On 10 April 2003, The People’s Bank of China (“PBOC”) issued the “Measures for RMB Settlement Account” (the “Measures”). The Measures will come into effect on 1 September 2003.

    The Measures apply to establishment, operation and management of RMB settlement account with a bank authorized to provide payment settlement services. However, foreign currency deposit account, savings account and entity fixed deposit account are not covered by the measures.

    Per the Measures, an individual will be able to set up RMB settlement account. It offers a fundamental legal background for spreading use of individual settlement instruments, for example, the individual credit card and cheque, and provides convenience for individual’s house purchasing and vehicle purchasing.

    As for entities, the Measures set out four categories of settlement account, which includes basic deposit account, general deposit account, special deposit account and interim deposit account. According to the Measures, some restrictions over opening of such deposit accounts, for example, the quantitative limitation of general deposit account, are removed, and depositors are granted more flexibility than before in deciding where and what kind of bank account to be established. The special deposit account is defined as the account for managing and operating the funds for special purpose. Entities can apply to open interim deposit account to satisfy the need for operating cross-district business, establishing offices and capital contribution.

    Generally, basic deposit account is the only account from which cash can be drawn. In some circumstances, some special accounts upon being approved by the China Banking Regulatory Commission (“CBRC”) (formally the People’s Bank of China) shall also be used for drawing cash.

    The Measures specifies the procedures and details of documents for application of opening such settlement accounts. The opening of basic deposit account, interim deposit account and special deposit account of budget entity will be subject to verification of local CBRC, while general deposit account, other special deposit account and individual settlement account shall be filed with CBRC.

    The State Administration of Taxation (“SAT”) recently issued the Circular Concerning Issues on Tax Administration of Representative Offices of Foreign Enterprises (“Circular”), which is effective as from July 1, 2003. The new Circular clarifies certain issues in relation to the implementation of the SAT Circular Concerning Issues on Strengthening the Administration and Payment of Taxes of Representative Offices of Foreign Enterprises (the 1996 Circular).

    Under the Circular, different methods of tax assessment are to be made applicable to different types of industry. Representative Offices engaged in business advisory, tax advisory, law, accounting, auditing and other consulting services shall be taxed on an actual basis that requires the taxpayer to keep complete accounting records and correctly calculate the revenue or taxable income. Representative Offices of service providers that do not directly conclude a contract with the service receivers and whose service charges are collected by their parent companies, their taxable income shall be assessed from their expense. Representative Offices engaged in other taxable business other than the afore-mentioned types shall file their tax returns according to the business income actually obtained from their business activities. Representative Offices of foreign government, international organizations, non-profit organizations and other social organizations may apply to the local bureau of SAT or local administration of taxation for tax exemption. Their applications must be supported by their home countries’ tax or government authority recognized documents certifying the nature of the applying organizations. Applications shall be reviewed by the competent taxation authority and are subject to the final approval of SAT.

    To facilitate implementation of the Administrative Rules for Foreign Invested Urban Planning Services Enterprises (“Rules”), The Ministry of Construction announced on May 9, 2003 the Circular of Ministry of Construction Concerning Issues Related to Application by Foreign Invested Enterprises of Urban Planning Service Qualification Certificate (“Circular”).

    The Circular makes clear stipulations regarding Article 6 of the Rules that concerns the requirement of technical equipment and work site. It also gives interpretation on Article 13 of the Rules that concerns proof of professional technology certification and technical equipment belonging to the applying enterprise.

    Per the Circular, application should first be submitted to local Construction Office where the applicant is registered. The Construction Office will have 30 days to issues an opinion to the Ministry of Construction. Upon receipt of the application materials and opinion from the local Office, the Ministry of Construction will within 30days decide to approve or deny the application.

    The Ministry of Foreign Trade and Economic Corporation (MOFTEC), State Administration of Industry and Commerce (SAIC), State Taxation Administration (STA) and State Administration of Foreign Exchange (SAFE) jointly announced on March 7, 2003 the Interim Rules for Acquisition of Enterprises inside China by Foreign Investors (Interim Rules). The Interim Rules will take effect as of April 12, 2003.

