China Business Guide

Establishment of Representative Offices in China

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Where foreign enterprises need to establish permanent representative offices in China, they shall apply to competent authorities for approval and go through the formalities for registration. Without prior approval and registration, no foreign enterprises may establish permanent representative offices in China.

I. Applications of foreign enterprises for the establishment of representative offices in China shall be filed with the following competent authorities in accordance with the corresponding trades:

1. For enterprises of trade, commerce, manufacturing and cargo transportation agency, applications shall be filed with the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China for approval;

2. For enterprises of banking and insurance, applications shall be filed with the People's Bank of China for approval;

3. For enterprises of maritime transportation and maritime transportation agency, applications shall be filed with the Ministry of Communications of the People's Republic of China for approval;

4. For enterprises of air transportation, applications shall be filed with the Civil Aviation Administration of China for approval;

5. And, for enterprises of other trades, applications shall be filed with competent commissions, ministries and administrations of the Government of the People's Republic of China for approval, in accordance with the nature of their business.

II. In applying for the establishment of a representative office in China, the foreign enterprise concerned shall submit the following certificates and other materials:

1. An application signed by the president or managing director of the enterprise, which shall include the name of the representative office to be established, information on its top leaders, its scope of business, the duration of stay, its address, etc;

2. An official license to do business issued by competent authorities of the country or region where the enterprise is based;

3. Certificates of the credibility rating of the enterprise issued by financial institutions which have regular business relations with the enterprise;

4. And, letters of authorization for the personnel with the representative office appointed by the enterprise and the resume of the personnel.

For enterprises of banking and insurance applying for the establishment of representative offices in China, they shall also submit the annual statement of assets and liabilities, the annual statement of losses and gains, the charter of incorporation and the list of the members of the board of directors, in addition to the certificates and other materials required by preceding Items 1, 2, 3 and 4.

III. After the approval of the application of a foreign enterprise for the establishment of a representative office in China, the enterprise shall take the certificate of approval to contact the State Administration for Industry and Commerce of the People's Republic of China to go through the formalities for registration within 30 days counted from the date of approval. In going through the formalities for registration, it shall fill in a registration form and pay a registration fee before obtaining a registration certificate. Where a foreign enterprise fails to go through the formalities for registration by the deadline, it shall have to return the certificate of approval for revocation.

Foreigh Trade Laws

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In 1998, China's imports and exports totaled 323.93 US dollars. Of which, exports stood at 183.76 billion US dollars, and import,140.17 billion US dollars, with an annual trade surplus of 43.59 billion US dollars, ranking 11th place in total imports and exports among chief trading countries (regions) over the world, ranking 10th place in imports and 9th place in exports.

In 1998, the order of China's top ten trading partners was the following: Japan, 57.9 billion US dollars; the USA, 54.94 billion US dollars; European Union, 48.86 billion US dollars; Hong Kong, 45.41 US dollars; ASEAN, 23.48 billion US dollars; South Korea, 21.26 US dollars; Taiwan Province of China, 20.5 billion US dollars; Russia, 5.48 billion US dollars; Australia, 5.03 billion US dollars; and Canada, 4.36 billion US dollars. The import and export volume between China and the top ten trading partners totaled 287.22 billion US dollars, accounting for 88.7% of China's import and export volume.

By the end of 1998, the number of China's trading partners reached more than 220.

Section I: China Foreign Trade Laws and Regulations

Today, China has instituted a fairly perfect foreign trade legal system with the "Foreign Trade Law" as the core, involving management of foreign trade dealers and import and export commodities and technology, foreign exchange, customs control, import and export commodity inspection, animal and plant quarantine, protection of intellectual property rights, and economic and trade arbitration related to foreign interests and proceedings.

I. Foreign Trade Law

The Foreign Trade Law, which came into force on July 1, 1994, serves as the basic law on standardizing foreign trade activities in China. Its basic principles are:

That the whole country practices a unified foreign trade system;
Safeguarding a fair and free foreign trade order;
Ensuring the independent operational authority of foreign trade dealers;
Encouraging the development of foreign trade;
and Promoting trade relations with other countries and regions on the basis of equality and mutual benefit.

