Introduction:-
In the last 30 years – the economic reform and opening-door policy since 1978, China has formulated a series of proactive and effective laws, regulations and policies in relation to foreign investment in an effort to attract foreign funds. The scale of foreign capital drawn to the Chinese mainland has been the largest among the world’s developing countries for years. With the deepening of reform and opening-up, China will continue to enlarge the scope of liberalization, innovate the forms of foreign capital utilization and optimize the structures of foreign capital utilization, in a bid to make full use of foreign investment in promoting proprietary innovation, upgrading industry and coordinating regional development.

Basic Policies Encouraging Foreign Investment:-
The Chinese government has mapped out a range of policies, covering industrial, regional, taxation, technological development and financial polices, to encourage foreign investment.
Industrial Policy
In order to better channel the flow of foreign capital in line with the directions of its industrial development, the Chinese government has formulated and promulgated the Provisions on Guidance for Foreign investment and the Catalogue for the Guidance of Foreign In vestment Industries (both were revised in October 2007 and became effective on 1 December 2007). The Catalogue for Priority Industries for Foreign investment in Central and Western Regions was issued in June 2000, revised in July 2004 arid became effective on 1 September 2004.
The provisions divide foreign investment projects into 4 categories - namely encouraged, permitted, restricted and prohibited. They apply to projects undertaken by Sino-foreign equity joint-venture enterprises, Sin o-foreign contractual joint- venture enterprises, and foreign enterprises (all commonly known as foreign-invested enterprises), as well as other forms of foreign investment projects.

(a) Encouraged
Foreign investment projects falling under the following scopes are encouraged:
‧ Investment in new agricultural technologies, comprehensive agricultural development, energy, transportation and important raw materials;
‧ Projects involving new and high technologies that can improve product performance, enhance the technological level and economic benefits of enterprises, or produce new equipment and materials that cannot be produced in China;
‧ Projects that meet market demand, upgrade products, open new markets or increase the international competitiveness of products;
‧ Investment in new technologies and new equipment that save energy and raw materials, make comprehensive use of resources or regenerate resources, and prevent or contain environmental pollution;
‧ Projects that can bring into play the advantages of the central and western regions in terms of manpower and resources and are in keeping with China’s industrial policies.
In addition to the preferential policies they are entitled to enjoy under China’s laws and administrative regulations, foreign investment projects under the encouraged category that involves substantial investment and long recovery period may seek approval for the expansion of their business scope. See 1.1.3 and 1.1.4 below for details.

(b) Restricted
Foreign investment projects falling under the following scopes are restricted:
‧ Projects that are technologically backward;
‧ Projects that are not conducive to the saving of resources or improvement of the ecological environment;
‧ Projects on the prospecting and excavation of specific minerals subject to state protection;
‧ Investment in industries gradually liberalized by the state.
Under the Provisional Measures for the Approval of Foreign-Funded Projects, applications for restricted projects with total investment of US$50 million or more are approved by the State Development and Reform Commission, while restricted projects with total investment of less than US$50 million are approved by the provincial development and reform department and the power of approving these projects may not be delegated to a lower level.
The establishment of foreign investment enterprises engaging in projects tinder the restricted category and any related changes made must be approved by MOFCOM. See 2.2 below for enterprise establishment procedures.

(c) Prohibited
Foreign investment projects falling under the following scopes are prohibited;
‧ Projects that undermine national security or harm public interests;
‧ Projects that pollute the environment, damage natural resources or harm people’s health;
‧ Projects that take up a lot of arable land and are not conducive to the protection and exploitation of land resources;
‧ Projects that undermine the safety and utilization of military facilities;
‧ Projects that make use of processes or technologies unique to China in their production.
The provisions point out that the Catalogue for the Guidance of Foreign Investment Industries and the Catalogue for Priority Industries for Foreign investment in Central and Western Regions are the bases for the approval of foreign investment projects and FIEs. Foreign investment projects under the encouraged, restricted and prohibited categories are listed in the catalogue for the Guidance of Foreign Investment lndustries while projects not listed are all classified as permitted.
In addition to being entitled to the preferential treatments prescribed in related laws and administrative regulations, foreign investment projects under the encouraged category that involve substantial investment and long recovery period, such as the building and operation of energy, transportation and urban infrastructure facilities (coal, petroleum, natural gas, electricity, railways, roads, ports, airports, urban roads, sewage treatment and waste disposal), may expand their business scope to related business upon approval.
Restrictions may be appropriately eased for foreign investment projects under the permitted and restricted categories that can truly bring the advantages of the central and western regions into play. Among these projects, those included in the Catalogue for Priority industries for Foreign Investment in Central and Western Regions are eligible for preferential policies for foreign investment under the encouraged category.
The Catalogue for the Guidance of Foreign investment industries stipulates that foreign investment projects in certain sectors can he “equity or contractual joint ventures”, have a “Chinese controlling shareholding” or “Chinese majority shareholding”. Equity or contractual joint-ventures mean that they must be Sino-foreign equity or contractual joint venture projects. Projects with Chinese controlling shareholding are those where the Chinese parties have a combined stake of 51% or more, while projects with Chinese majority shareholding are those where the combined stake of the Chinese parties is larger than any one of the foreign partners.
In order to further attract and encourage foreign investment in new- and high-technology projects, the Ministry of Science and Technology and MOFCOM jointly issued the catalogue for High-Tech Products for Encouraging Foreign Investment on 26 July 2003. The catalogue covers 917 products under 11 categories, including electronic information, software, aviation and aerospace, opto-mechatronics, bio-medical ne and medical equipment, new materials, new energy and energy- efficient systems, environmental protection, earth and ocean sciences, nuclear application technology, and modern agriculture.

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