To encourage transnational companies to invest in China and attract advanced foreign technology and management experience, the Ministry of Foreign Trade and Economic Cooperation promulgated in April 1995 Provincial Regulations Concerning Establishment of Foreign-funded Investment Companies (hereafter referred to as the Provisional Regulations), permitting foreign investors to establish investment companies in China. In August 1999, the Ministry of Foreign Trade and Economic Cooperation made amendments to the Provisional Regulations in order to expand the functions of such investment companies.

　　1). Conditions for Establishing Investment Companies

　　a. An applicant foreign investor should have sound credit and economic strength required for the establishment of an investment company. Its total assets in the year prior to the application should be no less than US$400 million. In addition, the foreign investor should have already established a foreign-funded enterprise within the territory of China, have paid in a minimum of US$10 million in registered capital, and receive approval for a minimum of three of its investment project proposals.

　　Or, the applicant foreign investor, with sound credit and economic strength required for the establishment of an investment company, has already established a minimum of 10 foreign-funded enterprises engaged in manufacturing or infrastructure construction within the territory of China and has paid in a minimum of US$30 million in registered capital.

　　b. For a joint venture investment company, the Chinese investor should have sound credit and economic strength required for the establishment of an investment company. Its total assets should be no less than 100 million yuan.

　　c. The registered capital of an investment company should be no less than US$30 million.

　　2). Regulations on Registered Capital

　　The foreign investor should make its investment in convertible currency for registered capital. The Chinese investor can use Renminbi yuan. The investors should pay off the registered capital within two years beginning from the issuance date of the business license.

　　3). Business Scope

　　An investment company can embark on the following operations, entirely or partially, upon approval:

　　a. Make investment in industry, agriculture, infrastructure and energy encouraged and permitted by the state for foreign investment;

　　b. Assist or act as an agent of its invested enterprises to purchase domestically or internationally machines and office equipment for use by the invested enterprises, and raw materials, components and parts needed in the production activities of the invested enterprises;

　　c. Sell, as agents or distributors, domestically or internationally, products produced by the invested enterprises, and provide after-sale services;

　　d. Purchase and export commodities from within Chinese territory that are not subject to export quotas or the export permits;

　　e. Provide comprehensive services, such as transportation and storage, for the invested enterprises, and assist them in recruiting personnel, providing technical training, market development and consultation;

　　f. Set up research and development centers or offices in China to develop new products and high and new technologies, transfer its research and development achievements, and provide related technological services;

　　g. Balance foreign exchange among its invested enterprises under the permit and supervision of the foreign exchange administration;

　　h. Assist its invested enterprises in finding loans and provide guarantee, and the amount of loans to an investment company should not exceed four times the registered capital the company has paid in;

　　i. Provide consultation for its investors; and

　　j. Provide financial support to its invested enterprises with the approval of the People‘s Bank of China.