II. Laws and Regulations on Managing Foreign Trade Dealers

Apart from the fact the Foreign Trade Law has stipulations in this regard, other major related references are the "Regulations on Issues Concerning Examination and Approval of Foreign Trade Enterprises" promulgated by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) on May 24, 1988, the "Provisional Procedures on Operating and Managing Import and Export Commodities" promulgated on July 19, 1994, the "Provisions on the Distribution of Export Commodity Quotas" promulgated on December 29, 1995, the "Procedures on Paid Bidding for Export Commodity Quota" promulgated on April 17, 1995, and related detailed rules for implementation, the "Procedures on Bidding for the Export of Machinery and Electronic Products" promulgated on July 2, 1996, and the "Provisional Procedures on the Automatic Registration for the Authority of Productive Enterprises in Special Economic Zones to Independently Handle Imports and Exports" promulgated on January 22, 1997.

III. Laws and Regulations Governing Management of Import and Export Commodities

1. Major laws and regulations on managing import commodities: the "Provisional Regulations of the People's Republic of China Concerning the License System for Import Goods" promulgated on January 10, 1984, and related detailed rules for implementation, the "Provisional Procedures on Managing Quotas for the Import of General Commodities" promulgated on December 29, 1993, and related detailed rules for implementation, the "Provisional Regulations Governing the Automatic Registration for the Import of Special Commodities" promulgated on April 13, 1994, the "Provisional Regulations on Managing the Import of Machinery and Electronic Products" promulgated on October 7, 1993, and the "Circular on Tightening Management of the Import of Used Machinery and Electronic Products" promulgated on December 22, 1997, the "Detailed Rules for Implementation on Managing Imports by Foreign-Funded Enterprises" promulgated on June 9, 1995., and the "Management Method on the Standard of the Imported Machinery and Electronics Products."

2. Major laws and regulations on managing export commodities: the "Provisional Procedures on Managing Export Commodities" promulgated on December 29, 1992, and the revised "Provisions on Managing Export Licenses" promulgated on January 2, 1996.

3. Important laws and regulations in connection with trade: the "Provisions of the People's Republic of China on Environmental Management of Chemicals imported for the First Time and the Import and Export of Poisonous Chemicals" promulgated on March 16, 1994, and related detailed rules for implementation, and the "Provisional Regulations on Environmental Protection Regarding the Import of Wastes" promulgated on March 1, 1996.

IV. Laws and Regulations on Import and Export Commodity Inspection, Animal and Plant Quarantine and Hygienic Quarantine.

1.Major Laws on Inspecting Import and Export Commodities: the "Law of the People's Republic of China on Inspecting Import and Export Commodities" promulgated on February 21, 1989, and related detailed rules for implementation, the "Procedures on the Implementation of the License System for Safety and Quality of Import Commodities" promulgated on August 1, 1993, and related detailed rules for implementation, the "Procedures on Managing Labels of Import and Export Foodstuffs (for Trial Implementation)" promulgated on May 1, 1994, and the "Procedures on Exemption of Import and Export Commodities from Inspection (for Trial Implementation)" promulgated on January 11, 1990, and the "Procedures on Re-Inspection of Import and Export Commodities" promulgated in 1993.

2. Major laws and regulations on animal and plant quarantine: the "Law of the People's Republic of China on Quarantine of Entrance and Exit Animals and Plants" promulgated on October 30, 1991, and related detailed rules for implementation.

3. Major hygienic quarantine laws and regulations: the "Law of the People's Republic of China on Border Hygienic Quarantine" promulgated on December 2, 1986, and related detailed rules for implementation, the "Food Hygiene Law of the People's Republic of China" promulgated on October 30, 1995, and the "Procedures of the People's Republic of China on Managing Imported Pharmaceuticals" promulgated on November 2, 1990.

