidly, reaching 70% in 2002.
IV. Investment Sources
  As for the source of investment, by the end of 2002, capitals from Southeast Asia had accounted for 50% of the total.
The rest was mainly from Latin American, Europe and North America, accounting for 19%, 15% and 13% respectively.
As for the countries and regions, Hong Kong, Japan and U.S. are the top 3. By far, totally 103 countries and regions have invested in Shanghai.

Hong Kong companies mainly invested in real estate, garment and textile, and trade.
Japanese companies in automobile, semiconductor and precision instrument
U.S. companies in automobile, biomedicine, petrochemical and finance and retailing;
V. Investment Returns
  Compared with those in Shanghai industrial enterprises, the main economic indexes such as Ratio of investment returns, labor production and per capita profit of the foreign invested companies in Shanghai are all about 30% higher.
VI. New Features and Trend of FDI Utility in Shanghai
  With China’s accession to WTO, Shanghai’s attraction to foreign capital will be more and more stronger, and the investment in future will show new features and trends:
1. Industry structure, Shanghai will focus on high tech industry and foreign-oriented economy
proportion of tertiary industry will be greater

at the mean time we will take concrete actions to encourage foreign investment in the 6-pillar industry.
2. Ways of investment. We welcome WFOEs and foreign holding companies within permitted fields, and encourage investors using new ways like M & A to involve in the reform and restructuring of state-owned companies.

3. As for investment strategy, we encourage the investment in regional headquarters, R&D centers and purchasing centers, and hope the foreign investment can be more systematic and of more globally strategic significance.

VII. Economic Development Zones at different levels

Shanghai has planned some specialized economic development zones of all kinds for foreign investors.
   Different development zones in Shanghai boast different features and preferential policies.
Pudong New Area is the biggest development zone in Shanghai.

Financial and trade Development Zones include Lujiazui Financial and Trade Zone and Hongqiao Economic and Technological Development Zone
Export Processing zones include Songjiang and Jinqiao Export Processing Zones.
the main industrial zones in the suburban area are: Jiading Industrial Zone, Baoshan Urban Industrial Zone, Chongming Industrial Zone, Qingpu Industrial Zone, Songjiang Industrial Zone, Xinzhuang Industry Park,

Kangqiao Industrial Zone, Shanghai Comprehensive Industrial Zone and Jinshanzui Industrial Zone.
A lot of world-famous companies have made investment in these zones.

Transportation and Information
 1.Shipping
2.Overland Transportation
3.Air Transportation
4.Deep-Water Port Construction
5.Airport Hub Construction
6.Information Harbor Construction
  1.Shipping
In the field of ocean transportation, Shanghai port has established shipping and trading connections with more than 600 shipping companies and 500 more ports in 200 countries and regions around the world. The throughput of Shanghai port reached 8.61million TEUs, which ranked the 4th in the world, only after Hong Kong, Singapore and Busan in 2002.

2.Overland Transportation

Shanghai also enjoys a developed inland transportation:
you can reach all the railway terminals in China from Shanghai railway station.
In terms of highway ,Shanghai plans to build 650km of expressway network in 2005 when it takes 15 and 30 minutes from any major industrial zones, hubs of communications and satellite towns to the nearby expressway and downtown respectively.

The total length of high way in Shanghai has reached 238Km. A comprehensive transportation network connecting Shanghai, Jiangsu, Zhejiang and even Yangtze Delta is coming into shape. Now starting from Shanghai, it takes only 4 hours to reach any of the cities in Yangtze Delta.

3.Air Transportation
In 2002, Shanghai’s airfreight volume ranked the first and air passengers number ranked the second among all cities in China.
In domestic air routes, Shanghai has flights with all the provinces, national autonomous regions (except Taiwan) in China .

while Shanghai has flights with 59 cities in the world in international air routes. 31 international airline companies now have operations in Shanghai.

4.Deep-Water Port Construction
In order to satisfy the increasing throughput in container transportation, Shanghai started the Dayangshan and Xiaoyangshan deep-water port project that is the focus of China’s deep-water port construction in Yangtze River Valley and Delta. Its positioning is to be the hub port of northeast Asia, finally building a port with 15m deep, 50 more large container berths and 25 million TEU capacity.
5.Information Harbor Construction
Shanghai’s digitalization is in the lead in China. It is planned that Shanghai’s level will reach the average standard of the central cities in developed nations in 2005 .
the framework of “digital city” will be preliminarily built up in 2007.
  

Main and complete projects for Shanghai information harbor include intensive information pipelines projects, broadband network construction projects,2 key application projects construction, and some complete application projects.
Market Environment
Market Opening
   In market opening up, Shanghai always runs among the foremost in China. There have been lots of No.1 achieved in Shanghai’s opening up of service trade to foreign investment particularly after China’s accession to WTO.
Shanghai is the only city, which firstly opens up in all the area of retailing, banking, insurance and telecommunications.

Market System
   In order to make it the most well ordered city in China, Shanghai is now actively integrating the loose market to enhance market level and improve legal environment to protect intellectual property rights.

Shanghai issued “Suggestions of Shanghai Municipal Government on M&A of SOEs by Foreign Investors” in 2002. In this year, non-public economy increases 18% higher than public economy，accounting for 32% of the GDP.
In intellectual property protection, Shanghai has formulated 6 intellectual property laws and regulations. Besides, there are 3.78 lawyers among 10000 Shanghainese, which is 3.5 times that of Chinese average.

There are over 50 foreign law firms in Shanghai，accounting for 1/3 of the total in China. Shanghai’s 160 municipal-level industrial associations also play important role in government decision-making and industrial self-discipline.
Social Credibility
  Shanghai is particularly proud of its social credibility information system, the largest in China.
In July 2000, Shanghai opened individual united credibility information system firstly in China.
And in March 2002, Shanghai enterprises united credibility information systems was opened.

Today 2.93 million persons’ (1/4 of Shanghai’s registered population) credibility files are covered by individual credibility system.
Some 480, 000 enterprises have been incorporated into the enterprise credibility system, covering all enterprises in Shanghai.

Financial Market
As the financial center of China, Shanghai boasts the most comprehensive financial market system in China mainland.
In 2002, Financial Service Office was established to strengthen the service function of local government. The financial market in Shanghai includes securities, inter-bank offerings, bonds, futures, foreign currency and gold, etc.

Among it, there are 730 listed companies and 775 stocks are issued on Shanghai stock market (54 B shares, total amounts up to USD3 billion, which have attracted many foreign investors and pave a new path for them to invest in China.
The exchange value of stock on Shanghai stock market in 2002 accounted for 60% of China’s total, with amount up to RMB2800 billion.

Shanghai Gold Exchange opened in 2002, which indicated China has established all the Exchange Markets for main financial products and made Shanghai be the domestic financial center of China.

Foreign Invested Financial Organizations

As more and more foreign financial units speeding up their coming into Shanghai, Shanghai’s financial market will be more complete and active towards world-level financial service.

Shanghai has more than 3300 Sino-foreign financial units among which there are about 70 operative foreign financial units with 54 foreign banks and 15 foreign insurance companies. Four foreign banks have set up their Chinese headquarters in Shanghai, which consist of Citibank, HSBC, Standard Chartered and overseas Chinese bank.

The lending and borrowing business made by Shanghai’s foreign bank accounts for China’s half and lending and borrowing in RMB even accounts for 80%.
Thirty foreign banks have been approved to engage in RMB business and twenty-three have been approved to operate foreign exchange business in full scope in Shanghai.

Undoubtedly, Shanghai is the financial center of China and is moving towards the international financial center rapidly.

International Exhibition

Shanghai’s burgeoning exhibitions and conferences greatly promote the formation of an international market and indicate Shanghai’s rapid rising in its international standing.
   The area of exhibition industry increases at the rate of 30%. Many world famous conferences have been held in Shanghai, such as Fortune forum, APEC, Shanghai 5 States Summit, ADB annual meeting, the 32nd ICC.

Shanghai International mould expo has been listed in UFI.
World Expo. 2010, which will be held in Shanghai, will make several records, for instance, the first time to be held in a developing nation, the largest in area and visitors. Shanghai will make an investment of over USD3 billion to it.

FORMS OF INVESTMENT

Major ways of introducing foreign investment in Shanghai are as follows:
LOANS
Overseas loans mainly consist of three forms:
(1) Loans from foreign governments and international financial institutions ;
(2) Export credit of foreign countries or commercial loans;

(3) Bonds or stocks issued abroad
COMMODITY CREDIT
It includes compensation trade, processing of imported materials, assembling of imported parts and components as well as leasing trade.

DIRECT FOREIGN INVESTMENT

It refers to the establishment of equity joint ventures ( including Sino-foreign owned stock companies), contractual joint ventures or wholly foreign owned enterprises by foreign investors in Shanghai.
TRANSFER OF LAND USE RIGHTS FOR VALUABLE CONSIDERATION

On November 29th, 1987, Shanghai Municipal People’ s Government promulgated the “Regulations for the Transfer of Land Use Rights for Valuable Consideration in Shanghai City”. On May 26th, 1990, the State Council issued “Provisional Regulations of the People’ s Republic of China for Granting and Transfer of Right to Use State-Owned Urban land.”

