I. Sino-Foreign Joint Ventures

Sino-foreign joint ventures also refer to Chinese-foreign equity joint-venture enterprises. They are the enterprises established in China with joint investment from foreign companies, enterprises and other economic organizations or individuals as well as from Chinese companies, enterprises or other economic organizations. Enterprises of this category have the characteristics that all the parties participating in the joint venture jointly offer investment in it, jointly operate it, share the risks of it in accordance with their different proportions of investment, and are jointly held responsible for the profits and losses of it. All the parties participating in the joint venture can offer their investment in the form of currency, or with buildings, machinery, equipment, the right to use the work site, industrial property and exclusively-owned technology. The proportions of investment offered by all the parties participating in the joint venture are accordingly converted into ratios of investment. Generally, the ratio of investment offered by the foreign party participating in the joint venture shall not lower than 25%. The corporate form of the Sino-foreign joint venture is the liability limited company, with the Board of Directors being its supreme body of power. Along with the development of China's experiment to introduce the system of joint stock liability partnership, a small number of Sino-foreign joint ventures have adopted the corporate form of joint stock limited company.

II. Sino-Foreign Cooperative Ventures

Sino-foreign cooperative ventures also refer to Chinese-foreign contractual joint ventures. They are the enterprises established in China with investment or conditions for cooperation jointly offered by foreign companies, enterprises, other economic organizations or individuals as well as by Chinese companies, enterprises or other economic organizations. Their largest difference from Sino-foreign equity joint ventures is that the investment from the Chinese and foreign parties participating in the cooperative venture will not generally be converted into ratios of investment, and that they will not share the profits in accordance with their ratios of investment. The rights and obligations of all parties participating in the cooperative venture, including the provision of investment and conditions for cooperation, the distribution of profits or products, the sharing of risks and losses, the form of operation and management, and the ownership of property at the termination of the contracts, are all defined in the contracts signed by all parties. In establishing a Sino-foreign cooperative enterprise, the foreign party will generally provide all or most of the funds while the Chinese party will offer land, workshops, usable equipment, facilities, and sometimes a certain proportion of funds. Normally, the Chinese and foreign parties participating in the cooperative venture will define in their contracts that when the duration of cooperation ends, all the assets of the cooperative venture will be owned by the Chinese party, and that the foreign party can first recoup its investment within the duration of cooperation. Such a form of cooperation can not only meet the needs of Chinese enterprises for sources of investment, but is also greatly attractive to many foreign investors who are eager to recoup the investment.

III. Foreign Enterprises

Foreign enterprises in China also refer to wholly foreign-owned enterprises, they are the enterprises established in China by foreign companies, enterprises, other economic organizations or individuals in accordance with Chinese law with all the investment solely offered by foreign investors. According to China's law on foreign enterprises, the establishment of foreign enterprises in China must be conducive to the development of China's national economy, and must meet at least one of the following requirements: that they will apply internationally advanced technology and equipment, and that all or most of their products will be export-oriented. The corporate form of foreign enterprises in China is generally the liability limited company. Along with the development of China's experiment to introduce the system of joint stock partnership, a small number of foreign enterprises in China have adopted the corporate form of joint stock limited company. Although China was relatively late in introducing the system of establishing foreign enterprises, the establishment of wholly foreign-owned enterprises in the country has developed relatively rapidly over recent years.

IV. Foreign-Funded Financial Institutions

Foreign-funded financial institutions in China refer to (1) branch offices established in China with investment from foreign financial institutions that are designed to engage in financial operations, (2) wholly foreign-owned financial institutions with the Chinese legal person status and (3) Sino-foreign joint-venture financial institutions. They are foreign-funded enterprises in the field of finance in China. Compared with general foreign-funded enterprises, the major difference of foreign-funded financial institutions in China is that most of them are established in the country as branch offices of foreign financial institutions, e.g. branch offices of foreign banks and insurance companies, without the Chinese legal person status. Foreign-funded financial institutions already established in China include foreign-funded banks, foreign-funded financial companies and foreign-funded insurance companies. So far, the operations of foreign-funded banks and foreign-funded financial companies in China have been restricted within the framework of foreign exchange financial operations, mainly including foreign exchange deposits, foreign exchange loans, foreign exchange clearing and money remittance as well as officially-approved operations of foreign exchange investment. Their main business customers are foreign-funded enterprises, foreign companies and foreigners. For foreign financial institutions applying for the establishment of foreign-funded financial institutions in China, their total assets must have reached a required scope, and their countries of origin must have had a strict system of supervision and control over financial operations and must have been operating representative institutions in China for above two years. The application for establishing foreign-funded financial institutions in China must be made in accordance with relevant Chinese law and regulations, and is subject to approval of competent State financial authorities.

