Examination & Approval of Foreign-Invested Enterprises

Examination & Approval of Foreign-invested Enterprises

41. Are there any government regulations concerning the ratio between the total investment and registered capital of a foreign-invested enterprise?

42. What is "B share"?

43. How to buy "B" share?

44. How is "B share " transacted?

45. Can a foreign-invested enterprise set up an import-export trade company?

46. How can a joint venture prolong its term after it expires?

47. What is an export-oriented enterprise?

48. What is an advanced hi-tech enterprise?

49. What preferential policies can an export-oriented enterprise and an advanced hi-tech enterprise enjoy?

50. Where to apply for the status of an export-oriented enterprise or an advanced hi-tech enterprise?

51. Is there any difference with regard to policies between such development zones in Puxi Area as Minhang, Caohejing, Hongqiao and the Pudong New Area?

52. How many municipal level industrial zones are there in Shanghai?

10. What kind of organisation is Shanghai Foreign Investment Commission (SFIC)? What is SFIC responsible for?

SFIC, a comprehensive and authoritative working organisation, is established by the Shanghai Municipal Government to improve investment environment and streamline procedures of project examination and approval.

SFIC has the following responsibilities:

(1) To work out related regulations in detail, to make project and product lists guiding foreign investment in accordance with economic development strategy of Shanghai and industrial policy of the state and to draft or amend local investment-related rules & regulations.

(2) To examine and approve foreign investment projects with a total investment from USD 10 million to USD 30 million and to macro-control and administer foreign-funded projects of the whole city.

(3) To offer foreign investors various consulting services on policies, laws and regulations, to receive visitors, to answer letters and handle complaints.

(4) To co-ordinate and solve problems foreign investors encounter during the setting up and production stages of their enterprises, to enable foreign investors to manufacture & operate according to laws, regulations & rules of the State.

(5) To administer the application for funds involving projects with foreign government loans, UN and other international institutional aid, as well as foreign governmental aid; to examine, approve and administer projects involving international leasing; to examine, approve and administer foreign- related construction projects; and to examine and approve contracts involving loans from international financial institutions.

Mr. Zhu Xiao Ming, Deputy Secretary-General of Shanghai Municipal Government and Chairman of Shanghai Foreign Economic Relations & Trade Commission, concurrently assumes the chairmanship of SFIC. Mr. Wu Chen Lin, Vice Chairman of Shanghai Foreign Economic Relations & Trade Commission, is concurrently Executive Vice Chairman of SFIC, responsible for day-to-day operations.

11. What sort of services can Shanghai Foreign Investment Service Centre (SFISC) offer?

a. to introduce the investment guideline based on related policies and regulations promulgated by the government;

b. to provide various consulting services on laws, regulations and policies; c. to recommend proper partners and to assist in the arrangements of investment negotiation;

d. to help draft project proposals, feasibility study report, contracts and articles of association;

e. to handle the formalities of business, taxation and customs registrations and to open bank account for our clients.

f. to handle or assist in handling the relevant procedures for land use, construction planning, environmental protection, fire protection, hygiene and disease prevention and to assist in the application for the public utilities, post and telecommunication services as well as water, power and gas supply;

g. to help handle the relevant procedures of taking on employees and training staff and workers.

h. to handle the formalities for establishing resident representative offices in Shanghai for foreign enterprises; to handle or assist in the purchase of real estate, arrangement of business talks, arrangement of investment investigation tours; and to offer relevant services of customs declaration, transportation, postal order, tickets and accommodation;

i. to handle labour service exporting;

j. to handle other services for foreign investors and enterprises.

12. What do "one station management " and " a co-ordinated service" signify? Is there any difference from what we used to do?

" One station management" means that , according to different investment & different registered addresses of each project, foreign businessmen who came to invest can just turn to SFIC, Pudong New Area Foreign Economic & Trade Commission, and Foreign Economic and Trade Commissions in districts or countries and the Foreign Economic and trade Department of the Industrial Bureau for approval of their applications. All the relevant government departments and offices responsible for examination and approval of investment projects are put together to facilitate the formalities for overseas investors.