“Transfer of Land Use Right for Valuable Consideration” means economic activities relating to the development of land and buildings through the grant and assignment of land use rights for valuable consideration. “Grant of Land Use Rights for Valuable Consideration” means the provision by the Shanghai Municipal People’s Government of specific lots of land owned by the State,

under stipulated term of years, purpose of land use and any other conditions for a grantee or grantees to explore and develop, in consideration of the payment of premium and ground rent. “Assignment of Land Use Rights” means the passing of land use right by a grantee or grantees after such land use right have been granted.

Ownership of land by the People’ s Republic of China is not affected by the transfer of land use rights for valuable consideration. Underground natural resources, minerals, and objects buried or hidden in the land shall not form part of the transfer of land use right for valuable consideration.
Unless otherwise stipulated by law, any company, enterprise,organization or individual could obtain the land use right in accordance with regulations concerning grant or transfer of land use right for valuable considerations .

The maximum terms for granting of land use right are as follows:
* Land for residential pupose –70 years
*Land for industrial purpose — 50 years
*Land for the purposes of education,scientific research, culture, public health and sport — 50 years
*Land for commercial, tourism and recreational purpose — 40 years
*Land for comprehensive purpose or other use — 50 years

Unless otherwise stated in the grant contract, or disallowed for planning reasons, the term may be extended on application by the grantee.
Unless otherwise stated in the grant contract, land use right may be assigned or mortgaged by the grantee. Land use rights may also be inherited.

Grantees that are foreign-invested enterprises shall not pay ground rent as stipulated in “Measures of Shanghai Municipality for Administration of Land Used by Joint Ventures Using Chinese and Foreign Investment .”

Whoever conduct economic activities on the granted land shall, according to regulations concerned, apply to relevant department of Shanghai Municipality for approval, business registration and tax registration.

Priority Industries Content for Foreign Investment in Shanghai
 I.Manufacturing Industry
1.Manufacturing industry of modern biology and pharmacy
    (1). Manufacture of biotechnology and products
    (2). Manufacture of new-type chemically synthetic medicine and semi synthetic medicine
    (3). Manufacture of new-type preparation technology and products
   

(4). Modernized technology for Chinese traditional medicine
(5). Artificial organs
2.New materials

    (1). Material of nonferrous metals
    (2). Material of organic chemistry
    (3). Material of other nonmetals
    (4). New-type compound material

3.Manufacturing industry of electronics and communications equipment
    (1). Design, seal and test of integrated circuits; manufacture of large scale integrated circuits with a line width of 0.35 micron and below
    (2). Manufacture of microelectronic equipment, fittings, raw materials and components

(3). Manufacture of electronic information products focused on communication and network equipment
    (4). Manufacture of computers and spare parts
    (5). Manufacture of electron vacuum components
    (6) Manufacture of digital audio & video electronic products
4.Automobile manufacturing industry
(1). Manufacture of automobile with fuel battery, gas and solar energy
    (2). Complete manufacture of car, coach, motorcycle, truck, and special vehicle with high performance
    (3). Manufacture of key parts for vehicles

5.Ship-building industry
 (1). Design, manufacture and repair of special ships and ships with high performance
    (2). Manufacture of marine main engine, marine key electromechanical equipment, marine communication and corollary equipments

6.Equipment manufacturing industry
(1). Manufacture of precision processing equipment
(2). Manufacture of digitalized & intelligent measuring and auto-control equipment
(3). Corollary equipment manufacture of modern communications and transportation
(4). Manufacture of urban rail traffic equipment

(5). Manufacture of modern logistic equipment
(6). Manufacture of power station and transmission & distribution equipment
    (7). Manufacture of new-type environment protection equipment
    (8). Manufacture of aviation and aerospace equipment
   

(9). Manufacture of medical instruments and equipment
    (10). Manufacture of engineering machinery
    (11). Manufacture of meters and instruments and special tools

7.Manufacturing industry of petrochemical industry and fine chemical industry
    (1). Deep processing of petrochemicals
    (2). Series processing of natural gas chemistry
    (3). Series processing of optical-pneumatic deviation
    (4). Series processing of fine chemistry
    (5). Processing of high polymer materials

8.Manufacturing industry of sophisticated iron & steel
    (1). Manufacture of steel used in automobiles and household electrical appliances
    (2). Manufacture of special seamless steel-pipe for petroleum and electric power
    (3). Manufacture of marine plate and pipeline
    (4). Manufacture of stainless steel
    (5). Manufacture of electrical steel sheet and steel for high efficiency building industry .

9.Metropolitan-type industry
    (1). Clothing and accessories
    (2). Packaging and advertisement printing
    (3). Arts and crafts and tourism souvenirs such as diamond and jewelry
    (4). Clocks & watches and cultural & sports goods
    (5). Food processing manufacture
    (6). Industrial design and model manufacture

II.Service Industry
    1.Financial service industry
    (1). Banks, financial companies
    (2). Insurance companies
    (3). Security companies, security investment fund management companies
    (4). Financial rental companies
    (5). Insurance intermediary companies

2.Logistics industry
    (1). Third party logistics enterprises
    (2). Warehouse facilities and distribution centers
    (3). Transport agencies for domestic and overseas freight
    (4). Multi-way through transport
    (5). Highway freight transport
    (6). Development and consultation of logistics information system

3.Distribution industry
    (1). Wholesale and retail enterprises for general commodities
    (2). Foreign trade enterprises for general commodities
    (3). International purchase center

4.Social undertakings
    (1). Cooperation for running high education colleges
    (2). Special skills training
    (3). Construction and operation of cinemas
    (4). World elite drama

(5). Medical and health-care services
    (6). Physical sports, sports performance, and sports facility construction

5.Scientific research and comprehensive technology service
    (1). Research development institutions (center)
    (2). Technological development of biology, isotope, radiation, laser, ocean, energy saving, resource recycle, environment protection, and civilian satellites

6.Real estate industry
    (1). Development and construction of general commercial residential buildings
    (2). Transformation of old areas
    (3). Office buildings
    (4). Building design companies
    (5). Building decoration companies

7.Tourism industry
    (1). Operation of international conferences and exhibitions
    (2). Travel agencies
    (3). Beverage and restaurants
    (4). Sports clubs

8.Information and consultation service industry
    (1). Information & consultation service for international economy, science & technology, and environment protection
    (2). Accountant and audit
    (3). All sorts of brokerage and intermediary services

III.Urban Infrastructure Facilities and Public Utilities
    1.Rail traffic, highway, bridge, tunnel, civilian airport, ferry, and public harbor wharf
    2.Comprehensive development construction and restructure of public parking, bus parking, and traffic hub
    3.Production and supply of coal gas and water

4.Supply and drainage pipe net for urban fuel gas, thermal power and water
    5.Sewage water and rubbish treatment plants, dangerous wastes treatment plants (refuse incinerating plants and rubbish filling ground), and environment pollution treatment facilities

6.Clean energy (including solar energy, wind energy, magnetic energy, earth thermal energy, tide energy and biological energy)
 7.Telecommunications
IV.Agriculture, Forestry, Animal Husbandry and fishery
  1.Breeding of improved animal & plant’s breeds, seeds and fungus (excluding improved precious breeds of our country); industrialized production of new high-yield quality breeds; famous brand aquaculture
    2.Cultivation with modern facility
    3.Public harmless plantation
    4.Fine processing of agricultural products
    5.Deep-sea fishery

Suggestions on the Implementation of “Provisional Regulations of Shanghai Municipality on Encouraging Transnational Companies to Establish Their Regional Headquarters”

Suggestions of Shanghai Municipality to Encourage Foreign Capital to Establish Research and Development Institutions

Shanghai Auto Parts Global Sourcing Center
Projecting Marketing&Investors Introducing

WTO to review China’s trade policy every two years
Trade policy reviews of the world’s four largest traders are done in every two years, and China is now No. 4,” a senior WTO official told reporters at the organization’s headquarters.

Trade policy review is a monitoring mechanism that the WTO usesto ensure transparency of its members’ trade policies and practices.
As a new member of the WTO, China has not been examined under this mechanism. The WTO official disclosed that the first review of China’s trade policy would be done in April 2006.

According to WTO rules, traders numbered 5 to 20 are reviewed every four years. Canada, which is the former fourth and now fifth largest trader, has slipped into this category.
The remaining countries are reviewed every six years, with the possibility of a longer interim period for the least-developed countries.

Population and Ethnic Groups
Han people make up the bulk of the population of Chongqing.
The city is a harmonious home for the Han and 50 national minorities such as Tujia, Miao, Hui, Manchu, Yi, and Tibetan.
People of different ethnic groups live in harmony, and together they participate in the city’s political, economic and cultural affairs, creating the glorious history and culture of the city.

By the end of 2003, the total population of Chongqing was 31,300,000. People of national minorities, mainly Tujia and Miao, make up 6.37% of the total population of the city.

