CHINA LAW DIGEST NEWSLETTER
Vol. 1, No.2 - March 19, 2002
New Rules Regulating Foreign Investment
- Several Opinions on Foreign Investment Issues Relating to Listed Companies
- Provisions on the Administration of Foreign Investment in the Road Transportation Sector
- Provisions on the Administration of Foreign Invested International Cargo Transportation Agencies
- Interim Regulations on the Establishment of Foreign Invested Printing Enterprises
- Tentative Provisions on the Absorption of Foreign Capital by Financial Asset Management Companies to Participate in Asset Restructuring and Disposal
- Regulations on the Exploitation of Offshore Oil Resources in Cooperation with Foreign Parties (Revised)
- Regulations on the Exploitation of Onshore Oil Resources in Cooperation with Foreign Parties (Revised)
Several Opinions on Foreign Investment Issues Relating to Listed Companies
Issue Date: November 8, 2001
Issue Body: Ministry of Foreign Trade and Economic Cooperation and China
Securities Regulatory Commission (CSRC)
Effective Date: As of the date of issue
Summary:
The Opinions deal with the listing of foreign invested companies limited by shares and the issuing of shares by such companies. A foreign invested company limited by shares that issues shares domestically (A shares or B shares) must satisfy foreign investment policies and the requirements for listing and issuing shares. A foreign invested company limited by shares that intends to make an initial public offering and be listed shall satisfy the following conditions, in addition to satisfying relevant provisions of such laws and regulations such as the Company Law and relevant provisions issued by CSRC (Article 2.2):
a)Pass the annual joint inspection of foreign invested enterprises for each of the three years preceding its listing application;
b)Satisfy the scope of business requirements according to the Tentative Provisions on the Directing of Foreign Investment Industry Guidance Catalogue;
c)Foreign invested shares will account for no less than 10% of its total share capital after it has been listed;
d)Whereas regulations require that the Chinese parties of the company be the controlling shareholders or for which there are special provisions concerning the shareholding ratio of the Chinese parties, such controlling positions or shareholding ratios shall be maintained after the listing.
The Opinions also establish requirements for the listing and trading of unlisted foreign invested shares. For the time being, foreign invested companies are prohibited from accepting the transfer of non-traded shares of listed companies. It also worth noting that if the foreign capital proportion of foreign invested companies limited by shares falls below 25% of the total share capital after the company listing, the company shall return its certificate of approval and lose its foreign invested company status.
Provisions on the Administration of Foreign Investment in the Road Transportation Sector
Issue Date: November 20, 2001
Issue Body: Ministry of Foreign Trade and Economic Cooperation and Ministry of Communications
Effective Date: As of the date of issue
Summary:
The provisions apply to business activities in the road transportation sector including road cargo transportation, road passenger transportation, road cargo loading, unloading and portage, road cargo warehousing and vehicle maintenance services relating to road transportation. Besides stating what type of foreign invested enterprises can now enter the road transportation sector, the Provisions also state the necessary procedures for gaining approval to establish a FIE in the said sector.
The provisions state that the following foreign invested enterprises are now permitted in the road transportation sector:
1)Sino-foreign equity joint ventures engaging in road passenger transportation;
2)Other road transportation businesses in the form of Sino-foreign equity joint ventures or Sino-foreign cooperative joint ventures, and;
3)Other road transportation businesses in the form of wholly foreign-owned enterprises subject to a sector entry schedule to be announced by the State Council departments in charge of foreign trade and communications.
The provisions also stipulate that for foreign invested enterprises wishing to engage in road passenger transportation, at least one of the main investors must have been engaged in the road transportation business in China for a minimum of 5 years and that foreign equity interest must not exceed 49%. Although a FIE in the road transportation sector shall normally not have a business term no longer than 12 years, it is possible to obtain a 20-year term if more than half of the total invested capital is used to construct a transportation terminal.
Provisions on the Administration of Foreign Invested International Cargo Transportation Agencies
Issue Date: December 19, 2001
Issue Body: Ministry of Foreign Trade and Economic Cooperation
Effective Date: January 1, 2002
Summary:
For the purpose of these Provisions, foreign invested transportation agencies refers to those foreign invested enterprises, in the form of equity joint ventures, contractual joint ventures and wholly-foreign owned enterprises, who are entrusted by consigners or consignees to arrange international cargo transportation (FITA). The capital contribution of Chinese parties in the FITA shall not be lower than 50% of the total.
To set up a FITA, at least one of the Chinese parties shall be an international cargo agency who has engaged in an international cargo transportation agency business for over one year, or an enterprise that has obtained import and export rights for over one year, or an enterprise engaging in a relevant transportation or warehousing business for over one year. Such a Chinese party shall be the largest shareholder among all Chinese investors. At least one of the foreign investors shall be a company engaging in an international cargo agency business for more than three years. Enterprises engaging in businesses such as wharfs, ports or airports, which would affect the fair competition of cargo transportation agencies, shall not be the Chinese party of joint ventures.
The Provisions require that a FITA must have a minimum registered capital of US$ 1,000,000, plus have at least 5 international cargo transportation professionals in addition to having 3 years experience. A FITA shall normally have a term of no more than 20 years.