"A co-ordinated service" intends to offer overseas businessmen a whole process of services, such as recommending proper partner, assisting in locating a site for a factory, preparing and submitting project proposal, handling the registration of the enterprise's name, drafting a feasibility study report and contract, and assisting in the application for business license at the setting up period; assisting in designing & planning, in engineering construction and in handling related construction procedures like land planning, environmental protection, fire protection and public utilities etc. at the second stage; assisting in employing staff, providing relevant information, etc. at the last stage. Shanghai Foreign Investment Service Centre can provide " co-ordinated service".

13. How many organisations are there in Shanghai handling the approval of foreign investment projects? What are the detailed regulations?

There are altogether 50 organisations dealing with the examination and approval of foreign investment projects in Shanghai. Shanghai Foreign Investment Committee examines and approves projects with an investment between USD 10 million & USD 30 million; Foreign Economic and Trade Commissions in district-level governments and in county-level governments and relevant bureau’s are responsible for examination and approval of foreign investment projects with an investment under USD 10 million; Pudong Administrative Committee and Free Trade Zone Administrative Committee are responsible for examination and approval of projects with an investment under USD 30 million.

14. How to handle the projects which go beyond the power of Shanghai Municipal Government?

Manufacturing projects with a total investment of over USD 30 million and other projects requiring approval from the competent department of the State Council will be submitted to the authoritative department of the State Council for approval after being examined by the SFIC together with related offices.

15. What are the procedures for examination and approval of a foreign- invested enterprise?

(1) Sino-foreign joint ventures: a. Draft the project proposal. The project proposal can either be drafted by the Chinese party (partner) and then be submitted to the examination and approval authority or be handled by a consulting institution.

b. Apply for the registration of enterprise's name. Once the project proposal is ratified, the Chinese party (partner) shall apply to the Industrial and Commercial Administration Bureau (ICAB is used hereafter) for the registration of the enterprise's name.

c. Work out the feasibility study report, contract and articles of association. The Chinese and foreign partiesshall jointly prepare a feasibility study report, draft the contract and articles of association, which are then to be submitted to the examination and approval authority by the Chinese party.

d. Apply for the issue of the approval certificate. After the feasibility study report, contract and articles of association are approved, the Chinese party shall apply for the issue of the approval certificate from the examination and approval authority.

e. Apply for the business license. Once the approval certificate is obtained, the Chinese party may register with the Shanghai Industrial and Commercial Administrative Bureau and apply for the business license.

(2) Procedures for establishing enterprises operated solely with foreign capital:

a. To establish a wholly foreign-invested enterprise, the foreign investor is required to entrust an authorised consulting agency with the application and documents submission procedures.

b. The procedures for establishing Sino-foreign joint ventures and Sino- foreign co-operative enterprise can be consulted as a reference for the establishment of wholly foreign-invested.

16. What shall be included in the project proposal of a Sino-foreign joint venture?

(1) The Chinese partner: it shall include the name of the Chinese partner, a briefing about its production and business, the legal address, the name and title of the legal person as well as the name of the authoritative bureau (department).

(2) The purpose of co-operation: The emphasis shall be laid on the necessity and the probability of exporting to make profit & introducing technologies.

(3) The foreign partner: it shall include the name of the foreign company, the registered country, the legal address and legal person together with his name, title and nationality.

(4) The business scope and scale: The necessity of the project construction, the demand of the product both at home and abroad, the production as well as sales areas or regions of the product shall be emphasised.

(5) Investment estimation: it refers to the total amount of fixed assets and circulation fund required.

(6) The prospect of investment & the source of capital: it shall include both the ratio of investment and ratio of capital formed by both parties.

(7) Production techniques & main equipment: emphasis is laid on the superiority, suitability and reliability of the technology and equipment as well as important technological and economic indexes.

(8) The quantity and source of major raw materials, water, electric power, gas and transport shall be included.

(9) The number, formation and source of labour shall be included.

(10) Economic analysis with emphasis on arrangement of foreign exchange balance shall be included.

(11) Main documents:

a. The agreement contract of co-operation signed by both parties;

b. The credibility investigation of the foreign investors.

17. What shall be included in the feasibility study report of a Sino- foreign joint venture?

(1) A brief introduction

a. The name of the joint venture, its legal address, purpose, business scope and scale;

b. The names of each party, their registered countries, their legal addresses, their legal-persons' names, titles and nationalities (the Chinese party shall make known its competent department or bureau);

c. The total investment of the joint venture, its registered capital, and the number & amount of shares (investment of each party, investment proportion of each party, the means of investment and the deadline for the payment of capital);

d. The term for co-operation, the profit allocation and the ratio of sharing loss and damage;

e. The approval certificate of the project proposal;

(2) Arrangement of production and its basis; The demand of the product both at home and abroad, methods of market survey, the capacity of the production equipment used or being used at home and abroad shall be explicitly stated.

