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(Promulgated by Decree No.346 of the State Council of the People’s Republic of China on February 11, 2002, and effective as of April 1, 2002)

Article 1These Provisions are formulated in accordance with the provisions of the relevant laws of the State on foreign investment and with the requirements of industrial policies of the State for the purposes of guiding the direction of foreign investment, keeping the direction of foreign investment in line with the plan of our country for national economic and social development, and facilitating the protection of the lawful rights and interests of investors.

Article 2These Provisions are applicable to the projects involving the making of investment to establish Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures, or wholly foreign-owned enterprises (hereinafter referred to as foreign invested enterprises) within the territory of our country, as well as to other forms of projects with foreign investment (hereinafter referred to as foreign invested projects).

Article 3The Catalogue for the Guidance of Industries for Foreign Investment and the Catalogue of Advantaged Industries for Foreign Investment in Mid-west China are to be worked out by the State Development Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation jointly with other relevant departments of the State Council, and be published after being approved by the State Council; when it is necessary to make partial adjustment on the basis of actual situations to the Catalogue for the Guidance of Industries for Foreign Investment and the Catalogue of Advantaged Industries for Foreign Investment in Mid-west China, the State Development Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation shall, jointly with other relevant departments of the State Council, revise and publish them in good time.

The Catalogue for the Guidance of Industries for Foreign Investment and the Catalogue of Advantaged Industries for Foreign Investment in Mid-west China shall be the basis of applicable policies for guiding the examination and approval of foreign invested projects and foreign invested enterprises.

Article 4Foreign invested projects shall be classified into four categories: projects to be encouraged, permitted, restricted or prohibited.

Foreign invested projects to be encouraged, restricted or prohibited are listed in the Catalogue for the Guidance of Industries for Foreign Investment. Those other than foreign invested projects to be encouraged, restricted or prohibited shall be foreign invested projects to be permitted, which are not listed in the Catalogue for the Guidance of Industries for Foreign Investment.

Article 5Foreign invested projects under one of the following circumstances shall be listed as encouraged ones:

(1) projects applying new agricultural technology, for comprehensive agricultural development, and for development of energy, communications or industry of key raw materials;

(2) projects employing new high technology and advanced practical technology which can improve performance of products, increase tech-economic efficiency of enterprises, or manufacture new equipment or new materials while the domestic productivity is deficient;

(3) projects that can meet the demands of market, raise the grade of products, open up new markets or increase the competitive strength of products in international market;

(4) projects adopting new technology or equipment that can conserve energy and raw materials, utilize resources and renewable resources in a comprehensive way or prevent environmental pollution;

(5) projects that can make full use of the superiority in human and natural resources in the Mid-west regions and that are in conformity with the industrial policies of the State ; or

(6) other circumstances provided for in laws and administrative regulations.

Article 6Foreign invested projects under one of the following circumstances shall be listed as restricted ones:

(1) projects with backward teleology;

(2) projects without any benefit to the conservation of resources and the improvement of eco-environment;

(3) projects involving the exploration and exploitation of any special mineral resource the exploitation of which shall, as provided for by the State, be carried out in a protective way;

(4) projects involving the industry that is being opened up by the State step by step; or

(5) other circumstances provided for in laws and administrative regulations.

Article 7Foreign invested projects under any of the following circumstances shall be listed as prohibited ones:

(1) projects endangering State security or damaging social and public interests;

(2) projects causing pollution or damage to environment, jeopardizing natural resources or impairing health of human body;

(3) projects unfavorable to the protection and development of land resources as a result of occupation of large amount of arable lands;

(4) projects endangering the safety of military installation or the work efficacy thereof;

(5) projects involving the making of products by utilizing the unique craftsmanship or technology of our country; or

(6) other circumstances provided for in laws and administrative regulations.

Article 8The Catalogue for the Guidance of Industries for Foreign Investment may provide for that a foreign invested project can be carried out “only in the form of equity joint venture or contractual joint venture”, “with the Chinese party holding the majority of shares”, or “with the Chinese party holding the relative majority of shares”.