People of different ethnic groups still keep their respective traditional customs and habits. The Tujia people have their hand-waving dance, the Annual Fair, and local operas such as the nuo opera with masked dancing, and the huadeng opera, while the Miao people have their Autumn Fair, the Mountain-climbing Festival;

besides, some national minority people have their Horse and Sheep Festival, Torch Festival, and keep other traditional practices such as weeping at the wedding and dancing at the funeral ceremony.
The Tujia people are well-known for their houses built on hillside supported by poles,

the Miao people are famous for their traditional embroidery and wax printing.

These varied and colorful local practices and customs make a great attraction to tourists from home and abroad.

Comparative Advantages
Chongqing, a super-large city with the greatest investment potential in West China, has advantages in the following five aspects:　　
1.1Advantageous geographic position
1.2 Complete infrastructure
1.3A strong industrial base
1.4Well-developed science, technology and education 　
1.5A large potential market

1.1Advantageous geographic position

Situated at the heart of the economic belt on the upper reaches of the Yangtze River and the joining part of eastern China with western China
Chongqing is the key region in the strategic plan for developing western China.
1.2 Complete infrastructure
Chongqing is the only hub of water, land and air communications in western China. It is the meeting place of the trunk railways and artery expressways that run east-west and north-south across the Chinese continent, and fleets of three thousand-ton ships can reach Chongqing port from east along the Yangtze.

The Jiangbei Airport of Chongqing is a key trunk line airport developed by the State. Chongqing is one of the centers of load in the electricity grid in western China. With its large quantity of coal and natural gas, Chongqing has a highly reliable energy supply.

1.3A strong industrial base

Chongqing is a strong industrial base with industries complete in range and branches and capable of forming comprehensive systems of chains of industries. The city used to be one of China’s old industrial bases, and now it is vigorously developing five industries: car and motorcycle making, chemicals and medicine, construction and building materials, foodstuffs, and tourism.

At the same time it is accelerating its hi-tech industries represented by IT engineering, biological engineering and environment protection engineering.
1.4Well-developed science, technology and education

　　The city has a large concentration of professionals in the fields of science, technology and education. It boasts more than 1,000 institutions of scientific research, 29 universities and colleges, and more than 600,000 scientific and technological workers.

1.5A large potential market

　　Chongqing is a populous city, and its people are going from simply having enough food and clothing to leading a relatively comfortable life.
People and towns and factories are moving of from flooded areas, infrastructure construction is going on large scale, projects of biological protection and treatment of pollution are under way.

industries in the old industrial base are in the process of modernization and upgrading.
All these factors may result in tremendous demands in consumption and needs for investment.

Seizing the historic chance of the great development of West China, a strategy of the central government
Chongqing is carrying out its strategic plan of building the city into a center of business and trade, finance, science and technology, information and culture, a pivot of transport and telecommunications and a modern industrial base

based on hi-tech industries, and is speeding up its economic and social development
serving as a window to the outside world, exerting its economic influence to other areas and helping the development of southwest China and the upper reaches of the Yangtze River.

Sister Cities

Seattle, USA(May 13, 2004)
Toulouse, France (May 13, 2004)
Hiroshima, Japan (May 13, 2004)
Toronto, Canada (May 13, 2004)
Leicester, Great Britain (May 13, 2004)
Voronezh, Russia (May 13, 2004)
Zaporozhye State, Ukraine (May 13, 2004)
Province of Gers, France (May 13, 2004)
Miyakonojo, Japan (May 13, 2004)
Mpumalanga Province, South Africa (May 13, 2004)
Economy
Industry
Industry is the mainstay of Chongqing’s economy. There are almost 10,000 factories with fixed assets of over 73 billion yuan and a working staff of 1.2 million.
Its pillar industries include machine building, metallurgy, chemicals, environmental protection, foods and tourism.

In addition, prominent industries, such as electronics, building materials, glass and ceramics and daily use chemicals are also comparatively well developed.

The automobile and motorcycle industries in Chongqing together with those in Shanghai, Changchun and Shiyan are regarded as the four biggest motor vehicle manufacturing centers in the country.
Qingling light truck. Hongyan heavy-duty truck, Changan van, Jialing and Jianshe motorcycles are all well-known across the country.

the company has became China’s largest manufacturer of minicars.

Chongqing is one of China’s six chemical production bases. The major ones are natural gas chemicals and fine chemicals. Products fall into nearly 1000 varieties, including paints and titanium dioxide powder. The methanol production tops the country and the output of dyestuff ranks second in China.

Chongqing is one of the ten iron and steel production bases across the country.

Actually, the overall thought of the industry structure reorganization has been designed:
cultivate and develop information industry, biology and pharmaceutics, environment protection these three new and hi-tech industries
improve automaton and chemical two pillar industries

food industry and architectural materials will be the new pillar industries.
Agriculture
Chongqing has a vast rural area. The unique geographical conditions and nice climate provide favorable factors for Chongqing to develop vertical agriculture and ecological agriculture.

The municipality’s cultivated land totals 1.622 million ha. Farmland is highly developed. Farming, forestry, animal husbandry, sideline production and fishery are developed all softly.
Chongqing is the nationwide major producer of grains and the producing base of commodity pork.
In recent years, the township and village enterprises have enjoyed rapid development.

recent years, Chongqing’s agriculture industrialization develops very well, which plays the role of exploiting the market, leading the production, increasing the profits and adding the peasants’ income.
Till now, there are 551 agriculture-industrialized items in Chongqing, involving 82.3-billion-yuan investment, and the investment of 103 items has exceeded 10-million-yuan;

there are 362 industrial and commercial enterprises participates in the industrialization.
The municipality with the most agricultural population will deepen the structural adjustment of agricultural and rural economy. Chongqing will transform the First Industry, strengthen and optimize the Second Industry, speed up the development of the Third Industry,

enhance the proportion of the non-agricultural industry in the rural economy.
developing the 4 dominant industries: stockbreeding, fruit industries, agricultural product processing and tourism, and the proportion of non-agricultural industries in the rural economy will been enhanced over 70%.

The agriculture economic construction must adjust hastily, but it has certain difficult.
it is the important tactic of promoting agriculture and countryside economic development. it is beneficial to promoting countryside industrialization and the ideal conversion of thinking of peasant.
Transportation
Chongqing is the transportation center in southwest part of China with exceptionally convenient water and land transport facilities.
In airway transport, Chongqing’s Jiangbei International Airport is a national-level all-weather airport, which has been approved by the Central Government as a port for issuing landing visas to foreign visitors.

Currently in operation are some 50 domestic and international air routes such as those to Tokyo, Nagoya of Japan, Seoul of the Republic of Korea, Bangkok of Thailand, Munich of Germany as well Hongkong and Macao.
There are flights to and from Hongkong every day and the air travel takes only one hour and 45 minutes one way.

At present, the Jiangbei International passenger transport capacity of up to 15 million man-times.
In railway transport, the Chengdu-Chongqing, Xiangfan-Chongqing, Guiyang-Chongqing, Dachuan-Wanzhou, Chongqing-Huaihua, Wanzhou-Yichang, Chongqing-Suining and Chongqing-Lanzhou (now under construction) railway lines converage to Chongqing from the east, west, south and north.

In water transport, the River Port of Chongqing is the largest one on the upper reaches of the Yangtze River and also the starting point to the world-famous Three Gorges along the Yangtze River and from here passenger ships can sail all the way down to Shanghai.
At present, there are more than 60 luxurious cruisers in operation on this water route.

In highway transport, Chongqing boasts an efficient highway network, of which the Chengdu-Chongqing and Chongqing-Fuling, Chongqing-Hechuan and Chongqing-Guiyang ,Chongqing-Wanzhou and Guangan-Chongqing expressways expressways have been completed and opened to traffic.
The ring expressway of the city totalling 80 km in length has been built .
The light-rail transport system has been put into operation .

Preferential Tax polices Related to Tax (local tax) of Foreign-funded Enterprises

I．the technology transfer income of foreign-funded enterprise and foreigner to domestic enterprise, is exempt of business tax.
II．if the enterprise employs laid-off workers account for 30% or above of its total employee, the business tax will be reduced 30% for three years;

if the enterprise employs laid-off workers account for 60% or above of its total employee, the business tax will be reduced 50% for three years.
III．the foreign-funded enterprise and foreign enterprise will not pay city maintenance construction fee and the extra education fee.

IV．a) For the foreign-funded enterprise located in western area and belonging to those state encouraging enterprises, from 2001 to 2010, the corporate income tax is levied on the rate 15%.
b) For foreign invested enterprises, which are funded since 2001 and with the operation period above 10 years, covering the areas of communication, power supply, post service and broadcasting,

the corporate income tax shall be exempted for the first 2 years and to be levied at half of the rate for another 3 years.
c) For those husbandry incomes resulted from the programs of protecting ecological environment and convert farmland into forest and grassland, the husbandry tax is exempt for 10 years since it has gained profit.

d) For the land occupation because of the construction of national and provincial road, compared with land occupation of railroad and airport construction, farmland occupation tax is exempted.
Foreign investment
Overall foreign investment increase speed is slowing down around the country but Chongqing where foreign investment goes up forms a sharp contrast to the national scene. In the first half of the year, the opening-up here has made great strides. Foreign capital actually used has reached 200million yuan, 36% increase over the same period of last year.