    Per the Interim Rules, acquisition of enterprises inside China by foreign investors refers to activities that (i) foreign investors by agreement purchase share of ownership of non-foreign invested enterprises from existing shareholders or subscribe to increase of the domestic enterprises’ capital resulting in the conversion of domestic enterprises into foreign invested enterprises (“Acquisition of Ownership”); or (ii) foreign investors through existing foreign invested enterprises by agreement purchase the assets of enterprises inside China for use in operation of the acquiring foreign invested enterprises or foreign investors by agreement purchase the assets of enterprises inside China and use the assets for the establishment of foreign invested enterprises (Acquisition of Assets)

    The Interim Rules also contain stipulations concerning the principal, procedure and examination and approval process of the acquisition of domestic enterprises by foreign investors.

    The Ministry of Foreign Trade and Economic Corporation (MOFTEC), Ministry of Science and Technology (MST), State Administration of Industry and Commerce (SAIC), State Taxation Administration (STA) and State Administration of Foreign Exchange (SAFE) jointly announced on January 30, 2003 the Administrative Rules of Initial Investment Ventures Set up by Foreign Investors (“Administrative Rules”). The Administrative Rules, effective as of March 1, 2003 will replace the Interim Rules on the Establishment of Initial Investment Ventures previously announced by MOFTEC, MST and SAIC on August 28, 2001.

    Per the Administrative Rules, the foreign initial investment ventures (the “Enterprises”) may organize either as a company or a non-legal person entity. Investors of a non-legal person Enterprise may by their partnership agreement agree to limit the liability of non-Statutory Required Investors to the amount of capital subscribed by those investors and that the Statutory Required Investors (“SRI”) shall bear joint and several liabilities if the enterprise is insolvent. As the first Chinese legislation that regulates the issue of limited partnership, the Administrative Rules has a chapter: “Capital Contribution and Related Changes”, which sets forth detailed rules for the contribution and changes of capital to a non-legal person type of Enterprise.

    The Administrative Rules stipulate clearly the scope of business the Enterprises may enter. These Enterprises, being specially empowered to reinvest their capital, may invest the entire amount of their capitals in other Enterprises and are no longer subject to the limitation imposed by the Company Law that restricts investment of an enterprise in other enterprises to up to 50% of the investing enterprise’s registered capital.

    Enterprises may elect not to establish a management organization and authorize a qualified initial investment management company or another Enterprises to manage their funds. The Administrative Rules has to regulate the qualification of initial investment management company, the form of origination and the documents that should be sent to the examining and approving authorities and registration authorities.

    Because the State Taxation Administration (STA) and State Administration of Foreign Exchange (SAFE) have joined in the formulation of the Administrative Rules, the Administrative Rules as compare to the Interim Rules contain added stipulations on foreign exchange and taxation matters. Requirement for overseas remittance of foreign exchange is relaxed: profit and income of foreign investors may be remitted abroad with foreign exchange deposited in the Enterprise’s foreign exchange account or with foreign exchange obtained from designated banks. Capital returned from investment may also be remitted abroad with foreign exchange purchased from designated banks. In the tax stipulations, there are provisions for levying of tax but are void of concrete preferential tax treatment.

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The fourth Type of Foreign Invested Enterprises May Appear in China (Jan 10th 2007)

It was reported the Department of Commerce has submitted the first draft of Administrative Measures of Foreign Invested Partnership Enterprise to the State Council. Many believe that, other than WOFE, Contractual Joint Venture and Equity Joint Venture, foreign investors have another choice to set up foreign invested enterprises in China, and the promulgation of the Measures will certainly lower the requirements for the small and medium sized overseas enterprises to enter into China. Moreover, some administrative measures governing foreign law firms, accountant firms, risk investment units and other partnership entities will be amended.

Since the new Partnership Enterprise Law will be effective from 1st July 2007, the Measures may be promulgated after 1st July this year if it will be approved.

