Yi Zhou
Partner

zy@rayyinlawyer.com

 

RayYin & Partners P.R.C. Lawyers
瑞银律师事务所
Room 3513 35/F, Tower A, Galaxy Century, 3069 Caitian Rd, Futian District, Shenzhen, Guangdong Province 518026 , P.R. China
Tel: 0086-0755－23985245

Fax: 0086-0755－23985248
Web: www.rayyinlawyer.com

 

As the world’s fastest growing( and soon will be the biggest energy consuming) economy, China has become one of the world’s most exciting, fastest growing markets for energy.

Although the calls for clean and efficient energy are never stopped, it is not likely that Chinese industry and energy companies would have the necessary capital and expertise to adopt energy efficient practices and technologies within a short time. Therefore, international cooperation in energy field will be an evergreen attractiveness for both domestic and overseas investors. Also, sophisticated investors will never underestimate the huge interests from commercialization of clean energy in China.

 

In order to address the challenge of such situation, China has been developing a series of rules to attract and encourage foreign investment to energy market. This article will focus on the relevant policies in foreign investment in energy market.

 

Main policies regulating foreign investment in energy market

 

Industry Policy

The latest version of Catalogue of Industries for Guiding Foreign Investment jointly issued by the National Development and Reform Commission (NDRC) and the Ministry of Commerce will take effect on Dec 1st  2007. Saving resources and protecting environment are the main principle.

 

In accordance with the guidelines, China will ban foreign players from mining some "important minerals that cannot be recycled" as well as high-energy consuming or highly-polluting projects.

 

• · Tungsten, tin, antimony, molybdenum and rare earth exploration are in the 'prohibited' category for foreign companies,
• · Exploration for gold, silver and platinum will also be on the restricted investment list.
• · Foreign firms will also be restricted or forbidden to invest in projects which emit high amounts of pollution or consume excessive amounts of energy.

 The new policy orientation shows that foreign investment is encouraged in environmental-friendly projects which calls for a recycled economy, clean energy utilization and ecological environment protection and those require advanced technology .

• ·China welcomes foreign investment in oil shale, oil sands, heavy oil and super heavy oil，But the guideline categories still limit foreign investment in oil refining.
• ·China woos foreign investment in renewable energy

 

The new Catalogue is in line with the new Renewable Energy Law the country has adopted for over a year. It is an important regulation which illuminates the clear direction and threshold for foreign investors in energy sector with a high maneuverability; it serves as guidance for establishment of foreign investment enterprise and relevant taxation policies in energy industries.

 

Taxation Policy

Foreign Invested Enterprises(“ FIEs”) engaging in encouraged energy field are eligible to apply for tax preferential treatment. Under The Notice Regarding Expanding Applicable Scope Of Preferential Rules For Tax Policies On FIES Engaged In Infrastructure Projects of Energy, and Transportation, tax preferential treatment includes the following

• · Lower ( 15%) FIEs’ corporate income tax rate;

• · extention of the peroid of corporate income tax reduction and exmeption of Hi-tech FIEs;

• · exemption of FIEs’ withholding tax which is usually charged at 10% of gross income for cross-border technical  service fees

 

Financial Policy

Government undertakes a series of financial support for the development of FIEs in the energy field where a Chinese party is involved. The state set up a special industry investment fund to relieve the tension of capital shortage for Chinese party involved in the FIEs during the process of capital increase. Also, for a sino-foreign joint venture, the state approves the domestic Chinese funded commercial bank to grant equity loan in a certain proportion to Chinese shareholders if the capital increased by foreign investor shall be injected in due course.    

 

In accordance with the principle of steadiness and wariness, the state supports the foreign investor engaging in encouraged energy sector by providing insurance service with the coverage of political risk, performance risk, as well as guarantee risk etc.

 

Up to now, over 100 foreign companies are engaged in mineral resources prospecting business in more than 400 projects ranging from petrol, natural gas to copper and coal mines. EU and US governmental organizations are also busy with setting up various foundation projects to encourage Chinese local government and enterprises to head for low emission and clean energy technology with the assistance of foreign parties. For shrewd foreign players, the competition for a position in China’s energy market is only a beginning.