(Promulgated by the General Administration of Civil Aviation of China on October 25, 1995)
The promulgation of "Circular on Relevant Policy for Foreign Investment in Civil Aviation" (hereinafter, the Circular) is a significant measure taken by the State to extend the open policy. In order to ensure correct comprehension and implementation of the Circular, the explanation on certain matters relating to the Circular is hereby announced as follows:
1. With regard to the extent to which foreign investors may invest in airport construction as provided in Article 1 Item (1) of the Circular, the flight zone also includes navigational light, in addition to runway, taxiway and apron;
2. With regard to capital investment, the expression "the share of the Chinese party shall constitute more than 51%" in Article 1 Item (2) of the Circular means the same as "the share of the Chinese party constitutes more than 51% of the enterprise's registered capital" in Article 1 Item (1), both of them referring to the proportion of the Chinese party's shares in the enterprise's registered capital.
3. With regard to the proportion of shares, while establishing a Chinese-foreign equity joint venture or contractual joint venture for separate construction of airport flight zone as provided in Article 1 Item (1) of the Circular, or for construction of flight zone together with any one or more of such auxiliary projects as listed in Article 1 Item (2), or for overall construction of an airport, the share of the Chinese party shall, in any case, constitute more than 51% of the enterprise's registered capital and the chairman of the board of directors and the general manager shall be appointed by the Chinese party.
While establishing a Chinese-foreign equity joint venture or contractual joint venture for separate construction of terminal building as provided in Article 1 Item (2) of the Circular, or for construction of terminal building together with one or more of such other auxiliary projects as listed in the same item, the share of the Chinese party shall, in any case, constitute more than 51% of the enterprise's registered capital and the chairman of the board of directors and the general manager shall be appointed by the Chinese party.
Where a Chinese-foreign equity joint venture or contractual joint venture, which is established as a result of a foreign investment in a civil airport flight zone project according to the provision of Article 1 Item (1) of the Circular, has the need to increase its capital investment to expand its business scope to operating such airport auxiliary projects as listed in the same item, the share of the Chinese party shall also constitute more than 51% of the enterprise's registered capital, and an application shall be submitted for approval according to the regular procedures.
4. Foreign investment in air transport enterprise" mentioned in Article 2 of the Circular refers to investment made by foreign investors in an air transport enterprise that is already established, which shall be examined and approved in the same way as establishing a foreign invested enterprise and the requirements for such an enterprise shall be fulfilled. But it does not mean establishing a new air transport enterprise.
According to the decision of the State Council made last year on temporarily ceasing to examine and approve establishment of new airlines, foreign investors may only invest in those air transport enterprises already legally established.
5. Holding each other's shares as mentioned in Article 2 Item (2) of the Circular means that Chinese air transport enterprises and foreign air transport enterprises may, on the basis of reciprocity, hold each other's shares and cooperate effectively in market operation, with no persons being appointed by one party into the other party's managing structure for participation in management and operation.
6. With regard to "chooses one or two air transport enterprise(s) to conduct experiments" mentioned in Article 2 Item 3, China Eastern Airlines and China Southern Airlines, which have been approved to be carrying out the experiments in restructuring to stock sharing system and preparing for listing outside China, are in such experimental category as stated in the Circular. The addition of experimental enterprises shall be subject to further decision of the General Administration of Civil Aviation of China and may be announced by the Administration.
7. With regard to the proportion of foreign shares in air transport enterprises, no matter which way provided in the Circular is selected for a foreign investor to invest in an air transport enterprise, the proportion of the foreign share in the registered capital or the paid-in-capital of such air transport enterprise shall not exceed 35%, the votes of the representative(s) for the foreign investor in the board of directors shall not exceed 25%, and the votes of the foreign investor in the shareholders' meeting or the shareholders' conference shall not exceed 25%, either.
8. "The domestic enterprise of the same category" as mentioned in Article 2 Item 6 of the Circular refers to an existing home air transport enterprise with no foreign investment. "All items of tax" mainly refers to the import duties of aircraft and air materials, as well as enterprise income tax, etc., in relation to which both enterprises with and those without foreign investment shall enjoy the same treatment so as to ensure them an equal competition environment.
9. With regard to general aviation for agriculture or forestry, Article 3 of the Circular provides that foreign investors may invest in general aviation enterprises in the field of agriculture or forestry. Foreign investment is not given admittance to the general aviation enterprises other than those in the field of agriculture or forestry.
10. "According to law" mentioned in Article 5 of the Circular refers to according to the laws of the State, the administrative rules and the regulations of the General Administration of Civil Aviation of China, as well as other relevant regulations.
11. This explanation applies mutatis mutandis in relation to the investment or participation of shares in Mainland civil aviation enterprises by companies, enterprises, other business organizations or individuals from Taiwan, Hong Kong or Macao.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.
