On April 6, 2010 China’s State Council issued the Several Opinions on Further Improving the Utilization of Foreign Investment (Guo Fa [2010] No. 9) (the “Opinions”). The Opinions are high-level policies that reinforce the trend of improving the foreign-investment environment on a national level. Most of the policies do not detail how the government will achieve its goals. However, the Opinions’ implementation rules are expected to be promulgated, and certain existing rules, such as the Foreign Investment Industrial Guidance Catalogue (last revised in 2007) (the “Catalogue”) and the Central and Western China Foreign Investment Catalogue, will be revised to further expand the industrial sectors open to foreign investment. While the Opinions reiterate some of China’s existing policy, such as supporting foreign companies’ participation in domestic enterprises’ reorganization, they also introduce new policies.

The Opinions also contain some specific measures that immediately benefit foreign investors. For example, certain “encouraged” projects under the Catalogue could benefit from a discounted land-use price as low as 70 percent of the statutory minimum price under the National Standards for Floor Prices for Assignment of Industrial Land. Also notable is the expansion of the scope of local government’s authority in approving foreign investments. Foreign investors can now apply to local governments for the approval of establishing foreigninvested enterprises in service sectors (except financial and telecommunication sectors) and “encouraged” or “permitted” projects with total investment of US$300 million (used to be US$100 million). Approvals at the local government level may be simpler and/or faster.

Other highlights of the Opinions are:

Improving the Quality of Foreign Investment in China

The Opinions encourage foreign investment in high-end manufacturing, hi-tech and environmentally friendly industries. They also restrict foreign investment in environmentally unfriendly industries and industries that have been suffering overcapacity (e.g., coal chemicals, polysilicon and turbine machinery).

The Opinions also reiterates China’s policy of encouraging multinational companies to set up “functional organs” such as regional headquarters, R&D centers, procurement centers and finance management centers in China.

Promoting Foreign Investment in Central and Western Regions

China continues to promote foreign investment in the central and western regions of China by favoring foreign investment in laborintensive industries that meets environmental standards. Qualified foreign-invested enterprises in the western region will also continue to enjoy reduced enterprise income tax rates.

Encouraging the Use of Private Equity

The Opinions encourage foreign investors to establish venture capital enterprises while encouraging domestic projects to use private equity funds.

Improving Financing Options

Qualified foreign-invested enterprises are encouraged to list in the domestic and overseas stock markets. They will also be able issue bonds and medium-term commercial paper. China will also guide financial institutions to provide more loans to foreign-invested enterprises and gradually allow more foreign-invested enterprises to issue RMB bonds.

Simplifying Approval and Foreign Exchange Procedures

China will simplify the foreign investment approval process, minimize the approval scope and time and increase the transparency of approvals. The state will also simplify the procedures for converting registered capital contributed in foreign currency into local currency.

The timing of the Opinions’ issuance may be a response to recent concerns among foreign firms that the investment environment in China is deteriorating. However, the impact of the Opinions remains to be seen.

Please refer to the full text of the foregoing statement via the following Chinese language link: http://www.gov.cn/zwgk/2010-04/13/content_1579732.htm