“Only in the form of equity joint venture or contractual joint venture” means that a project can only be operated in the form of Chinese-foreign equity joint venture or Chinese-foreign contractual joint venture; “with the Chinese party holding the majority of shares” means that the proportion of investment made by Chinese investors into a foreign invested project shall be fifty-one per cent or more; “with the Chinese party holding the relative majority of shares” means that the proportion of investment made by Chinese investors into a foreign invested project shall be more than the proportion of investment made by any one foreign investor.

Article 9In addition to the preferential treatment as provided for in relevant laws or administrative regulations, foreign invested projects to be encouraged engaging in construction and operation of energy, communications or urban infrastructural facilities (coal, petroleum, natural gas, electric power, railways, highways, ports, airports, urban roads, disposition of polluted water or rubbish, etc.) which need a large amount of investment but have a long payoff period may, upon approval, have their scope of business relating thereto expanded.

Article 10Foreign invested projects classified as permitted ones shall, if all of the products are exported directly, be regarded as encouraged ones; foreign invested projects classified as prohibited ones may, if their export sales of products account for not less than 70 per cent of the total sales of products, be regarded as permitted ones upon the approval by the people’s governments of provinces, autonomous regions, municipalities directly under the Central Government or cities separately listed on the State plan or by the competent departments of the State Council.

Article 11Restrictions may be appropriately eased to the foreign invested projects classified as permitted or prohibited ones that can really make full use of the superiority in the mid-west regions, and those listed into the Catalogue of Advantaged Industries for Foreign Investment in Mid-west China may enjoy the preferential policies for foreign invested projects to be encouraged.

Article 12In the light of the division of existing approval authority, foreign invested projects shall, on the basis of their nature, be subject to examination and approval of, as well as submission for the record to, development planning departments and economic and trade departments respectively; contracts and articles of association of foreign invested enterprises shall be subject to examination and approval of, as well as submission for the record to, foreign trade and economic cooperation departments. Among restricted foreign invested projects, if the foreign investment is less than the limit thereon, such projects shall be subject to examination and approval of the corresponding competent departments of the people’s governments of provinces, autonomous regions, municipalities directly under the Central Government or cities separately listed on the State plan, and meanwhile shall be submitted for the record to the competent departments at the higher level and the competent departments for the same industry; the authority of examination and approval of such projects shall not be delegated to lower levels. Foreign invested projects in the field of trade in services which are to be opened up gradually shall be subject to examination and approval as provided for by the State.

For foreign invested projects involving quotas or licenses, applications shall first be made to foreign trade and economic cooperation departments for quotas or licenses.

If laws or administrative regulations provide otherwise on the procedures and measures for examination and approval of foreign invested projects, those provisions shall apply.

Article 13With regard to foreign invested projects that are examined and approved in violation of these Provisions, the examination and approval authorities at the higher level shall cancel such projects within 30 working days from the date of receipt of the documents of the projects submitted for the record. Their contracts and articles of association shall be invalid. The enterprise registration authorities shall not register these projects, and the Customs shall not handle import or export formalities for such projects.

Article 14Where an applicant for a foreign invested project has the project approved by fraud or other illegal means, he shall, in light of the seriousness of circumstances, be investigated for legal liability according to law. The examination and approval authorities shall cancel the approval granted to the project, and the relevant competent authorities shall deal with the case according to law.

Article 15Any staff of the examination and approval authorities abusing their power or neglecting their duties shall be investigated for criminal liability pursuant to the provisions of the criminal law on the crime of abuse of power or the crime of neglect of duty, or shall be given administrative sanctions of recording grave demerit or even heavier if the circumstances are not serious enough for criminal punishment.

Article 16Investment projects carried out by overseas Chinese or by investors from the Hong Kong Special Administrative Region, Macao Special Administrative Region, or Taiwan region shall be mutatis mutandis governed by these Provisions.

Article 17These Provisions shall be effective as of April 1, 2002. The Interim Provisions on Guiding the Direction of Foreign Investment, approved by the State Council on June 7, 1995 and promulgated by the State Development Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation on June 20, 1995, shall be repealed simultaneously.