In the same period, Chongqing tried to make most of all the forces to attract foreign investment. Industrial foreign-invested projects have reached 52 while the foreign capital actually used has been USD 35.3million.

The Investment Environment of Chongqing Being Ranked Globally in the Front
——Just behind Shanghai

export market is on the way of diversified development.

Meanwhile, Asian market is consolidated and European market and N.American market have been expanded rapidly.
The role of export in foreign trade to increase demand for foreign goods has been strengthened.
In the first half of the year,we have overcome many difficulties

such as the upgoing price of raw materials, resources and transportation plus the further lowering of export rebate tax
tried to optimize the structure of the products: Export of electromechanical products has reached USD0.72billion, 34.1% increase over the same period of last year; Export of chemical

and pharmaceutical products has reached USD0.16billion, 18.5% increase

over the same period of last year; Export of new and high-tech products has reached USD0.28 billion, 29.9% increase over the same period of last year.

How to Set up Foreign Investment Projects in Chongqing
Authorities for approval

1. The encouraged or allowed projects with a total investment of from 30 million dollars (including 30 millions) to 0.1 billion dollars, or the restricted projects with a foreign investment of less than 50 million dollars shall be verified

and approved by Chongqing Municipal Development and Reform Commissionï¼›

2. The industrial projects with a foreign investment of less than 50 million dollars shall be verified and approved by Chongqing Municipal Economic Commissionï¼›

3. The encouraged or allowed projects with a foreign investment of less than 30 million dollars shall be verified and approved by the local development and planning commissionsï¼›

4. If the encouraged or allowed projects with a foreign investment of less than 30 million dollars is to transform or enlarge industrial enterprises, they shall be verified and approved by the local economic commissionsï¼›

5. If the encouraged or allowed projects with a total investment of less than 0.1 billion dollars are in the north new development zone, economic and technological development zones, or high-tech industrial development zones,

they shall be verified and approved by the administrative commissions of the local development zones.

The charge for approval
Free of charge
The term for approval

1. The decision shall be made within 20 workdays since the day when the project is accepted. If the decision can be not made within 20 workdays, the term can be extended to be 30 workdays after the charge hand in the authority approves it.
Business Registration

1. Financial institutions overseas shall be encouraged to set up branch establishments in Chongqing, international consortiums, international corporations shall be encouraged to set up joint ventures, cooperation venture, wholly foreign owned enterprises, and branch establishments in Chongqing.

2. Foreign investment enterprise shall be encouraged in the form of joint venture and cooperation venture in the projects of power station, airport, highway, bridge, harbor, wharf, of waterworks (not including the pipe network) water conservancy and other infrastructure facilities.
Specific facilities from aforesaid projects can be run by foreign investor independently, upon the approval of the government.

Foreign investment enterprise can invest in other enterprises or service business related to the aforesaid projects according to the regulations of the State.
3. Foreign investment enterprise shall be encouraged to become a shareholder, to purchase, merge or contract, lease the domestic enterprises of Chongqing.

4. Units with legal personality of colleges, universities and research institutes, private enterprises shall be encouraged to set up joint venture and cooperation venture with foreign businessmen.
5.Overseas Chinese students shall be encouraged to set up enterprises with investment in the name of the company or works, the enterprises set up in this way shall be regarded as foreign investment enterprises.

6. Promotions for the development of foreign investment enterprises and for rational flow of assets:

(1) Foreign investment enterprise with good supply of funds or with good markets for their products shall be encouraged to set up constituent companies. Foreign investment enterprises shall be encouraged to cooperate with domestic enterprises to open new foreign investment enterprises or domestic enterprises.

(2) The transfer between foreign capital and domestic capital shall be encouraged for the rearrangement of foreign capital and domestic capital. The transfer shall be regarded as change of registration, and no registration fee shall be charged.

(3) Foreign investment enterprise shall be encouraged to set up market for means of production, market for essential factors of production and other new types of market with the purpose of revive assets, particularly the housing and land resources.

7. Foreign investment enterprise engaged in major projects or with registered capital of over US $2 millions can adopt a name with the category of its trade. When overseas investor purchases or merges domestic enterprises, it can either apply for a new name or keep the original name for the new enterprise.

The list of application materials

1. The application shall include the following：the name of the project, the operation term, the basic information of investors; the project’s construction scale, the main content to be constructed, and the products, the mainly adopted technology and techniques, the target market, the planned number of

employees; the construction location, the requirements for resources like land, water and energy, the consumption of main raw and processed materials; the appraisement of the influence upon the environment; the prices of concerned public articles or service; the total investment, the registered capital,

the investment amount of every investor, the method of investment contribution, the finance plan, the equipment necessarily to be imported and the correspondent amount; If inviting of public bidding is necessary in accordance with regulations, the preliminary plan for the inviting is necessarily provided.

2. The registries (business licenses) of foreign and Chinese investors, commerce registration certificates, the latest financial statements that have been audited (including the balance sheet, the profit and loss statement and the statement of cash flows), the certificates of its credit worthiness provided by the bank where the account is openedï¼›

3. The agreement of joint venture, the board’s decisions on the increased fund and projects of purchase and mergence；
4. The letter of financing intent, provided by the bank concernedï¼›
5. The appraisement opinions about the influence on the environment, provided by the supervising administrative authority of environmental protectionï¼›

6. The opinions about the planning and the location choosing, provided by the supervising administrative authority in charge of city planningï¼›
7. The preliminary verification opinions about the land used for the project, provided by the supervising administrative authority in charge of land and resources; or the grant contract of the use right of the state-owned landï¼›

8. If the contributive capital is from the state-owned assets or land use right, the confirmation from relevant authorities shall be providedï¼›
9. When the especially allowed projects for business are concerned, the approval from the relevant authorities shall be providedï¼›

10. If the projects have to have a preliminary verification by local development and reform authorities in districts or counties, the preliminary verification opinions by local development and reform authorities in districts or counties shall be provided.
The ways of decision
1. The written document for the administrative approvalï¼›
2. The written document for the negative decision. But the reasons shall be provided. And the applicant shall be informed that he has the right to apply for administrative reconsideration or to bring an administrative suit according to the lawï¼›

　　3. The verification results will be made public in the website for investment invitation（www.investcq.gov.cn）.

Modification
The applicant shall apply to the approval authority for modification
if the construction location of the approved project has been changed;
if the investor or the shareholding has changed;
if the total investment has exceeded the approved amount by over 20%ï¼›

if the relevant laws, regulations or industrial policies requires the applicant to do modification.
The modification is verified and approved in light of the original procedure of verification and approval.

Business Registration

1. Financial institutions overseas shall be encouraged to set up branch establishments in Chongqing, international consortiums, international corporations shall be encouraged to set up joint ventures, cooperation venture, wholly foreign owned enterprises, and branch establishments in Chongqing.

2. Foreign investment enterprise shall be encouraged in the form of joint venture and cooperation venture in the projects of power station, airport, highway, bridge, harbor, wharf, of waterworks (not including the pipe network) water conservancy and other infrastructure facilities.
Specific facilities from aforesaid projects can be run by foreign investor independently, upon the approval of the government.

Foreign investment enterprise can invest in other enterprises or service business related to the aforesaid projects according to the regulations of the State.
3. Foreign investment enterprise shall be encouraged to become a shareholder, to purchase, merge or contract, lease the domestic enterprises of Chongqing.

4. Units with legal personality of colleges, universities and research institutes, private enterprises shall be encouraged to set up joint venture and cooperation venture with foreign businessmen.
5.Overseas Chinese students shall be encouraged to set up enterprises with investment in the name of the company or works, the enterprises set up in this way shall be regarded as foreign investment enterprises.

6. Promotions for the development of foreign investment enterprises and for rational flow of assets:

(1) Foreign investment enterprise with good supply of funds or with good markets for their products shall be encouraged to set up constituent companies. Foreign investment enterprises shall be encouraged to cooperate with domestic enterprises to open new foreign investment enterprises or domestic enterprises.

(2) The transfer between foreign capital and domestic capital shall be encouraged for the rearrangement of foreign capital and domestic capital. The transfer shall be regarded as change of registration, and no registration fee shall be charged.

(3) Foreign investment enterprise shall be encouraged to set up market for means of production, market for essential factors of production and other new types of market with the purpose of revive assets, particularly the housing and land resources.

7. Foreign investment enterprise engaged in major projects or with registered capital of over US $2 millions can adopt a name with the category of its trade. When overseas investor purchases or merges domestic enterprises, it can either apply for a new name or keep the original name for the new enterprise.

Three Development Zones have reformed the Approval System
The period of Project Approval has been Shortened to be Seven Days

The period of project approval has been shortened from one hundred days to seven days—The Municipal Business and Industry Administration Bureau made public its Opinions

on Bettering the Development Environment of the Economic Development Zones to Encourage the Investment (later shortened as the Opinions). This has been a great convenience for enterprises to invest in Chongqing.

This convenience first embodies on the approval procedure. In the past, the tandem approval mode was used in Chongqing, under which one enterprise must follow suits: first to submit to the relevant department its application, second to get the capital warrant or the approval file after this department’s approval, then to submit to the business and industry administration bureau its application for license.