(3) Arrangement of the supply of materials and fuel (including energy and transportation) and its basis.

(4) Selection of the project site and its basis.

(5) Selection of technological equipment and technique process and their bases.

(6) Arrangement of organizing production and its basis(including the total number, formation and source of employees, as well as management).

(7) Treatment of environmental pollution, production safety and hygienic measures and their bases.

(8) Construction methods, progress of the construction & the grounds for doing so.

(9) Sources of fund and its basis (including the shares converted from the original factory buildings and equipment).

(10) Arrangement of foreign exchange receipts and payments and its basis.

(11) Comprehensive analysis(including the analyses of economic results, technology, finance and law); Profits of the project and balance of foreign exchange shall he analysed both in a progressive and a risky prospect (Or in a sensitive analytic method).

(12) Main documents:

a. A copy (duplicate) of the business license of each party issued by the competent department of its country or regions;

b. Proof of the legal-person of each party;

c. A balance sheet and a loss-and-profit sheet of each party;

d. The survey of both domestic and international markets, the prediction report and the export ratio of product;

e. Comments of the competent department on the site of the project;

f. Comments of the competent department on environmental protection,fire protection, production safety and hygienic measures;

g. Comments of the competent department on the arrangement of foreign exchange;

h. Pre-examination and estimation report of the competent department about the project.

18.What shall be included in the contract of a Sino-foreign joint venture?

(1) The general;

(2) Each party of the joint venture;

(3) The establishment of the corporation;

(4) The purpose, scope and scale of production and management;

(5) Total investment and registered capital;

(6) The responsibility of each party;

(7) Technological transfer;

(8) Sales of product;

(9) Board of directors;

(10) Management organisation;

(11) Purchase of equipment;

(12) Preparation and construction;

(13) Management of production;

(14) Taxation, finance and audit;

(15) Term for joint venture;

(16) Handling of property after the term of joint venture expires;

(17) Insurance;

(18) Modification, alteration and termination of the contract;

(19) Responsibility for breaking the contract;

(20) Force majeure;

(21) Suitability for law;

(22) Settlement of disputes;

(23) Wording;

(24) Effect of the contract and others.

19. In what areas are overseas businessmen most welcomed to invest in Shanghai?

Principles on Encouraging Foreign Investment:

(1) Projects which bring in new technology to agriculture or involve comprehensive agricultural development or engage in the development of energy, transportation, municipal infrastructure, and essential raw materials industries;

(2) Projects which involve hi-tech or advanced technology, or are able to improve the performance of products, boost R & D ability, save energy and raw materials, enhance enterprise's technological and economic benefits, produce new machinery or new materials that are scarce in the domestic market;

(3) Projects which can upgrade products so as to meet the demands of international market and therefore increase our country's foreign exchanges earning through increased export;

(4) New technology and new equipment projects which make comprehensive use of natural resources and resources capable of being recycled, and prevent environmental pollution;

(5) Projects which are supportive to the development of Shanghai's 6 pillar industries, namely, auto industry, communication information equipment, power station equipment, petrochemical and fine chemical industry, consumer electronics and steel industry; projects which involve the development of computer and IC, present day bio-technology and medicine, new materials, new type of building materials and environmental protection equipment.

(6) Projects which are compatible with the city's plan to rearrange the industry within the city's inner-ring road and which are conducive to relocation of enterprises within the inner-ring road and which are conducive to relocation of enterprises within the inner-ring road to the city's industrial development zones in the six suburban counties and three suburban districts;

(7) Projects in the real estate sector which can develop large scales of land or which can demolish old, shabby, deteriorated houses and build new ones in the urban areas for local residents through purchase of land use right;

(8) Projects which are established in Waigaoqiao Free Trade Zone of Pudong New Area to engage in import & export trading, international entrepot trading, or processing, packaging, storage and consultation business for international trading;

(10) Other projects which are encouraged by the State law and regulations. Projects if deemed encouraged enjoy preferential treatment in accordance with related State laws and regulations. Besides, those engaged in the building and operation of energy and transportation infrastructure (such as electric power, local railway, high way, and port) which need a big amount of investment and a long period of capital return can widen their related business scope upon approval.

