Guiding Opinions of the General Office of the Ministry of Commerce on the Work of Absorbing Foreign Investment in 2007

Shang Zi Zi [2007] No.25

For the purpose of grasping the precious opportunities brought about by the increase of transnational investment and the international
industrial transfer, implementing a scientific outlook of development, raising the quality and level of the absorbed foreign investment,
giving full play the benefits of foreign-funded enterprises in national economic and social development and providing guidance to
the whole country in foreign investment absorption, it is hereby notified:

I.

The Absorption of Foreign Investment of the Whole Country in 2006

The year 2006, which marked the beginning of the Eleventh Five-Year Programme, witnessed a steady increase of foreign investment in
China. Some all-caliber figures concerning the absorption of foreign direct investment in 2006 are given as follows: 41485 foreign-invested
enterprises were established, down by 5.76% compared with the previous year and the actually utilized foreign capital stood at US$69.468
billions, down by 4.06%. 12 out of the aforementioned 41485 were Chinese-foreign equity joint banks, insurance companies and funds
management companies, decreasing by 33.33% over the previous year and they actually utilized a total of US$6.447 billion, decreasing
by 46.64%.

The industrial structure of foreign investment was further optimized and the high-tech industries have gained ground on absorbing
foreign investment. In 2006, the actually utilized investment of high-tech industries amounted to US$10.14249 billion, up by 3.81%
over the previous year, and the telecommunication equipment manufacturing, optoelectronic device manufacturing and computer manufacturing
were the most prominent in this regard with a rise of 61.40%, 50.97% and 48.63% respectively. The increase of foreign investment
in non-financial service sector also gained momentum, which was shown by an actually utilized foreign investment of US$ 14.692 billion,
increasing by 25.79% over the previous year and the proportion in the national total up by almost 4 percentage points. The manufacturing
sector utilized a total of US$40.077 billion of foreign fund, which was down by 5.6% and whose proportion in the national total decreased
by 6.78 percentage points. The macro-regulation of foreign investment in the key industries was very effective. Since 2005, no foreign-invested
projects or projects with extended production capacity had been approved in iron and steel, cement and electrolytic aluminum industries.
In 2006, the actually utilized investment of the iron and steel and cement industries reached US$141 million and US$109 million respectively,
which marked significant decreases of 66.67% and 55.67%.

The distribution of foreign investment remained unbalanced. The eastern China utilized a total of US$56.922 billion of foreign investment
in 2006, which accounted for 90.32% of the national total, the central region absorbed US$3.922 billion, or 6.22% while the figures
for the western part were US$2.177 billion and 3.45%. The old industrial bases of northeastern China made use of US$2.466 billion
of foreign investment, or 3.91% of the national total.

The foreign-invested enterprises operated well and their role in the development of national economy was further strengthened. In
the first half of 2006, the investment in the fixed assets made by foreign-invested enterprises stood at US$304.31 billion, which
was up by 19.6% over the same period of the previous year and comprised 11.96% of the national total; foreign-invested enterprises
realized an industrial added value of US$906.07 billion, which was an increase of 18.9% and took up 28.54% of the national total.
From January to November, 2006, the import and export volume of foreign-invested enterprises reached US$937.548 billion, which was
an increase of 25.49% and constituted 58.24% of the national total; the export volume of foreign-invested enterprises stood at US$509.617
billion, or 58.24% of the national total, up by 27.90%. The export volumes of new and high-tech products and mechanical and electrical
products were US$223.378 billion (or 87.99% of the national total) and US$367.542 billion (or 74.05% of the national total) respectively,
registering respective increases of 30.53% and 29.59% over the same period of the previous year. From January to September, the taxes
paid by foreign-invested enterprises amounted to US$606.212 billion, or 21.4% of the national total, up by 27.5%, and the added value
of taxes by foreign-invested enterprises constituted 25.59% of the national total.

There are currently about 280 million people directly employed by foreign-invested enterprises, which comprised more than 10% of non-agricultural
labour force in the urban areas.

II.

The Situation of Foreign Investment to Be Faced in 2007

In terms of the international situation, the world economy will maintain good momentum of development in 2007. Modern service industry,
with service outsourcing as its main content, and a new round of industrial transfer characterized by advanced manufacturing, research
and development will continue their development. Merger and acquisition will remain the major form of transnational direct investment
and its total volume will keep growing. Meanwhile, developing countries and neighboring countries will release their new policies
of foreign investment absorption in succession and try to enhance it; the investment made among developed countries are becoming
more liberalized, which will slow down the growth of the international investment in developing countries. After the transition period
of entering WTO, developed countries will pose on China even greater pressure of further opening up which may exceed China’s capacity.