This mode added to the investor’s cost and lengthened the time for license. One typical example was like this: to open up a realty company would require 160-170 authority stamps and last one hundred days.

According to the Opinions, Chongqing will try out the cross approval system in the New North Zone, the New Hi-tech Economic Zone and the Economic Development Zone. That is, the business and industry administration functions will first accept the enterprise’s application for license, and within two workdays copy and cross-inform the functions for the cross-approval, which shall respond within seven workdays.

If the relevant functions don’t respond with 7 workdays, the regarded response will be approval.
Meanwhile, the threshold of the permission to enter the market has been greatly lowered. As to the limited companies majoring in production or wholesale, the bottom line for capital to be

registered has been lowered from 500 thousand Yuan to 200 thousand; the retail, from 300 thousand to 100 thousand; the intermediary service, from 100 thousand to 50 thousand. As to the individual businesses or the joint ventures, no bottom-line at all.

The same is with the grouping of enterprises. As to the parent company, the bottom line for capital to be registered has been lowered from fifty million Yuan to five million. The bottom line for the total capital of the parent company and its subsidiary companies has been lowered from 100 million Yuan to ten million, and the number limit of the subsidiary companies has been reduced from five to three.
Besides, if the foreign investment is below twenty-five percent of the registered capital, the enterprise may still be registered as the foreign investment enterprise after it is approved by the approval functions.
It is learnt that these policies will be generalized in the whole city after they have been tried out some time in the three economic development zones.
Advantageous Industry Catalogue of Foreign Investment in Mid and West China (Excerpt) (Revised in 2004)　
The foreign investment item that belongs to this catalogue will enjoy the preferential polices related to the Foreign Investment Orientation Guiding Prescription and Suggestions for further encouraging foreign investment from ministry of commerce transmitted by state council office.
Chongqing
1.Plantation and processing of natural spice.
2. The following up industry development of key ecological project such as convert farmland into forest and grassland, protection on natural forest etc.
3.Construction of high yield and quality silkworm base.
4.The development and application of water-saving irrigation technology.
5.Production of ramie textile products.
6.The production and development of the lower level chemical products of natural gas.
7.The development and production of animal and herbal medicine (except those listed in the resources under national protection).
8.The development and production of new type medical appliances.
9.The manufacturing of automobile spare parts.
10.The construction and management of city network for natural gas supply, heating and water supply and drainage(with a Chinese holding party if in large and medium sized cities).
11.Development of tourist resorts (spots) and construction, protection and operation of their supporting facilities.
12.Passengers’ road transport.

CHAPTER I GENERAL PROVISIONS
Article 1.

This Law is formulated for the purpose of
safeguarding state sovereignty and interests
strengthening supervision and control by the Customs
promoting exchanges with foreign countries in economic affairs, trade, science, technology and culture, and ensuring socialist modernization.

Article 2.

The Customs of the People’s Republic of China shall be the state organ responsible for supervision and control over everything entering and leaving the customs territory ( hereinafter referred to as inward and outward persons and objects).

The Customs shall, in accordance with this Law and other related laws and regulations, exercise supervision and control over the means of transport, goods, travellers’ luggage, postal items and other articles entering or leaving the territory (hereinafter referred to as inward and outward means of transport, goods and articles), collect customs duties and other taxes and fees uncover and suppress smuggling work out customs statistics and handle other customs operations.

Article 3.

The State Council shall set up the General Customs Administration which shall exercise unified administration of the customs establishments throughout the country.
The state shall set up customs establishments at ports open to foreign countries and regions and at places which call for concentrated customs operations of supervision and control.

The subordination of one customs establishment to another shall not be restricted by administrative divisions. The customs establishments shall exercise their functions and powers independently in accordance with the law, and shall be responsible to the General Customs Administration.

Article 4. A customs establishment shall exercise the following powers:

(1) to check inward and outward means of transport and examine inward and outward goods and articles; to detain those entering or leaving the territory in violation of this Law or other relevant laws and regulations;

(2) to examine the papers and identifications of persons entering or leaving the territory; to interrogate those suspected of violating this Law or other relevant laws and regulations, and investigate their illegal activities;

(3) to examine and make copies of contracts, invoices, book accounts, bills, records, documents, business letters and cables, audio and video products and other materials related to the inward and outward means of transport, goods and articles;
to detain those related to the means of transport, goods and articles entering or leaving the territory in violation of this Law or other relevant laws and regulations;

(4) to search, within a customs surveillance zone and the specified coastal or border area in the vicinity of a customs establishment, means of transport suspected of involvement in smuggling, and storage places suspected of concealing smuggled goods and articles, and to search persons suspected of smuggling.

Upon the approval of the director of a customs establishment, a suspected criminal smuggler may be detained and handed over to a judicial organ. Such detention shall not exceed 24 hours and, under special circumstances, may be extended to 48 hours.

The scope of the specified coastal or border area in the vicinity of a customs establishment shall be defined by the General Customs Administration and the public security department under the State Council in conjunction with the relevant provincial people’s governments.

(5) Customs officers may chase means of transport or persons defying and escaping from customs supervision and control to places beyond a customs surveillance zone or the specified coastal or border area in the vicinity of a customs establishment and bring them back to be properly dealt with;

(6) A customs establishment may be provided with arms for the performance of its duties. Rules governing the carrying and use of arms by customs officers shall be drawn up by the General Customs Administration jointly with the public security department under the State Council and reported to the State Council for approval.

Article 5. All inward and outward means of transport, goods and articles shall enter or leave the territory at a place where there is a customs establishment.

If, under special circumstances, they have to enter or leave the territory at a place without a customs establishment as a matter of contingency, permission shall be obtained from the State Council or an organ authorized by the State Council, and customs formalities shall be duly completed in accordance with this Law.

Article 6. Unless otherwise provided for, all import and export goods shall be declared and duties on them paid by declaration enterprises registered with the Customs, or by enterprises entitled to engage in import and export business.
The persons of these enterprises in charge of the declaration shall be evaluated and approved by the Customs.

The customs formalities concerning declaration of inward and outward articles and payment of duties on them may be completed either by the owner or by a person the owner has entrusted to act as his agent. The agent entrusted to complete the declaration formalities shall abide by all provisions of this Law applicable to the owner.

Article 7. Customs personnel shall abide by the laws and regulations, enforce the law impartially, be devoted to their duties and render services in a civilized manner.
No unit or individual may obstruct the Customs from performing its duties according to law.

Where a customs officer meets with resistance while carrying out his duties, the public security organ and the People’s Armed Police units performing related tasks shall provide assistance.

CHAPTER V CUSTOMS DUTIES
Article 35. Unless otherwise provided for in this Law, customs duties shall be levied according to the import and export tariff on goods permitted to be imported or exported and articles permitted to enter or leave the territory. The tariff shall be made known to the public.

Article 36. The consignee of import goods, the consignor of export goods and the owner of inward and outward articles shall be the obligatory customs duty payer.

Article 37. The customs duty payer of import or export goods shall pay the amount levied within seven days following the date of issuance of the duty memorandum.
In case of failure to meet this time limit, a fee for delayed payment shall be imposed by the Customs.
Where the delay exceeds three months, the Customs may instruct the guarantor to pay the duties or sell off the goods to offset the duties.

The Customs may inform the bank to deduct the amount of duties due from the deposits of the guarantor or the obligatory customs duty payer when it considers this necessary.
The payment of duties on inward or outward articles shall be made, prior to their release, by the obligatory customs duty payer.

Article 38. The duty-paying value of an import item shall be its normal CIF price, which shall be approved by the Customs;
the duty-paying value of an export item shall be its normal FOB price, which shall be approved by the Customs, minus the export duty.
Where it is impossible to ascertain the CIF or FOB price, the duty-paying value of an import or export item shall be fixed by the Customs.

The duty-paying value of an inward or outward article shall be fixed by the Customs.

Article 39. Duty reduction or exemption shall be granted for import or export goods and inward or outward articles listed below:
(1) advertising items and trade samples of no commercial value;
(2) materials presented free of charge by foreign governments or international organizations;
(3) goods to which damage or loss has occurred prior to customs release

(4) articles of a quantity or value within the fixed limit;
(5) other goods and articles specified by law as items for duty reduction or exemption;
(6) goods and articles specified as items for duty reduction or exemption by international treaties to which the People’s Republic of China is either a contracting or an acceding party.

Article 40. Duty reduction or exemption may be granted for import and export goods of the Special Economic Zones and other specially designated areas;
for import and export goods of specific enterprises such as Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and enterprises with exclusive foreign investment;

for import and export goods devoted to specific purposes;
for materials donated for use by public welfare undertakings. The State Council shall define the scope and formulate the rules for such reduction and exemption.

The State Council or departments empowered by the State Council shall define the scope and formulate the rules for duty reduction or exemption involved in small volumes of border transactions.

Article 41. All import goods and articles for which duty reduction or exemption is granted in accordance with the preceding Article shall be used only in specific areas and enterprises or for specific purposes. They shall not be utilized otherwise unless customs approval is obtained and duties duly paid.