V. Cooperative Exploitation

Cooperative exploration is an abbreviation for the cooperative exploration and exploitation of offshore and land petroleum resources. It is a form of international economic cooperation extensively adopted in the exploitation of natural resources, with its most outstanding characteristics being high risks, high investment and high returns. So far, China's cooperation with other countries in the exploitation of petroleum resources has all been conducted in this form. China promulgated the "Regulations of the People's Republic of China on the exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises" in January 1982 and the "Regulations on Chinese-Foreign Cooperative Exploitation of Land Petroleum Resources of the People's Republic of China" in October 1993, which have clearly defined that, on the premise that China's national sovereignty and economic interests are maintained, foreign companies are allowed to participate in the cooperative exploitation of petroleum resources of the People's Republic of China.

Cooperative exploitation is normally conducted in the form of international bidding. Foreign companies can separately make tenders or form consortia in bidding for cooperative exploitation. Winners of the bid will sign with the Chinese side contracts on cooperative exploration and exploitation of petroleum resources to define the rights and obligations of both sides. The duration of cooperation will generally not exceed 30 years. The contracts on cooperative exploitation of petroleum resources in China become valid with the approval of competent authorities of foreign trade and economic cooperation. Cooperative exploitation is generally carried out in three stages -- exploration, exploitation and production. During the stage of exploration, the foreign side will bear all the costs of the exploration, and take all the risks arising from it. If no oil and gas deposits worth exploitation are discovered at pre-determined areas defined in the contracts during the stage of exploration, the contracts are automatically terminated, and the Chinese side assumes no responsibility for making any compensation. If oil and gas deposits worth exploitation are discovered at pre-determined areas defined in the contracts during this stage, the implementation of the contracts will enter the stage of exploitation. During this stage, the Chinese side may purchase shares in the joint exploitation with the foreign side, and the two sides will both invest in the cooperative exploitation in accordance with the ratios of investment agreed upon by both sides. But the ratio of shares purchased by the Chinese side will not generally exceed 51% in the maximum. When the oil and gas fields concerned are put into commercial production during the third stage, relevant taxes and fees arising from the use of the fields must first be paid in accordance with Chinese Government regulations. After that, the Chinese and foreign sides can recoup their investment and share the profits in kind in line with the ratios concerning the sharing of oil and gas as defined in relevant contracts. If the returns are not sufficient enough to recoup all the investment and to gain appropriate profits, each side will have to take its own risks accordingly.

The cooperation between China and foreign countries in joint exploitation of petroleum resources in China is under the unified charge of China National Offshore Oil Corporation and China National Oil and Gas Corporation.

VI. BOT Investment Method

BOT is the initial form of BUILD-OPERATE-TRANSFER. A typical form of BOT is that a government signs a contract with a project company of the private sector (normally in the form of a foreign-funded company in China), which obliges the project company to raise the funds for the construction of an infrastructure facility and actually undertakes its building. The project company shall own the facility within the contract period and be responsible for its operation and maintenance while recovering the capital investment and reaping reasonable profits by collecting fees for use of the facility and/or for the services it renders. Upon expiration of the contract, the ownership of the facility shall be transferred to the government gratuitously. The BOT investment form is used mainly for construction of infrastructure facilities such as toll-charge highways, power plants, railways, sewage treatment facilities and urban subways.

The application for the establishment of a BOT project in China shall be subject to the procedure for official approval of the establishment of foreign-funded enterprises currently in place.

