In order to create a favorable investment environment and to encourage overseas firms to invest in China, since the year of 1979 the Chinese government has gradually set up a relatively complete legal system, and constituted a foreign investment policy system, which mainly includes industrial policies, regional policies, tax policies and financial polices.

As for the legal framework, the main laws and regulations for foreign investments in China include:

Major Foreign Investment Laws and Regulations

* The law of P.R.C. on Chinese-Foreign Equity Joint Ventures and its implementation regulations;

* The law of P.R.C. on Chinese-Foreign Contractual Joint Ventures and its implementation regulations;

* The law of P.R.C. on Wholly Foreign-Owned Enterprise and its implementation regulations;

* The law of P.R.C. on Foreign-invested enterprises, the income tax and its implementation regulations;

* Provisions on Guiding Foreign Investment Direction; Industrial Catalogue for Foreign Investment; Catalogue of Advantageous Sectors for Foreign Investment in Central and Western Regions;

* The law of P.R.C on the Protection Taiwan Compatriots' Investment.

(Note: the related laws and regulations also apply to the investments from Hong Kong, Macao and Taiwan in China mainland.)

General Laws and Regulations

* The Company Law of the People's Republic of China;

* The Contract Law of the People's Republic of China;

* The Insurance Law of the People's Republic of China;

* The Arbitration Law of the People's Republic of China;

* The Labor Law of the People's Republic of China;

* Provisional Regulations of the People's Republic of China on value-added Tax;

* Provisional Regulations of the People's Republic of China on Consumption Tax;

* Provisional Regulations of the People's Republic of China on Business Tax.

International Treaties

* Bilateral Investment Treaties;

* Bilateral Agreement on the Avoidance of Double Taxation.

Forms of Foreign Investment

Chinese-Foreign Equity Joint Ventures, China-Foreign Contractual Joint Ventures, Wholly Foreign-Owned Enterprise is the three main forms of Foreign Direct Investment in China for absorbing foreign capital. Other investment forms include Share Company with Foreign Investment, Foreign Invested Holding Company, Joint Exploitation, BOT, etc.

1. Chinese-Foreign Equity Joint Ventures

Chinese-Foreign Equity Joint Ventures are also called as Share Company with Foreign Investment. They are enterprises jointly established within Chinese territory by foreign companies' enterprises, other economic entities or individuals on one side and Chinese companies, enterprises or other economic entities on the other side. An equity joint venture shall be invested and operated jointly by both foreign and Chinese investors, who shall share the profits and losses, as well as risks, in proportion to their respective shares in the registered capital.

Chinese-Foreign Equity Joint Ventures are Limited Liability Company, and possess the status of Chinese legal person. In such an enterprise, the proportion of the investment contributed by the foreign party shall in general not be less than 25 percent of the total. The partner could offer cash or other kinds of things instead such as building, workshop, machinery, industrial property right, special technique, and field utilization right. The profits and other legal interests that foreign investors have shared can be remit out or reinvest in China.

2. Chinese-Foreign Contractual Joint Ventures

Chinese-Foreign Contractual Joint Ventures are enterprises Jointly established within Chinese territories by foreign companies, enterprises, other economic entities or individuals and Chinese companies, enterprises or other economic entities, according to their cooperative conditions. The both parties to a contractual joint venture should prescribe in the contract their respective conditions, rights, obligations, incomes distribution, responsibilities for risks and debts, the company management and negotiations on the property transaction at the expiration.

When establishing China-Foreign Contractual Joint Ventures, the foreign party usually provides all or major part of capital, while the Chinese party provides land, factory buildings, certain usable machines and facilities, and in some cases a certain amount of capital as well. Chinese-Foreign Contractual Joint Ventures may posses the status of conventional person or not.

Note: For detailed information please refer to "Industrial Catalogue Directing Foreign Investment".