20. What are the forbidden areas for foreign investment?

(1)Projects which do harm to State safety or social public welfare;

(2)Projects which cause pollution to ecological environment, damage natural resources, impair public health;

(3) Projects which occupy large pieces of agricultural land, are detrimental to protecting and developing land resources, or do harm to the safety or efficiency of military equipment;

(4) Projects whose products using our nation's special craft or technology

(5) Projects which are forbidden by the States Laws, Rules & Regulations. Projects that are forbidden cannot be set up by any companies, enterprises, other economic organisations or individuals.

21. What are the requirements for setting up a foreign-invested holding company?

The applicant in applying for setting up a holding company should conform to the following requirements:

(1) a. The foreign investor should have good credit status and solid financial background for a holding company, with no less than USD400 million of total assets in the previous year. Also, the investor should already have set up foreign-invested enterprises within China whose registered capital should exceed USDIO million, and have three projects whose proposals have already been approved.

Or: b. The foreign investor should have good credit status and solid financial background for a holding company. The investor has already set up over 10 foreign-invested enterprises engaged in manufacturing or construction of infrastructure utilities, with its actual paid-in registered capital exceeding USD30 million;

(2) If the holding company is a joint venture, the Chinese investor should have a good credit status, with solid financial background and no less than RMB 1 00 million of total assets;

(3) The registered capital of a holding company should be no less than USD 30 million.

22. What qualifications shall a foreign-funded bank has to apply for establishment?

(1) The investor shall be a financial institution;

(2) It shall have a representative office of more than three years' standing in China;

(3) It shall have total assets of over USD 10 billion at the end of the year prior to the application for such establishment.

23. What qualifications shall a foreign bank has to apply for the establishment of its branch?

(1) It shall have a representative office of over three years' standing inside China;

(2) It shall have total asset of USD 20 billion or more at the end of the year prior to the application for such establishment;

(3) Its home country or region shall have a sound financial supervising system.

24. What organisation is responsible for the examination and approval of Sino-foreign funded financial institutions?

The application will be submitted to the General Office of the People's Bank of China for approval after its first examination by the Shanghai Branch of the People's Bank of China.

25. How many forms of foreign-investment enterprises are there in Shanghai?

(1) Sino-foreign joint ventures;

(2) Sino-foreign co-operative enterprises;

(3) Wholly Foreign-invested enterprises;

(4) Investment in the form of shares by purchasing "B share" issued by any enterprise in Shanghai.

26. Can foreign-investors acquire State-owned or Collective-owned enterprises in Shanghai?

If a foreign investor wants to purchase State-owned or Collectively-owned enterprises in Shanghai, the investor should go to Shanghai Property Exchange to do the acquisition in conformity with the foreign investment guidance and industrial guidance for foreign investment, and submit the application to foreign investment examination and approval authority for approval.

27. Is there any difference between joint ventures and co-operative enterprises?

a. Sino-foreign joint ventures are corporations with limited liabilities jointly funded and run by either foreign companies or enterprises or other economic organisations or individuals with Chinese counterparts, approved by the Chinese government and set up inside China in accordance with Chinese laws and regulations. They belong to stock ownership enterprises, jointly invested and run by Chinese and foreign partners, who share risks, profits and losses. According to the Regulations about Sino-foreign Investment Enterprises, these joint ventures which are set up inside China will become Chinese legal person and will be ruled as well as protected by Chinese laws.

b. Sino-foreign co-operative enterprises are economic organisations, in which foreign enterprises or organisations or individuals cooperage with their Chinese counterparts both entrusted with rights and duties according to the contract of co-operation, approved by the Chinese government and set up inside China.

The contract shall include investment of any party of the co-operation, condition of co-operation, allotment of profits and products, share of risk, profit and loss, the way of management, and property allocation at the termination of the co-operation term. In terms of organisation, a Sino-foreign co-operative enterprise can be established with the qualifications of an independent Chinese legal person, or a co-operative project contract signed by each party. If they have the qualifications, they can obtain the status of a legal person. Ale enterprises or projects that are approved shall be ruled and protected by China's laws.

The Chinese partner of the co-operation can offer land, natural resources, labour force and service or buildings, equipment and other facilities that can still he used, while the foreign partner can offer capital or technology, or major equipment or materials.