In terms of domestic situation, the effects of the macro-regulation are becoming increasingly noticeable and the national economy
will keep growing healthily and rapidly; foreign-related laws and regulations are becoming better and more complete; the trends of
horizontal and vertical investment transfer of transnational corporations are obvious; an all-directional, multi-layer and wide-range
pattern of opening up, the service sector included, is taking shape, which has created favorable conditions for keeping appropriate
growth of foreign investment. Meanwhile, the advantages in such traditional production factors as land, labour force and energy have
been weakened; some policies concerning the absorption of foreign investment are and will be undergoing revision one after another,
which will add to the uncertainty in the short term, while in the long run will promote the upgrading and adjustment of foreign investment
structure.

All in all, both opportunities and challenges exist in the work of absorbing foreign investment in 2007, which, on the whole, is beneficial
to the active and reasonable absorption and the further improvement of the work on foreign investment in terms of the quality and
level.

III.

The Guidelines of the Work on Absorbing Foreign Investment in 2007

The guidelines are as follows: to fully implement the scientific outlook on development and raise the quality and level of absorbing
foreign investment, with the strategic objective of building a harmonious society as the centre; to adhere to opening up to the outside
world, serve for the overall interests of national economy and maintain the relative continuity and consistency of the foreign investment
policies; to continue the active and reasonable absorption of foreign investment, import advanced technologies, managerial expertise,
high-level talents and optimize the industrial structure; to provide guidance for the gradient industrial transfer of foreign investment
and promote the coordinated development of regional economy; to develop service outsourcing business and raise the development level
of China’s service industry; to build a more open innovation system and strengthen the capability of independent innovation; to keep
a sustainable development in national economic and technological development zones.

IV.

The Objectives of the Work on Absorbing Foreign Investment in 2007

The objectives are as follows: to strictly follow the basic state policy of opening to the outside world and change the mindset on
absorbing foreign investment; to build a government oriented towards providing quality service to the public and improve the overall
environment for absorbing foreign investment, with raising the quality and level of the utilization of foreign investment as the
core; to lead foreign business to invest in the high-tech manufacturing, modern service industry and the high-level research and
development process, as well as in the resource-saving and environment-friendly industries and maintain an appropriate growth of
foreign investment; to carry out the relevant policies concerning the rise of central China, development of the western region and
rejuvenating the old industrial bases in northeast China and to encourage the gradient industrial transfer; to simplify and standardize
the approving procedures of foreign investment and strengthen the supervision over and administration of foreign investment; to build
a all-round and multi-level system of foreign investment promoting.

V.

In order to achieve the aforementioned objectives, the competent departments of commerce at various levels shall work on the following
9 aspects

1.

Study the principles of the 16th CPC National Congress, the relevant documents released since the 3rd Plenary Session of the 16th
Central Committee of CPC and the National Conference on Economic Work and change the mindset on absorbing foreign investment in line
with the latest development.

The competent departments of commerce shall fully implement a scientific outlook on development and, by focusing on the strategic
objectives of building a harmonious society and an innovative country, study and comprehend the guiding principles of the Central
Committee of the Party and the State Council on adhering to opening up and raising the quality and level of utilizing foreign investment.
The competent departments of commerce shall fully understand the significance and effects of absorbing foreign investment in the
new era, strengthen the function of public service of the government, investigate and research on the situation of foreign investment
in different regions and, considering the overall distribution of national economy, flexibly formulate the policies and measures
of raising the quality and level of absorbing foreign investment.

2.

Further transform government functions and actively improve the overall investment environment.

The competent departments of commerce shall, facing the new situation of foreign investment absorption and researching on the latest
development, conduct all the preparatory work of publicity, explanation and implementation for policy adjustment and keep the relative
consistency and continuity of the policies concerning absorbing foreign investment; the competent departments of commerce shall timely
put forward proposals for formulation and revision of relevant laws, regulations and policies and make further improvement on them;
the competent departments of commerce shall accelerate transforming government functions, enhance their awareness of providing service
to the public, take steps to make administrative affairs more open, promote administrative efficiency and administrative level in
accordance with the law, further simplify the approving procedures, enhance the capacity of online administration and improve transparency;
the competent departments of commerce shall make further amendments to the measures of handling complaints arising from the foreign
investment, intensify law enforcement in intellectual property protection and protect the lawful rights and interests of investors
at home and abroad; the competent departments of commerce shall innovate the forms of publicity, intensify the positive publicity
activities and cultivate favorable public opinions of raising the quality and level of absorbing foreign investment.

3.

Appropriately lead the orientation of foreign investment and optimize the industrial structure.

The competent departments of commerce shall implement the state macroeconomic policies, strengthen the research on the industrial
policies and the current development, lead the orientation of foreign investment flexibly on the basis of the Catalogue for the Guidance
of Foreign Investment Industries and Catalogue of Encouraged Hi-tech Products for Foreign Investment, further encourage foreign investment
in modern agriculture, modern service industry and service outsourcing industry and in the technological renovation and upgrading
of traditional industries and encourage transnational corporations to set up in China regional headquarters, purchasing centres,
logistics centres and training centres; the competent departments of commerce shall take effective measures to restrict foreign investment
in real estate and in the industries with high energy consumption, high pollution emission and low production efficiency, help the
restructuring and upgrading of processing trade, promote the joint investment and cooperation of foreign businesses and domestic
private enterprises, fully utilize overseas resources to develop capital market, and guide and standardize strategic foreign investment
in listed enterprises.