Article 42. Temporary duty reduction or exemption not specified in Article 39 and 40 of this law shall be examined and approved by the General Customs Administration independently or jointly with the financial department under the State Council in accordance with the regulations of the State Council.

Article 43. Temporary duty exemption shall be granted for goods approved by the Customs as temporarily imported or exported items and for bonded goods imported by special permission after the consignee or the consignor of the goods submits to the Customs a guarantee or a deposit of an amount equal to the duties.

Article 44. Where the Customs finds that the duties are short-levied or not levied on a consignment of import or export goods or on an inward or outward article after its release, the Customs shall collect the money payable from the obligatory customs duty payer within one year of the previous duty payment or the release of the item.

If the short-levied or non-levied duties are attributable to the duty payer’s violation of the customs regulations, the Customs may collect the unpaid amount from him within three years.

Article 45. Where the duties are over-levied, the Customs, upon discovery, shall refund the money without delay. The duty payer may ask the Customs for refunding within one year of the date of duty payment.

Article 46. Where the obligatory customs duty payer is involved in a dispute over duty payment with the Customs, he shall first pay the duties and may, within 30 days of the issuance of the duty memorandum, apply to the Customs in writing for a reconsideration of the case. The Customs shall reach a decision within 15 days of the receipt of the application.

If the obligatory customs duty payer refuses to accept the decision, he may apply to the General Customs Administration for a reconsideration of the case within 15 days of the receipt of the decision.
If the decision of the General Customs Administration is still considered unacceptable by the obligatory customs duty payer, he may file a suit in a people’s court within 15 days of the receipt of the decision.

CHAPTER VI LEGAL RESPONSIBILITY
Article 47. Evasion of customs control in one of the forms listed below shall constitute a crime of smuggling:
(1) to transport, carry or send by post into or out of the territory narcotic drugs, weapons or counterfeit currencies which are prohibited by the state from being imported or exported;

to transport, carry or send by post into or out of the territory obscene objects for the purpose of profit-making or dissemination; or to transport, carry or send by post out of the territory cultural relics which are prohibited by the state from being exported; (2) to transport, carry or send by post into or out of the territory, for the purpose of making a profit, articles in relatively large quantities or of a relatively high value which are prohibited by the state from being imported or exported, but which are not included in item (1) of this Article; and goods or articles in relatively large quantities or of a relatively high value whose importation or exportation is restricted by the state or which are subject to the collection of customs duties according to law; (3) to sell, without customs approval and payment of duties, bonded goods imported by special permission or goods listed for special duty reduction or exemption which are in relatively large quantities or of a relatively high value. Any armed smuggling or resistance by violence to customs examination of smuggled goods or articles shall constitute a crime of smuggling, whatever the quantity or value of the goods or articles involved.

The criminal punishments imposed by the people’s court to persons guilty of smuggling include imposing a fine and the confiscation of the smuggled goods or articles, of the means of transport used for smuggling and of the illegal proceeds obtained therefrom.

Where an enterprise, an institution or a state organ or a public organization is guilty of smuggling, the judicial organ shall investigate and determine the criminal responsibility of the person or persons in charge
and the person or persons directly answerable for the offence, and issue an order to impose a fine on the unit and confiscate the smuggled goods or articles, the means of transport used for smuggling and the illegal proceeds obtained therefrom.

Article 48. If the smuggled goods and articles involved in one of the acts listed under item (2) and (3) of Article 47 of this Law are not large in quantity nor of high value, or where the carrying or sending by post of obscene objects into or out of the territory does not yet constitute a crime of smuggling, the Customs may, while confiscating the goods, articles or illegal proceeds obtained therefrom, concurrently impose a fine on the person or persons concerned.

Article 49. Any of the following acts shall be dealt with as a crime of smuggling and shall be punishable in accordance with the provisions of Article 47 of this Law:
(1) to purchase directly and illegally from a smuggler articles which are prohibited by the state from being imported; or to purchase directly and illegally from a smuggler other smuggled goods or articles in relatively large quantities or of a relatively high value;

(2) to transport, purchase or sell on inland or territorial waters articles which are prohibited by the state from being imported or exported;
to transport, purchase or sell without legal certification goods or articles whose importation or exportation is restricted by the state and which are in relatively large quantities or of a relatively high value.

Where an act listed in the preceding paragraphs does not yet constitute a crime of smuggling, punishment shall be applied in accordance with the provisions of Article 48 of this Law.

Article 50. Any individual who carries or sends by post articles for personal use into or out of the territory in a quantity exceeding the reasonable limit and fails to declare them to the Customs shall be made to pay the duties and may be fined.

Article 52. The smuggled goods and articles, illegal incomes and means of transport used for smuggling which are confiscated and the fines which are imposed by order of the people’s court shall all be turned over to the State Treasury,
so shall be the smuggled goods and articles and illegal incomes which are confiscated and the fines which are imposed by decision of the Customs.

It is the responsibility of the Customs to handle all smuggled goods and articles and the means of transport used for smuggling which are confiscated by order of the people’s court or by decision of the Customs and to turn them over to the State Treasury in accordance with the regulations of the State Council.

Article 53. If the party concerned objects to the customs decision of punishment, he may hand in an application for a reconsideration of the case, either to the customs establishment making the decision or to one at the next higher level, within 30 days of the receipt of the notification on punishment or, in case notification is impossible, within 30 days of the public announcement of the punishment.

If the party concerned finds the decision reached after reconsideration still unacceptable, he may file a suit in a people’s court within 30 days of the receipt of the decision.
The party concerned may also file a suit directly in a people’s court within 30 days of the receipt of the notification on punishment or within 30 days of the public announcement of the punishment.

If the party concerned refuses to carry out the Customs decision and fails to apply for a reconsideration of the case or file a suit in a people’s court within the prescribed time limit, the customs establishment making the decision of punishment may confiscate the deposit of the party concerned or sell off the goods, articles or means of transport it has detained to substitute for the penalty, or ask the people’s court for mandatory execution of the decision.

Article 54. If the Customs causes damage to any inward and outward goods or articles while examining them, it shall make up for the actual loss from such damage.

Article 55. The criminal responsibility of any customs personnel who divide up confiscated smuggled goods or articles among themselves shall be investigated and determined in accordance with Article 155 of the Criminal Law of the People’s Republic of China.

No customs personnel shall be allowed to purchase confiscated smuggled goods or articles. Those who have done so shall be made to return the goods or articles, and may be given a disciplinary sanction.

Article 56. Any customs personnel who abuse their powers and intentionally create difficulties in or procrastinate the control and examination process shall be given a disciplinary sanction.
Those who act illegally for personal gains, neglect their duties or connive at smuggling shall be given a disciplinary sanction or investigated for criminal responsibility in accordance with the law, depending on the seriousness of the case.

Question 1:    InvestHK is the official investment promotion organization of the Hong Kong government.    Could you tell us a little about InvestHK, the role of your organization in attracting investment to Hong Kong and whether you have overseas offices in addition to your office in Hong Kong?

 InvestHK was established in July 2000 as a Government Department to spearhead Hong Kong’s efforts to attract inward investment. It provides information and assistance to corporations and individuals looking for direct investment opportunities in Hong Kong.

InvestHK’s sector specific experts guide potential investors thorough all stages of the investment process.  We help all companies who approach us on their own initiative. When in proactive mode we focus on the following sectors :
-    Financial Services
-    Business and Professional Services
-    Information Technology
-    Media/Multimedia
-    Technology (especially Electronics and Biotechnology)
-    Telecommunications
-    Tourism and Entertainment

Trade Related Services
-    Transportation
InvestHK offers extensive information and assistance concerning investments related to Mainland China.
We maintain three dedicated teams to promote direct investment from Beijing, Shanghai and Guangdong. 
We also maintain representatives in  London, New York, San Francisco, Paris, Milan, Brussels, Toronto, Sydney, Osaka, Seoul and Tokyo.

Question 2:   Recently Hong Kong and China signed a free trade agreement.  Can you tell us a little about this agreement and how it will improve Hong Kong’s trade advantages for companies that are located there?

The Closer Economic Cooperation Arrangement (CEPA) is consistent with China’s obligations as a member of the World Trade Organization.
As regards trade in goods, it  will eliminate all tariffs on  Hong Kong-made goods exported to the Mainland in two phases (273 categories from 1 January 2004, all other goods no later than 1 January 2006). 
It will also provide Hong Kong companies and professionals in several services sectors with early access to the Mainland and simplify cross-border trade.

Industries which will particularly benefit include management consultant services, exhibitions and conventions, advertising, legal services, accounting services, medical and dental services, real estate and construction services, transport services, distribution, logistics, forwarding services, storage services, tourism, audiovisual, banking, securities and insurance.

CEPA should also stimulate the local economy, especially the high value added manufacturing and the services sectors. It will add to Hong Kong’s advantages as an investment destination and strengthen the city’s historical role as gateway to China.

Question 3:   Hong Kong was one of the first commercial hubs in Asia to see substantial investment and resulting economic development.  After thirty plus years of rapid economic growth, obviously today Hong Kong is a modern city with a higher cost of living, wages and other costs than that found in much of the rest of Asia. 
Considering this, does Hong Kong still make sense as a location for manufacture and/or other business operation for Western companies?  Also, what industries would location in Hong Kong offer the most advantages?

