Haworth & Lexon Law Newsletter

No.2, 2002 (Total: No.6)    Feb. 20th, 2002

Edited by Haworth & Lexon

Special Issue for Foreign Investment Law

Guidelines:

¡ï     Foreign Investment has further opened in the fields of film, audiovisual products and publishing.

¡ï     As Regulations on the Management of Travel Agencies and correlative enforcement regulations were revised, foreign-invested travel agencies obtained access.

¡ï     Regulations on the Management of Foreign-invested Telecommunication Enterprises came into effect on Jan. 1st, 2002.

¡ï     As Regulations on the Management of Financial Institutions, Regulations on the Management of Insurance Companies¡± came into effect on Feb.1st .2002, financial and insurance business have opened to the outside world.

¡ï     Foreign-invested international freight agent has new regulations.

¡ï     Foreign-invested enterprises in the WaiGaoqiao FTZ may set up working institutions out of the zone.

Foreign Investment has further opened in the fields of film, audiovisual products, and publishing.

    Regulations on the Management of film, Regulations on the Management of Publishing, and Regulations on the Management of Audiovisual Products were promulgated by the State Council, which all came into effect on Feb.1^st  .2002.The regulations have defined the access conditions and scope on foreign investment. 

  Regulations on the Management of Film

Foreign services suppliers are permitted to produce film in the form of contractual joint venture, but Chinese sides should be film studios. Chinese sides must apply to relevant governing institutions of the State Council in advance, and then both sides sign the contract on producing film. Organizations and individuals abroad mustn¡¯t engage in the activities of producing film independently.

Foreign services suppliers are permitted to construct and/or renovate cinema in the form of joint venture or contractual joint venture, and specific matters are regulated separately.

Regulations on the Management of Publishing

Joint venture, contractual joint venture and wholly foreign-owned enterprises are permitted to engage in the distributing business of book, newspaper, magazines, and specific matters are separately stipulated by the regulatory authorities.     

Regulations on the Management of Audiovisual Products &

Administrative provisions on the Management of Contractual Joint Venture Distributing Audiovisual Products

   At present, foreign services suppliers are permitted to engage in the distributing business (including wholesale, retail , lease)in the form of contractual joint venture, and specific matters are separately stipulated by the Regulations on the Management of Contractual Joint Venture Distributing Audiovisual Products¡±which came into effect on Jan.10th .2002:

1.Both sides should be innocent within 3 years before application; the contractual joint venture should be independent legal person; Chinese investment interest in contractual joint venture should be no less than 51 percent; Cooperative term should be no more than 15 years.

2.The contractual joint venture mustn¡¯t engage in the business on import of audiovisual products.

3.To the enterprises, which apply to engage in chain business, or operate by means of information network, they must fulfill formalities separately.

Regulations on the Management of Travel Agencies and correlative Enforcement Regulations

Regulations on the Management of Travel Agencies and correlative enforcement regulations were revised by the State Council and CNTA, which came into effect on Dec.11th 2001 and Dec.26th. 2001 .The regulations have defined the establishing conditions, registered capital, investment proportion and business scope on foreign-invested travel agencies

1.Establishing conditions: qualifications for foreign tour operator: Be a travel Agency or engage mostly in the business of tour operation business; At least US$ 40 million¡¯s annual income; A member of native Tourism Association. Chinese side directly applies to CNTA to set up foreign-invested travel agencies.

2.Registered capital£ºMinimum registered capital should be RMB 4 million, and investment proportion are separately stipulated by the regulatory authorities. According to China's accession to the WTO, the minimum registered capital is RMB 2.5 million within 3 years after accession. So regulations provide that RMB 4 million may be adjusted, the term will be separately regulated.

3.Business scope: foreign-invested travel agencies are permitted to engage in the business of ingress tour and domestic tour, but not to engage in the activities of Chinese traveling abroad and to Hong Kong SAR, Macao SAR and Chinese Taipei.

According to above regulations, foreign-invested travel agencies mustn¡¯t set up in the form of wholly foreign-owned or set up any branches. According to China's accession to the WTO: within 3 years after accession, foreign investment may hold controlling shares in the joint venture; within 6 years after accession, wholly foreign-owned travel agencies may be established.

Besides, the regulations provide that foreign travel agencies may set up permanent office, which engage in the nonprofit-making activities, such as tour consultation, liaison, publicity, etc.