The main difference between joint ventures and co-operative enterprises lies in the fact that shares are not calculated merely by capital and that profit is divided not according to the proportion of shares but according to the investment-distribution ratio based on the contract.

28. How does a Sino-foreign joint venture divide its profit?

The profit is divided according to the proportion of each party's investment to the total capital.

29. How does a Sino-foreign co-operative enterprise divide its profit?

The profit or product is divided, and risk and loss are shared according to the agreement in the contract.

30. What if the contract of a Sino-Foreign joint venture which has already been signed conflicts with the law newly promulgated?

The contracts carried out inside the border of China, such as that of Sino- foreign joint ventures, of Sino-foreign co-operative enterprises and of Sino- foreign collectively exploring and developing natural resources, can still be carried out according to the contract even if there is a new law.

31. What are the regulations on foreign investor's proportion in a Sino-foreign joint venture?

A foreign investor's investment can not be less than 25% of the registered capital in a Sino-foreign joint venture.

32. What is the lowest investment quota of overseas businessmen in a jointly invested or solely foreign-funded enterprises?

The lowest investment of an overseas businessman in a Sino-foreign joint venture or a wholly foreign-invested enterprise shall be no less than USD 200,000 and that in a foreign funded enterprise shall be no less than USD 200,000.

33. How many forms of contributing investment are there for a Sino- foreign joint venture?

Each party of the joint venture can invest by means of either money or other things that can be evaluated in terms of money like buildings, machinery, materials, industrial property right, know-how and land-using right. Each party cannot draw back its capital within the term of joint venture.

34. Are there any regulations stipulating the time limit of investment?

Sino-foreign joint ventures: each party of the joint venture shall include in the contract the timing of investment and shall pay its capital before, the deadline drawn up in the contract. The enterprise shall, according to the related provisions, issue a certificate of receiving the amount of investment, which shall be handed over to both the original authoritative office and ICAB.

If the investment capital is required to be paid off at one time, each party of the joint venture shall pay it off within six months after the issue of the business license. If the investment capital is paid up by instalment, each party of the joint venture shall pay no less than 15 % of the total investment within three months after the issue of the business license.

The failure of either party of the joint venture to pay off the investment capital before the deadline means self-dismissal of the joint venture and invalidity of the enterprise's approval certificate. The joint venture shall have it written off at ICAB and hand in the business license for cancellation. If not, the ICAB shall withdraw the enterprise's business license and make it known to the public.

Sino-foreign co-operative enterprises: Chinese and foreign partners shall carry out their duties of paying off all the investment capital and offering co-operation in accordance with laws, regulations and contract. If any party cannot fulfil its duty beyond the time limit, the ICAB has the right to set a deadline; if it still hasn't fulfilled its duty when the deadline is due, the authoritative office for approval and ICAB shall handle it according to the relevant regulations.

35. What shall be done if the foreign party wants to withdraw its shares?

(1) The board of directors shall decide to terminate the joint venture ahead of schedule;

(2) The joint venture shall work out its liquidation account according to the regulations;

(3) The property after liquidation shall be allocated to each party according to the proportion of their investments.

36. What if a wholly foreign-owned enterprise's fiscal year is different from the calendar year?

If a wholly foreign-owned enterprise has some difficulty in paying taxes according to the tax year stipulated in the Tax Law, it can apply to the local tax authorities. After approval, it can pay taxes according to the enterprise's own fiscal year which includes twelve months.

37. Can a foreign-invested enterprise which has already been registered reduce or increase its registered capital?

A foreign-invested enterprise can increase its registered capital during its operation period, but the increase must be unanimously approved and decided by board meeting and then it must be submitted to the original approval authority for examination and approval.

If the increased amount exceeds the authority of the original examination and approval authority, the application should be submitted to a higher authority by the original examination and approval authority

A foreign-invested enterprise usually is not allowed to reduce its registered capital during its operation period. If there are justified reasons, the application should be submitted to the original examination and approval authority according to relevant laws and regulations of the State.

38. Can a registered foreign-invested enterprise enlarge its business scope?

A foreign-invested enterprise can enlarge its business scope during its operation period, provided that the investors' capital contribution has been paid up. The application shall be submitted to the original examination and approval authority.