 Hong Kong is  Asia’s most international city: a vibrant, cosmopolitan community where East meets West.
This produces a creative and dynamic business culture and an ideal environment for international investors interested in expanding into Asia.
It is the preferred location for Asia-Pacific regional operations and a major centre for China headquarters for MNCs.

Hong Kong is one of the most open, externally-orientated economies in the world. 
The city is a duty-free port, where no quotas or tariffs apply.  Money, goods and services flow without restriction.  A strong financial system and solid economic fundamentals underpin the economy. Life in Hong Kong is based on the rule of law, providing a level playing field for individuals and enterprises.
This guarantees a safe and predictable investment environment. Intellectual property rights are also protected through a sophisticated legal framework and effective enforcement of regulations.

While the manufacturing industries used to play a major role during Hong Kong’s economic development in the past, most of these operations have moved to Mainland China, taking advantage of lower labor costs.
Hong Kong still retains a small manufacturing base, especially in high value-added industries, but we are now essentially a services-based economy.  However, with the elimination of tariffs in some high tech sectors, Hong Kong will become more attractive for manufacturers in certain  industries such as electronics, IT, pharmaceuticals etc.

Moreover, Hong Kong is home to more than 380 banking institutions, over 200 insurers, around 2100 securities dealers and about 1600 unit trusts and mutual funds. 80 of the world’s top 100 banks operate in Hong Kong.

Question 4:   In the 70’s, 80’s and 90’s, Hong Kong was the center  of much of the toy manufacture, plastic molding and many other industries located there.  As I understand it, most of Hong Kong’s manufacturing base has now moved across the border to Shenzhen, South China and other locations. 
Does Hong Kong still make sense for certain manufacturing operations and if so can you give a few examples and discuss incentives that the Hong Kong government is offering to attract investment in these industries?

As I mentioned before, the manufacturing industry only plays a relatively minor role in Hong Kong, which is now primarily a services and knowledge based economy.
However, the recently signed free trade agreement between Hong Kong and the Central Government is expected to stimulate growth in certain high value-added manufacturing sectors in Hong Kong.

Unlike other economies in the region, the Hong Kong Government does not use incentives such as tax breaks or subsidies to attract international investment. We believe that Hong Kong’s advantages speak for themselves. We offer a level playing field for all companies who would like to do business here.

Question 5:  Hong Kong competes directly with Singapore and Shanghai to attract companies to site their Regional Headquarters in Hong Kong.  Historically Hong Kong was the first choice but has over the last several years been second choice to Singapore or Shanghai by many large multi-nationals. 
Has Hong Kong’s advantage as the best site to locate a regional office changed and if not, what advantages does Hong Kong possess vis-à-vis Singapore, Shanghai or other locations to site an East Asia Regional Office for a company?

The question is factually incorrect. Hong Kong is the number one location for regional operations. It is the chosen base for some 3,000 regional headquarters and regional offices representing companies from around the world. In 2002, the number of regional headquarters increased to 948, an all-time high.

We are currently seeing the weight of regional economic activity shifting to North Asia. This is mainly caused but the continuous growth and market potential of the Chinese economy, but also because countries such as Korea and Thailand emerged more rapidly from the effects of the Asian financial  crisis than economies in the South.  Hong Kong is a beneficiary of this trend and we are therefore in an excellent position to attract additional regional headquarters.

With China’s economy constantly expanding, Hong Kong and Shanghai will continue to play important roles in the country’s future.   Shanghai is the undisputed powerhouse of China’s domestic economy, while Hong Kong is the country’s international business center.
As a result, both cities bring their distinctive characteristics and expertise to the country’s overall economic development. They are not rivals but generally complementary in an economy that will see the emergence of not one or two, but several business centers to drive its trade and investment to new levels.

Question 6:   Hong Kong is known as a lower tax area and as a duty-free port.  Is this information in fact true and what are the tax withholdings for a foreign corporation located in Hong Kong?  Can you also list the costs of establishing a company, acquiring necessary business licenses and other procedures necessary to start business?

Hong Kong taxes are among the lowest in the world, and Hong Kong’s tax regime is simple and predictable. 
The corporate profits tax rate is 17.5% but the actual tax bill is often less after deductions and depreciation allowances. 
The personal tax rate is capped at 16%.  No tax is paid by firms or individuals on foreign-sourced income of any kind, and there is no estate duty tax on non-Hong Kong assets.   

Basically, only company profits, salaries and property rental income are taxable.  Hong Kong does not tax dividends or bank interest.  There is no capital gains tax, no VAT or sales tax. This limited tax base, combined with exceptionally low tax rates, makes Hong Kong’s tax burden much lower than in virtually all other developed economies.

Registering a business in Hong Kong is a simple, straightforward procedure.  All businesses need to register with the Business Registration Office and pay a fee for the issue of a business registration certificate. The current fee for a one-year certificate is HK$2,600 (US$333) and a three-year certificate is HK$7,000 (US$897).

Question 7:    According to various reports including a recent article by the New York Times News Service, unemployment in Hong Kong is currently the highest ever at 8.6 percent for the period from April through June and underemployment – people who settle for part-time jobs because full-time jobs are not available – recently jumped again up to 4.3 percent of the workforce.  Obviously these statistics must be of concern to the Hong Kong government. 

What steps are being taken to increase employment and are foreign companies who hire the unemployed given further incentives to assist their establishment in Hong Kong?

Hong Kong  is closely interconnected with the global economy. As a result, we cannot escape from the effects of the current global economic downturn.

The Hong Kong government put several measures in place to assist job seekers with upgrading their skills to become more employable. It also provides short-term employment opportunities.

For example, in May, the Government put forward a package costing HK$$432 million to provide 21,500 short-term employment and training opportunities. In June, the Government proposed an additional allocation of HK$715 million to create a further 32,000 short-term jobs and training vacancies. Altogether, 53,500 employment and training opportunities have been provided in less than two months.

We were badly hit in the second quarter of 2003 by the SARS outbreak, but now this has been brought under control we are confident the unemployment situation has peaked and will gradually recover. We are beginning to see an upturn in Hong Kong’s economy, which, combined with the positive impact of the Mainland’s continued strong growth, should provide significantly increased job opportunities.

Question 8:  The property industry in Hong Kong was long the engine of growth and of wealth accumulation.  Over the last several years property values have continued to spiral downward and many individuals in Hong Kong now own properties where the mortgage amount is currently greater than the value that the property because of persistent deflation in the property sector.  What is the Hong Kong government doing to revive the property sector and to stop deflation?

There is no doubt that Hong Kong economy is struggling with the effects of deflation and the ”negative wealth effect,” caused by declining asset prices.
However, four years of deflation has also made Hong Kong much more competitive, which is particularly important for foreign investors. But the double-edge of the deflation sword has also affected sentiment in the general community and, with high unemployment and downward pressure on wages, it is only natural that people will feel less confident than they might otherwise feel.

Question 9:   “There is a tendency to substitute problem-solving economic measures with public relations fluff, such as “Brand Hong Kong” and “Invest Hong Kong”; as if an economy can be marketed like toothpaste.  Billions are wasted to bring a Disneyland to Hong Kong on false hopes while it is well documented by now that the opening of a Disneyland theme park contributes little economically to the host community.  Hong Kong cannot expect to depend on foreign investment and foreign-company regional headquarters to make it competitive. 

Hong Kong must first become competitive in order to attract them.”  This seems very critical of Hong Kong.  How would you respond to this criticism?

There is no doubt that Hong Kong Disneyland will be a tremendous asset to Hong Kong, and our investment in it a good and sound one.
The millions of additional tourist arrivals that it will attract,
and the tens of thousands of jobs that it will create here and in the rest of the community are but some tangible indicators of the benefits that Hong Kong will stand to enjoy.

In today’s global economy, countries and cities compete for investment. Public relations and branding are important tools to communicate the advantages Hong Kong offers to new investors. It is key to get these messages out in a coordinated and effective way.

Question 10:  Your organization works directly with companies to encourage them to locate in Hong Kong.  If a company was interested in further exploring locating in Hong Kong, can you give suggestions of where best they could research information on Hong Kong and also how best to contact with your organization?  

 InvestHK supports prospective investors with finding up-to-date market information, and we assist with identifying the right business partners. InvestHK also guides companies through the networks of government departments and facilitates ancillary services such as work visas, trade mark registration, business incorporation and countless other administrative, legal and financial logistics.

We can be contacted at:
Invest HK
Suites 1501-6, Level 15
One Pacific Place
88 Queensway, Hong Kong
Tel: (852) 3107 1000
Fax: (852) 3107 9007
E-mail: enq@investhk.gov.hk
Website: www.InvestHK.gov.hk

1.Can you tell us what changes in the years since China’s WTO commitment in 2001 you believe have been most fundamental to change in China’s economy and to doing business in China and why you feel these changes have been so instrumental?