Interim Regulations on the Establishment of Foreign Invested Printing Enterprises
Issue Date: January 29, 2002
Issue Body: Ministry of Foreign Trade and Economic Cooperation and Administration of Press and Publication
Effective Date: January 29, 2002
Summary:
Foreign invested printing enterprises (FIPEs) refer to printing enterprises in the form of equity joint ventures, contractual joint ventures invested by foreign companies and Chinese companies (JVs) as well as wholly-foreign owned printing enterprises. Joint ventures are allowed to engage in the printing of publications, packaging and trade dress presswork and other presswork. Wholly foreign owned printing enterprises are only allowed in the printing of packaging and wrapping presswork.
A FIPE engaging in the printing of publications and packaging and wrapping presswork requires no less than RMB 10 million registered capital, while FIPEs engaging in other printing businesses only require RMB 5 million. Chinese parties shall own majority shares or take controlling positions in JVs engaging in the printing of publications and other presswork business. The Regulations also require that the Chairman of the board in a JV engaging in the printing of publications must be appointed by the Chinese parties, and Chinese directors shall outnumber foreign directors. The term of a FIPE shall not be more than 30 years.
The Regulations also set up complex procedures to establish a FIPE. Approvals shall be obtained from the competent press administration first and then from the competent foreign trade and economic administration body. A FIPE with over US$ 30 million shall submit an application to the Ministry of Foreign Trade and Economic Cooperation. FIPEs are not currently allowed to set up branches in China.
Tentative Provisions on the Absorption of Foreign Capital by Financial Asset Management Companies to Participate in Asset Restructuring and Disposal
Issue Date: October 26, 2001
Issue Body: Ministry of Foreign Trade and Economic Cooperation, Ministry of Finance and People's Bank of China
Effective Date: As of the date of issue
These Provisions were issued in order to regulate the absorption of foreign capital in the restructuring and disposal of assets by financial asset management companies (Asset Management Companies) and to protect the lawful rights and interests of Chinese and foreign investors.
Foreign capital shall be excluded from participating in the restructuring and disposal of assets in the cultural, financial and insurance sectors as well as sectors in which the Foreign Investment Industry Guidance Catalogue prohibits foreign investment. In projects for which the Foreign Investment Industry Guidance Catalogue stipulates that the Chinese side must hold a controlling interest, the Chinese side shall, in principle, continue to maintain controlling interest after foreign capital has participated in the restructuring.
The Asset Management Company may sell or transfer an unlisted company's equity or debt owned by it to a foreign business entity either directly or after restructuring. The Asset Management Company may sell tangible assets owned by it to a foreign business entity by way of a negotiated transfer, tender offer, auction, etc. The Asset Management Company may also form a foreign invested enterprise with foreign businesses by contributing equity and tangible assets.
Regulations on the Exploitation of Offshore Oil Resources in Cooperation with Foreign Parties (Revised)
Issue Date: September 23, 2001
Issue Body: State Council
Effective Date: As of the date of issue
Summary:
The Revised Regulations on the Exploitation of Offshore Oil Resources in Cooperation with Foreign Parties differs from the previous regulations promulgated in 1982 in that the mandatory requirements of utilizing domestic components and engaging in technology transfer have been removed. Article 13 of the revised regulations now does not require foreign contractors to transfer technology and permits that the parties involved in an oil contract have the right to agree on the type of personnel necessary in an oil operation and that Chinese citizens can be employed on a preferential basis. The requirements in the previous regulations that foreign contractors must procure services, materials, facilities and equipment from Mainland suppliers on a preferential basis are now absent.
Despite a general reduction of the limitations on the actions of foreign contractors, the exclusive rights of the China National Offshore Oil Corporation (CNOOC) have not been changed. The Revised Regulations still clearly state that the CNOOC is in charge of cooperative exploration, development, production and sale of offshore oil resources with foreign parties.
Regulations on the Exploitation of Onshore Oil Resources in Cooperation with Foreign Parties (Revised)
Issue Date: September 23, 2001
Issue Body: State Council
Effective Date: As of the date of issue
Summary:
The Revised Regulations on the Exploitation of Onshore Oil Resources in Cooperation with Foreign parties, in a nature similar to the Revised Regulations on the Exploitation of Offshore Oil Resources in Cooperation with Foreign Parties no longer has mandatory requirements forcing foreign contractors to procure services, materials, facilities and equipment from Chinese suppliers, nor transfer technology. Foreign contractors also now have the freedom to sell their oil to entities other than CNPC or SINOPEC.
Another major difference in the revised regulations compared to the previous regulations promulgated in 1993 is that the China Petrochemical Corporation (SINOPEC) and the China National Petroleum Corporation (CNPC) are now designated as the parties in charge of the exclusive rights to all cooperative exploration, development, production and sale of onshore oil resources with foreign parties. China United Coalbed Methane Corporation is also designated as the Chinese party in charge of the exclusive rights to all cooperative exploration, development, production and sale of coalbed gas with foreign parties.
Lehman Lee & Xu
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