39. Can a Joint Venture or a Co-operative Enterprise be transformed to a Wholly Foreign Owned Enterprise?

If permitted by the government policies and unanimously approved by the board meeting, a joint venture or a co-operative enterprise can apply to the original examination and approval authorities for the transformation to a wholly foreign-owned enterprise.

40. What is a Sino-foreign Joint Stock Company and what are its characteristics?

A Sino-foreign Joint Stock Company is a joint venture with its fund gathered through the issue of shares. Its total capital is divided into shares with equal quota. The foreign investment shall make up more than 25% of the total. A shareholder shall share the responsibility of the enterprise according to the amount of shares he has and the company is responsible for all its debts on the basis of its total assets.

This sort of stock company has already come into existence. November 30,1991 witnessed the establishment of the Shanghai Vacuum Electronic Apparatus Corporation Ltd., the first one of its kind, which issued 1 00 million RMB "B share".

Compared with a Sino-foreign joint venture, Sino-foreign Joint Stock Company has the following characteristics:

a. In the nature of investment, investors of a stock company usually invest by purchasing enterprises shares with currencies, whereas investors of a Sino-foreign joint venture can buy shares by means of either cash or factory building, equipment or industrial property right.

b. With regard to the object of investment, the foreign partner of a Sino- foreign joint venture must be a foreign enterprise or company or organisation or individual whereas a Sino-foreign Joint Stock Company has opened possibilities to more investors, including not only foreign partners of the corporation but also overseas organisations and even governments that can also buy shares. Besides, it offers opportunities to big, medium add small investors whatever amount of shares they buy in the securities market;

c. Regarding the circulation of fund, the foreign partner of a Sino-foreign joint venture is not allowed to withdraw his registered capital within the period of operation. Even if he wants to transfer, it must be ratified by the board of directors as well as the related department of the government. How ever, a shareholder of a Sino-foreign stock-ownership corporation can transfer his shares at any time since the corporation share is on sale in the securities market, independent of any individual's or institution's restraint;

d. With regard to the operation term, a Sino-foreign joint venture generally has a time limit in its operation term, whereas a Sino-foreign Joint Stock Company doesn't have such a limit;

e. With regard to organisation, a Sino-foreign joint venture has a board of directors and management organisation while a Sino-foreign Joint Stock Company has either the congress of shareholders or the congress of shareholder representatives, under which there are two parallel organisations: board of directors and board of supervisors. Under the board of directors, there is a management organisation.

41.Are there any government regulations concerning the ratio between the total investment and registered capital of a foreign-invested enterprise?

The State ICAB has formulated the following regulations about the ratio of a Sino-foreign joint venture's registered capital and its total investment:

(1) The registered capital of a joint venture with a total investment under USD 3 million (including 3 million) shall make up at least seven tenths.

(2) The registered capital of a joint venture with a total investment from USD 3 million to USD 10 million (including 10 million) shall make up at least 50%. But if the total investment is under USD 4.2 million, the registered capital shall not be less than USD 2.1 million.

(3) The registered capital of a joint venture with a total investment from USD 10 million to 30 million (including 30 million) shall make up at least two fifths. But if the total investment is under USD 12.5 million, the registered capital shall not be less than USD 5 million.

(4) The registered capital of a joint venture with a total investment over USD 30 million shall make up at least one third, but if the total investment is under USD 36 million, the registered capital shall not be less than US$ 12 million.

42. What is "B share"?

Shares in China are divided into two kinds: RMB share and special RMB share, which is worth its RMB face value. This special RMB share is also known as "B share". The latter is especially for overseas legal persons and natural persons to operate in terms of foreign currency.

43. How to buy "B" share?

Overseas legal persons and natural persons, who want to buy "B share" shall entrust a securities company approved to operate B share by the People's Bank of China. They shall show their identity cards, passports or registration certificate of a legal resident when buying B share.

44. How is "B share " transacted?

The buying and selling of B share are done through a securities company. An individual buyer inside China shall produce both B share book account and valid personal identity as well as fill out an entrusting buying and selling slip. An organisation buyer inside China shall entrust a representative with the right to give order for transactions. Any investor outside China who wants to buy "B share " shall handle this through an overseas securities company.

45.Can a foreign-invested enterprise set up an import-export trade company?