For foreign-funded enterprises undertaking the construction of BOT projects, they are eligible to enjoy the following preferential policies on tax payment:

1. That they are eligible to pay the corporate income tax at a rate of 15%;

2. That they shall be exempted from the corporate income tax for the first and second years beginning from the first profit-making year, and the rate on corporate income tax payable by them shall be reduced by 50% between the third and fifth years (for three years); and that for some particularly defined projects, they shall be exempted from the corporate income tax for five years, and the rate on corporate income tax payable by them shall be reduced by 50% also for five years;

3. That where the operation term of a BOT project is shorter than the number of years for the depreciation of fixed assets defined by the Taxation Law, the party concerned may apply for official approval for accelerating the depreciation of fixed assets during the term of operation in line with relevant regulations. However, as enterprises are based in different regions and as other conditions for their operation are also different, the range of preferential policies enjoyable by them shall be different accordingly.

For foreign investors investing in the construction of BOT projects in China, they shall be identically eligible to enjoy the preferential policies on tax payment. Foreign investors are exempted from paying the withholding income tax on profits and dividends earned from their investment in foreign-funded BOT projects in China. For the interest on loans extended by foreign investors to foreign-funded BOT projects in China, it can be listed as part of the cost of the projects. However, foreign investors are liable to pay the withholding income tax on the interest on their loans extended to foreign-funded BOT projects in China in line with relevant regulations. Where the loans have been transferred through State-run banks of China and where the interest rate on them meets the standards on preferential interest rates, the foreign investors concerned may apply for exemption from paying the withholding income tax on the interest in line with relevant regulations.

VII. Compensation Trade

Compensation trade is a form of investment integrating technology trade, commodity trade and credit. Its basic meaning is that foreign investors provide directly or on the basis of credit machinery and equipment for Chinese enterprises. With products manufactured with the equipment and technology provided, the Chinese enterprises concerned will compensate by installments for the cost of the equipment and technology provided and the interest arising from it. Major forms of compensation trade include direct compensation, indirect compensation, comprehensive compensation and labor compensation. In the form of direct compensation, the Chinese enterprises concerned will compensate for the cost of the equipment and technology provided by foreign investors and the interest arising from it with products directly manufactured with the equipment and technology provided. Direct compensation is the most basic form of compensation trade. In the form of indirect compensation, the Chinese enterprises concerned will compensate for the cost of the equipment and technology provided and the related interest with products manufactured otherwise by them instead of those produced with the equipment and technology provided. Comprehensive compensation means that the Chinese enterprises concerned will compensate for the cost of the equipment and technology provided and the related interest partially with products directly made with the equipment and technology provided and partially with products generated otherwise. Labor compensation means that the Chinese enterprises concerned will compensate for the cost of the equipment and technology provided and the related interest with services of labor rather than products. In this form, the Chinese enterprises concerned will make compensations by undertaking the processing of materials supplied and assembling of components supplied by the particular foreign investors. The import of machinery, equipment and components needed for compensation trade is exempted from the import tariffs and the Value-Added tax.

VIII. Processing and Assembling

The export-oriented operation of processing and assembling is a general term for the processing of materials supplied, the assembling of components supplied and the processing with designs supplied by foreign investors. Processing and assembling are a form of foreign economic cooperation, in which Chinese enterprises concerned will undertake the operation of processing and assembling with raw and auxiliary materials, parts and components as well as packaging materials supplied by foreign investors in accordance with their requirements concerned. The foreign investors concerned will be responsible for marketing the products manufactured. The Chinese side will collect service charges in foreign exchange.

The contracts on export-oriented operation of processing and assembling become valid with the approval of competent authorities of the government concerned. The State has adopted preferential policies on taxation, customs supervision and import-export management concerning the export-oriented operation of processing and assembling.

IX. Processing of Materials Imported

The operation of processing of materials imported refers to the domestic processing of materials imported from international markets into semi-finished or finished products, which will then be exported to international markets.

China encourages the development of the operation of processing of materials imported.

X. International Lease

Lease refers to a form of economic cooperation in which the leasor, through a contract for lease, leases machinery, equipment and other supplies to the leasee for a relatively long period of time, who will use them for activities of production and business operation. During the duration of lease, the leasor enjoys the ownership of the leasehold while the leasee enjoys the right to use the leasehold and is under the obligation to regularly pay a fixed rent. When the duration of lease ends, the leasehold will be disposed of in the way agreed upon by both parties. China operates the business of international lease by leasing imported equipment mainly through these two channels: (1) foreign leasing companies, and (2) Chinese leasing companies. So far, the equipment China has leased through the first channel mainly include civil aviation aircraft.

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