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Overseas Strategic Investor is no Longer the Necessary Condition for the Establishment of Chinese Banks (Jan 15th 2007)

December 28th 2006, Decision of China Banking Regulatory Commission on Amending the Measures of China Banking Regulatory Commission for the Implementation of Administrative Licensing Matters Concerning Chinese-funded Commercial Banks was promulgated by China Banking Regulatory Commission (CBRC). In accordance with the Decision, Article 7, Paragraph 1, Item 4, of the Measures of China Banking Regulatory Commission for the Implementation of Administrative Licensing Matters Concerning Chinese-funded Commercial Banks, which had previously prescribed that “the initiator shareholders shall include qualified overseas strategic investor’, was amended to “the initiator shareholders shall include qualified strategic investor”.

Experts believe that it shall be the market activities instead of requirements of law or regulations to ask domestic initiators to attract overseas strategic investors and developed administrative theory and technology from foreign banks when establish banks.

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Chinese are Allowed to Purchase More Foreign Exchanges in 2007 ( Jan 22th 2007 )

In accordance with the Detailed Rules for the Implementation of the Measures for the Administration of Individual Foreign Exchange promulgated by the State Administration of Foreign Exchange (SAFE) on 5th January 2007, Chinese people are allowed to purchase more foreign exchange in 2007. Article 2 of the Detailed Rules states that annual quota for personal exchange settlement and domestic individuals to purchase foreign exchange has been increased. In light of the Detailed Rules, one individual may have the quota with the foreign exchange equaling to USD 50,000, and the previous quota was the foreign exchange of USD 20,000 per person per year. Moreover, the process and documents of foreign exchange settlement within the quota will be predigested, but examination and approval process for foreign exchange settlement exceeding the quota will be strengthened. The Detailed Rules will be taken into effect on 1st February 2007. An official from SAFE believes that the Detailed Rules may encourage people to hold foreign exchange and the new quota may satisfy the normal demands of individuals in foreign exchange.

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Banks Can Establish Financial Leasing Company in PRC (Jan 28th 2007)

Under the newly promulgated Administrative Regulations of Financial Leasing Company by CBRC which will take into effect on March 1st 2007, the requirements for main shareholders have been specified. Both domestic and overseas commercial Banks with required qualifications can be the main shareholders. It also specified that PRC or overseas-incorporated leasing companies are qualified to be the main shareholder.

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BEIJING EASES LAW ON FOREIGN EQUITY (June 15th 2007)

China yesterday signalled it was prepared to accept foreign private equity groups, following last week's introduction of a law to encourage its fledgling domestic private equity industry.

“China needs to develop more Rmb-denominated investment funds,” said Wu Xiaoling, deputy governor of China's central bank, adding that lack of a thriving domestic private equity industry was a “soft rib” in the country's capital market development. Ms Wu's comments indicate Beijing has resigned itself to allowing foreigners into the market and is trying to get them to localise operations and sell more investments through the mainland capital markets, instead of listing companies abroad.

A new law that came into effect last Friday establishes a legal framework for private equity and venture capital funds in China, by recognising their unique structure and simplifying the taxes they have to pay. The law allows large investors in investment funds to enjoy limited liability and removes a rule that imposed taxes both on partnerships and their individual partners, encouraging both domestic and foreign private equity groups to use a Cayman Islands-registered offshore structure.

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CURB ON CHINESE BANKS TAKES SIGNALLED (July 5th 2007)

Fresh strategic investments in Chinese banks by foreign private equity firms and conglomerates will struggle to secure regulatory approval because official backing for non-bank involvement in the sector has ended, according to people familiar with the situation.Beijing had signalled it would now only bless investments made by well-capitalised banks and financial institutions.The policy shift marks a maturing of the mainland banking sector.

It is expected to have an impact on the level of non-bank investment in mainland lenders still seeking foreign investors, and reduce the number of potential buyers when existing banking stakes held by non-banks are put up for sale. In March, the deal that Shanghai's Business Development Bank, wholly owned by a Thailand industrial conglomerate, was sold to United Commercial Bank of the US was believed to be an flag of policy shift that Beijing wish non-banking groups to depart the sector. While the practice in this week that Carlyle Group, the US private equity fund, failed to secure approval to buy an 8 percent stake in Chongqing Commercial Bank make the policy shift come into focus.