A foreign-invested enterprise can import equipment, raw materials and etc. needed in production and export its products on its own. If it intends to set up an import-export trade company, the foreign-invested enterprise can apply for it. According to the present policy, a foreign investor can set up a import- export trade joint venture in Pudong New Area after approval by the State Council; it can also set up an import-export trade company in Waigaoqiao Free Duty Zone of Pudong New Area after approved by Waigaoqiao Free Duty Zone Administrative Committee.

46. How can a joint venture prolong its term after it expires?

If all the parties of the joint venture are willing to prolong the term when it expires, the joint venture shall submit its application for the extension of the term to the original office for approval six months prior to the termination of the contract. Once approved, the joint venture can have its term prolonged and be registered at the ICAB.

47.What is an export-oriented enterprise?

A manufacturing enterprise whose export volume (including export on its own or via an agent) accounts for over 50% of its annual sales, and who has a surplus of foreign exchange and has made a profit during the year, is deemed as an export-oriented enterprise.

48.What is an advanced hi-tech enterprise?

A manufacturing enterprise which is in conformity with the State's Industrial Guidance and which adopts internationally advanced and applicable process for manufacturing, technology, and equipment, whose product’s quality and technology take the lead in the domestic market, can be acknowledged as an advanced hi-tech enterprise. In getting that name, a foreign invested company should first apply to Shanghai Foreign Investment Commission and get verified after examination. Examinations will be carried out every year.

49. What preferential policies can an export-oriented enterprise and an advanced hi-tech enterprise enjoy?

a. Apart from the state provisions that they pay for or extract for insurance, welfare and accommodation allowance for the Chinese staff, export-oriented enterprises and advanced hi-tech enterprises are exempt from other subsidies the state give to employees.

b. Export-oriented enterprises and advanced hi-tech enterprises are given priority in the supply of water, electric power, transportation and telecommunication required in business and charged at the same prices as with State enterprises.

c. Export-oriented enterprises and advanced hi-tech enterprises which need in production and circulation short-term funds or other necessary loans shall be given priority once examined by the Bank of China.

d. The exported-oriented enterprises can still be exempt from local income tax after the period of local income tax exemption expires when the value of exports exceeds 70% of the year's production value.

e. Advanced hi-tech enterprises can still pay their enterprise income tax at a reduced rate of 50% for another 3 years after the period of enterprise income tax exemption and reduction expire.

f. Those export-oriented enterprises & advanced hi-tech enterprises in special economic zones and in economic development zones and those already have been paying their enterprise income tax at a reduced rate of 1 5 % can have a 10% reduction if they fit in with the situation mentioned previously.

g. "Two Types of Enterprises" which obtain the land using right by means of requisition or allocation, can enjoy the preferential policies of land use fee exemption or reduction according to the land grade.

It should be explained that the two types of enterprises mentioned above is not perpetual. According to MOFTEC, an acknowledged export-oriented enterprise will be examined by government authorities every year. If it is disqualified, its preferential treatment of that year will be either cancelled or made up. With regard to an advanced hi-tech enterprises, it will be examined irregularly, if it has been disqualified for several times, its verification certificate will be revoked.

50. Where to apply for the status of an export-oriented enterprise or an advanced hi-tech enterprise?

Based on the principle of joining the administration and examination & approval together and of localising the administration of wholly foreign- owned enterprises, districts (including Pudong New Area), counties, some commissions, offices, bureau’s are entrusted to examine and verify the export- oriented enterprises. When applying for advanced hi-tech enterprise status, a Foreign-Invested Enterprise should first apply to the authority (equal to the level of district, county or bureau) directly in charge of the enterprise for examination, after that, the application will be submitted to Shanghai Foreign Investment Commission Co-ordination Division for Verification.

51.Is there any difference with regard to policies between such development zones in Puxi Area as Minhang, Caohejing, Hongqiao and the Pudong New Area?

The policies are virtually the same except for some special ones concerning the Pudong Waigaoqiao Free Duty Zone.

52. How many municipal level industrial zones are there in Shanghai?

To further open to the outside world and develop economic & technological co-operation and trade, the following are the municipal level development zones approved by Shanghai Municipal Government:

Kang Qiao Industrial Zone; Jia Ding Industrial Zone; Song Jiang Industrial Zone; Xin Zhuang Industrial Zone; Qing Pu Industrial Zone; Feng Pu Industrial Zone; Bao Shan Industrial Zone; Cong Ming Industrial Zone and Jin Shan Zui Industrial Zone.