1.1 WTO entry was certainly a watershed in China’s commercial   relationships with the international community.
1.2 Broadly speaking, China has adhered to its WTO commitments on time in lowering import taxes and removing formal trade barriers.
1.3 Where there have been trade disputes, notably with the US and the EU, established WTO dispute procedures have been followed.
1.4 China’s economy has been steadily increasing exports, imports of raw materials and capital equipment and even more foreign direct investment — which has stimulated both industrial production and consumption further.
1.5 However, it would be misleading to say that there was a causal effect between WTO entry and China’s robust economic growth.
—The infrastructure of China’s industrial sectors was already embedded and the economy has grown strongly without serious downturns for more than twenty years.
1.6 WTO membership has been the opening up of the domestic market,
—in particular retailing and financial services, to foreign investors.
— WTO membership can take some credit for the greater urgency in the restructure and reform of China’s banking system
—in the more recent drive to expel corruption from state-owned industries and business generally.

2.Whether Chinese government statistics are accurate or can be relied upon? 
—Under the former conditions of a command economy with minimal private business (except for foreign-invested joint ventures) there was a strong motive for provincial and municipal governments, to inflate their economic performance in order to maximize the allocation of resources from central government.
—With the growth of private business which now accounts for around half of China’s GDP and which is not dependent on government hand-outs, I believe that this tendency has diminished.
—The improved methodology and more extensive sampling of the Chinese National Bureau of Statistics have also enhanced the quality of the data.
—Overall trade and FDI figures involving international transactions are of course harder to manipulate.
—-My own opinion is that the annual econometrics which China reports today are probably sound, although some of the quarterly movements may be ‘smoothed’ in order to allay concerns. But that practice is not unknown in more mature developed economies.

3.Intellectual property protection remains a major problem in China. 
Laws have been passed but the reality is that IP still remains a major concern to most multinationals and to many Small and Medium Enterprises (SMEs) who more recently are following them into China. 

What is your assessment of China’s overall track record in enforcing intellectual property protection throughout the nation? 
What areas still remain most problematic and are there areas you can cite and examples where there has been progress?
—There is no panacea to this problem. There have been some high profile examples of successful prosecutions through the authorities rather than the courts, mainly in the field of electronic entertainment .
—but the record is patchy. Automotive multinationals have had a hard time in securing judgments against local entrepreneurs who have pirated the bodywork designs for small sedans manufactured in their Chinese joint venture (JV) plants.

—However, the construction of a complete and modern legal framework for IP rights protection is almost in place
— the central government  is dedicated to enforcement, not least in respect of industrial property rights where a growing number of Chinese companies have developed their own IP.
—-Some provincial authorities are less diligent.

—Foreign investors engaged in manufacturing JVs are better placed than those simply exporting equipment or technology to China
—for the reason that Chinese partners will do their best to protect the IP from which they benefit and are better placed to secure enforcement.

Western partners are well advised to register their industrial IP under Chinese laws in their own name before assigning manufacturing and distribution rights to their JVs.

—-The best advice for those engaged in the export of products from China or the importation of their own products is to cooperate closely with Chinese Customs who are empowered to confiscate products in violation of IP rights and to check goods that both enter and exit Chinese territory. 
4.China announced its decision to move to a managed float of the Chinese currency, the RMB or Yuan.  How has this decision affected  world trade and economic realities in Asia and elsewhere and where do you see this new policy having its most effects if any going forward?

–the 21 July revaluation was only 2.1 per cent and The People’s Bank of China (PBoC) is operating a tight system of control that allows daily fluctuations of just 0.3 percent up or down.
— The effect on the US current account balance will be only about $10 billion. 
— More important is the PBoC stated intention to keep the exchange rate stable against a basket of currencies rather than the dollar alone.

–The adjustment is consistent with the historical pattern of Chinese reforms which have always moved in incremental steps.
–In anticipation of revaluation, foreign currency has been flowing into China this year and the ‘hot money’ is unlikely to abate as further rises in the RMB are expected. China’s short-term capital controls will be under pressure.

The short-term effects on international trade of the controlled float are unlikely to be dramatic.
—Some Chinese factories will feel a pinch on exports, but are as likely to survive on reduced  profit margins rather than raise prices.

—There will be some effect on Chinese agriculture, particularly in sorya beans which is the biggest import crop.  Conversely, broiler chicken producers may benefit to the extent that local grain production is insufficient and feedstock is supplemented by imports. 
Overall, the export prices of industrial products and consumer durables may be little affected since imported raw materials will be cheaper.

However, the longer-term impact of a slowly rising RMB will be significant.
–China’s conversion to the use of monetary tools, not just in exchange rate policy but in management of the banking system, and its growing access to global capital markets means that China is becoming a decision-maker in economies, financial markets and corporate business everywhere. 

5.it is certainly true that the practical environment for doing business with Chinese counterparts has changed in recent years.

—The first change is that there is now a complex framework of commercial law in China, where previously only JV was well articulated. This means that is now essential to hire an experienced law firm for smaller ventures as well as larger, who understands fully the many ambiguities of Chinese law and how it operates in practice.

One of the difficulties is that interpretation of the law and regulations at provincial levels may differ significantly from that of Central Government in Beijing. In the event of disputes, even the largest corporations cannot be sure that the Beijing interpretation will prevail on sensitive issues.
It has always been important to consult the local office of an international firm of accountants on taxation Chinese accounting issues.

The second change is that there are now many highly educated Chinese managers with international management experience and business qualifications who are well versed in foreign investors’ financial planning and control requirements, process management and quality assurance.
They are an important factor in partner selection and are keenly motivated in profit-sharing and stock participation (which are both encouraged now in more advanced Chinese companies).

However, the basics in partner selection remain the same. We characterize the contrasting features of the ‘New China’ and ‘Old China’ companies and the perils of doing business with large state-owned enterprises of the first type either directly or with more enlightened subsidiaries where they exercise ultimate control. 
Remember when making your business marriage that you may be gaining a mother-in-law too !

6.How do you see Chinese companies responding to the competitive pressures to build and exploit an international brand name and how will these affect us all going forward?

–Time is not on China’s side in building global brand recognition for more than a few of its successful companies. In consumer durables, JVs manufacturing to their Western partner’s designs are generally precluded from exporting their products under the partner’s
brand name, even if they are so branded for sale in China.

So, that route to exploiting established brands is blocked. The solution which I expect Chinese companies to adopt is to buy established brands, even if the brand is tarnished as in the case of MG Rover and Marconi.

7.automobiles and components, banking, computer technology, consumables, energy, insurance, media, oil and gas, petrochemicals, advertising, retailing, steel production, telecommunications and travel and tourism.  where do you think the greatest opportunities exist now and why do you feel this way in China?

we think that these are the sectors of financial services, retailing and distribution where the market is opened up to foreign investors, ICT, energy and metals and generally those consumer durables and services which are already benefiting from the Chinese consumer revolution.

About the Author:  Economist and international business strategist, Jonathan Reuvid has specialized in the development of joint ventures and technology transfers in Northern China since 1984.  In 1993 he formed an association with Li Yong, then Managing Director of the Centre for Market and Trade Development (CMTD), to write and publish the first edition of Doing Business with China.

8.the terms – Economic and Technological Development Zones (ETDZs), High-tech Industrial Development Zones (HIDZs), Free Trade Zones (FTZs)  and Export Processing Zones (EPZs).  Can you explain what each of these terms signify and how they differ and can affect a company’s selection of a location?

—-Economic and Technological Development Zone (ETDZ) has the most general function, —- a High-tech Industrial Development Zone (HIDZ) will focus on high-tech industry.
But in reality, the distinction between the two is not clear and often they are differentiated only by name. Currently, new town development is also part of the functions of ETDZ and HIDZ, in order to accelerate the urbanization of China.

Free Trade Zone (FTZ) and Export Processing Zone (EPZ) are two kinds of special zones, whose main function is for international trading, exhibition and export-oriented manufacturing.
Although they are located within the PRC territory, they are deemed outside the Customs. Therefore goods imported to these zones enjoy zero custom duties. 
So choosing the kind of development zones will depend on the nature of your business.

there are also some special functional industrial parks, such as border economic cooperation zones, software development zones, and university science parks etc.

9.Location is always one of the most important factors affecting future returns of today’s investment. 

The development of China is highly divided. The level of progression of a region, including economic development, infrastructure, convenience of transportation, can often translate into investment costs and returns. Not surprisingly, the level of development in one region often has high correlations to the culture, mentality and efficacy of the local officials. 

includes five categories:
1) Location advantages and macroeconomic performance of the host city;
2) Development of industrial park;
3) Cost of investment;
4) The richness of human resourcesï¼›
5) Management and services.

Discuss the similarities and differences in business environment between U.S. and China?
—economic
–Social and cultural
–Tech
–Natural
–legislation
–political

Case Study
KFC-B
1.Political environment
Government intervention(licensing,lease)
2. Planning Economy,Economic development ,Import barrier ,Foreign Exchange rate

3.Social and cultural environment
4.Technology
5.location(Beijing,Shanghai,Guangzhou,Tianjin)
6.legislation
7.Joint venture(partner selection—Beijing animal husbandry product company,Beijing Tourist administration
,invest agreement)