4.

Advance “the Project of Encouraging Investment in Central-Western Region” and promote the coordinated development of regional economy.

The competent departments of commerce shall speed up the revision of Catalogue of Priority Industries for Foreign Investment in the
Central-Western Region, moderately relax the access conditions for foreign investment in the central-western region, implement various
policies concerning the rise of central China, development of the western region and rejuvenating the old industrial bases in northeast
China, promote regional cooperation, encourage East China to speed up its industrial system and mechanism innovation and industrial
restructuring and upgrading, assist the central-western and the northeastern regions in creating conditions for the transfer of open
industries in the eastern part and foreign industries; the competent departments of commerce shall strive to make the 2nd Central
China Trade and Investment Expo a success as a new platform for the further opening up and cooperation with others for the 6 provinces
in central China, deepen the opening up across the border and, considering the bearing capacity of the resources and environment,
advantages for development and potentials of the region, improve the regional development policies.

5.

Develop Modern Service Industry and Undertake the International Service Outsourcing Business.

The competent departments of commerce shall promote the opening up of the service industry in an active and reliable manner, increase
the proportion of foreign investment in it and lead foreign businesses to invest in modern service industries with high added-value
such as finance, logistics, chain stores, IT, software and technological research & development.

The competent departments of commerce shall seize the opportunities of international service outsourcing, further improve the relevant
policies of encouraging the development of service outsourcing industry, fully implement the released supporting measures in the
fields of finance, banking, personnel training, quality authentication of enterprises, international market development, public information
and technology service and intellectual property protection, accelerate the cultivation of cities and enterprises as the bases for
China’s service outsourcing industry, promote the investment and encourage transnational corporations to have China as their important
partner in their service outsourcing business.

6.

Strengthen the Administration of Foreign Investment and Guide and Standardize the Merger & Acquisition of Foreign Investment.

The competent departments of commerce shall further improve the all-caliber statistic work of foreign investment in terms of scope
and depth, better the statistic system of foreign investment, raise the level of joint annual survey, strengthen the monitoring and
analysis of foreign investment, establish the announcement and administration mechanism of key foreign-invested projects the information
work mechanism of foreign investment to provide support for the decision-making of the government.

The competent departments of commerce shall improve the relevant laws, rules and regulations, encourage fair competition, guide and
standardize the merger and acquisition of foreign investment, guard against monopolized and hostile merger and acquisition and maintain
the control force in key industries and areas with a view to ensuring the national economic security.

7.

Build Harmonious Development Zones and Create New Advantages.

The competent departments of commerce shall, on the basis of adaptation to the adjustment of relevant policies and research on the
counter-measures, formulate the measures of sustainable development in the national economic and technological development zones,
give scope to the role of the zones of demonstration, radiation and promotion, develop special zones with vigorous economic growth
and large foreign investment, which absorb domestic investment as well; the competent departments of commerce shall guide and encourage
the development zones to develop new and high-tech industries, modern service industries which are energy-saving and environmental
friendly, enhance the capabilities of independent innovation, give play to the industrial clustering effects of the development zones
in East China and extend their industrial chain, support those in central-western region and the old industrial bases in northeastern
China to speed up infrastructure construction and personnel training to make preparations for the transfer of some industries from
East China, promote regional collaboration in establishing cooperation parks and lead eastern development zones to assist the western
region in improving the comprehensive investment environment.

8.

Improve the Investment Promoting System and Standardize the Foreign Investment Inviting.

The competent departments of commerce shall formulate the investment promoting strategy on the basis of the regional characteristics,
establish and improve the national investment promoting system, innovate the forms of investment promotion and make it institutionalized
and systemized, give full play the role of bilateral and multilateral investment promoting mechanism, research on and determine the
quality appraisal system of absorbed foreign investment, prohibit all disguised preferential policies in foreign investment inviting
in contravention of laws and regulations and correct the practices of assigning quotas to the subordinate departments.

9.

Promote Independent Innovation by Utilizing Foreign Investment.

The competent departments of commerce shall, comprehensively and objectively research on and sum up the experience of promoting independent
innovation by utilizing foreign investment in the context of opening up to the outside world, publicize and utilize the relevant
state policies of encouraging scientific innovation and develop new patterns of promoting innovation by utilizing foreign investment;
the competent departments of commerce shall promote foreign-invested enterprises to assimilate, absorb and re-innovate the technologies
after importing them, encourage transnational corporations to conduct joint cooperation with domestic research and development institutions
and enterprise and expand the spillover effect of foreign-invested technologies; the competent departments of commerce shall encourage
the establishment of foreign-invested enterprises for venture investment and improve the withdrawal mechanism.

The Ministry of Commerce of People’s Republic of China

March 6, 2007