Regulations on the Management of Foreign-invested Telecommunication Enterprises

Regulations on the Management of Foreign-invested Telecommunication Enterprises¡± was promulgated by the State Council, which came into effect on Jan.1st .2002.

1.Foreign-invested telecommunication enterprises are permitted to establish only in the form of joint venture.

2.According to different geographic range for operating business, minimum registered capital is regulated separately: within the range of nation or across Province, Autonomy Region, and Municipality, minimum registered capital for basic services and value-added services are RMB 2,000 million and RMB 10 million respectively; within the range of Province, Autonomy Region and Municipality minimum registered capital for basic services is RMB 200 million and for value-added services is RMB 1 million.

3.Foreign investment proportion£ºFor basic services£¨ex wireless call business, foreign investment should be no more than 49 percent; For value-added services£¨including wireless call business, foreign investment should be no more than 50 percent.

Regulations of the People¡¯s Republic of China on the Management of Foreign-funded Financial Institutions

Regulations of the People¡¯s Republic of China on the Management of Foreign-funded Financial Institutions¡± and its enforcement regulations were amended by the State Council and People's Bank of China respectively. Both regulations came into effect on Feb. 1st, 2002.  The new regulations embody the Chinese accession commitments, principle of prudential custody, international usage of bank custody, principle of unitize custody on home and foreign currency, and pay attention to the join of custody policy on Chinese-funded & foreign-funded financial institutions.

By the end of 2001, China has further opened accession conditions for foreign-funded financial institutions. According to above new regulations, People's Bank of China has already accepted the application that foreign-funded financial institutions broaden business cope, field, geographic areas in China.

Regulations of the People¡¯s Republic of China on the Management of Foreign-invested Insurance Companies

  Regulations of the People¡¯s Republic of China on the Management of Foreign-invested Insurance Companies¡± was promulgated by the State Council, which came into effect on Feb. 1st, 2002.

1.Foreign-invested insurance companies could be established in the form of joint venture, wholly foreign-owned insurance companies as well as branches of foreign insurance companies.

2.The regulations provide the minimum limitation of registered capital for joint venture and wholly foreign-owned, operating funds for branches of foreign insurance companies. as well as establishing conditions for a foreign insurance that applies to establish a foreign-invested insurance company.

3.Foreign-invested insurance companies are permitted to operate the business on property insurance or person insurance, but not concurrently; Foreign-invested insurance companies are permitted to operate the business such as insurance of large-scale commercial risks, master policy insurance, and to engage in reinsurance.

Regulations of the People¡¯s Republic of China on Foreign-invested International freight Agencies 

Regulations of the People¡¯s Republic of China on Foreign-invested International freight Agencies ¡±was promulgated by the Ministry of Foreign Trade & Economic Cooperation (MOFTEC), which came into effect on Jan. 1st, 2002. Foreign-invested International freight Agencies may be established in the form of joint venture, contractual joint venture and wholly foreign-owned enterprises. Specific matters are as following:

1.At present, the proportion of Chinese investment should be no less than 50 percent in the joint venture and contractual joint venture. Regulations to allow foreign investment have majority interest or whole interest in this area will be separately promulgated by the MOFTEC.

2.Qualifications for foreign side as following£ºBe innocent within 3 years before application; At least there is an agency that has engaged in freight Agency over 3 years, which is the major shareholder in foreign side.

3.Minimum registered capital should be US$ 1 million. Regulations provide that the agency may apply to set up branches after 1 years operation and both sides have already handed in the required capital.

Notification on Foreign-invested Enterprises in WaiGaoqiao FTZ Setting Up Branches

To further support the better development of the foreign-invested enterprises in WaiGaoqiao FTZ, The notification of the SAIC came into effect on Jan. 4th, 2002.

1.Foreign-invested enterprises in WaiGaoqiao FTZ may set up nonprofit-making working institutions out of the zone, and they are only permitted to engage in liaison business that under the scope of parent companies.

2.To the foreign-invested enterprises in WaiGaoqiao FTZ that set up working institutions out of the zone, they don¡¯t enjoy preferential taxation policy for the enterprises in the zone.

3.When Foreign-invested enterprises in the zone set up working institutions out of the zone, foreign currency account is not allowed to open. Income recorded in the account of working institutions must be appropriate money of parent companies, which only limit to reasonable office outlay for working institutions

4.Any profit-making branches are not permitted to set up out of the zone.