V. Laws and Regulations Governing Foreign Exchange Control

China's most basic law on foreign exchange control is the "Regulations of the People's Republic of China on Foreign Exchange Control" promulgated by the State Council on January 26, 1996. Moreover, regulations in this regard include: the "Notice of the People's Bank of China on Further Reforming the Foreign Exchange Control System" released on December 28, 1993, the "Provisions on Managing Settlement in, Sales of and Payment in Foreign Exchanges" promulgated on June 20, 1994, and the "Procedures on Managing the Settlement in Foreign Exchanges under Current Account" printed and distributed on July 25.

VI. Customs Laws and Regulations and Tariff Laws and Regulations

1. Customs laws and regulations: the Customs Law of the People's Republic of China" promulgated on January 22, 1987, the "Customs Procedures on Managing the Processing and Assembly Business for Overseas Customers" promulgated in September of 1987, the "Customs Procedures on Managing Bonded Factories Handling Processing Trade" and the "Customs Procedures on Managing Bonded Warehouses and Goods Stored Wherein" promulgated in April of 1988, the "Customs Procedures on Managing Processing Import and Export Goods with Imported Materials" promulgated in June of 1988, the "Provisional Procedures on Managing Export Warehouses under Supervision and Control" promulgated in March of 1992, the "Procedures on Supervising and Levying taxes on the Import and Export of Goods by Foreign-Funded Enterprises" promulgated in August of 1992, the "Customs Regulations of the People's Republic of China Concerning Protection of Intellectual Property Rights" promulgated on July 5, 1995, the "Customs Procedures on Supervising Bonded Zones" promulgated on August 1, 1997, the "Customs Inspection Regulations of the People's Republic of China" promulgated on January 3, 1997, and the "Customs Procedures of the People's Republic of China on Supervising Imported Exhibits" promulgated on January 3, 1997.

2. The regulations involving tariffs are primarily the "Import and Export Duty Regulations of the People's Republic of China" (which were promulgated following revisions on March 18, 1992) and the "Anti-Dumping and Anti-Subsidy Regulations of the People's Republic of China" promulgated on March 25, 1997.

VII. Civil and Commercial Laws Involving Foreign Interests

With the increasingly higher degree of opening up, China has paid increasingly closer attention to civil and commercial legislation involving foreign interests. The "Law of the People's Republic of China on Economic Contracts Involving Foreign Interests" was adopted on March 21, 1985. It was the first time that China enacted a law in regard to economic and trade contracts. The "General Principles of the Civil Code of the People's Republic of China" was adopted on April 21, 1986. This was a significant step taken by China in civil and commercial legislation.

Import and Export Procedures

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China have freedom in undertaking all the import and export activities including international trade, with the exception of those forbidden by state laws and regulations. Some of the import and export procedures are open to choice. Whether these procedures are necessary is solely decided by the kinds of import and export and the category of the import and export commodities.

I. China Import Procedures

Most of the import businesses in China are transacted in FOB prices. Only a very small minority of the import commodities are transacted on CIF terms. The majority of means of payment are in letter of credit (L/C).

The commodity import include a series of steps from signing a contract to making the payment. The general import procedures transacted under the terms of FOB include: writing down an effective contract, writing L/C, booking space, pushing for shipment, insurance, checking documents, making payment, customs declaration, receiving the shipment, inspection, goods delivery and claiming import indemnity.

1. The establishment of an effective import contract

A contract comes into effect once the price quoted based on a written agreement, or the contract between a Chinese import enterprise and a foreign supply businessmen is accepted or the price quoted by the foreign supply businessmen is accepted.

Though China has greatly opened its import business, its import business is controlled and regulated by a series of laws and regulations such as the "Foreign Trade Law" and "the Customs Law". Therefore businesspersons must consult with various laws and regulations issued by the Chinese government before importing commodities from overseas.

All products, if no limit is set, can be imported freely while ways of trade and payment which run contradictory with laws and regulations are generally forbidden.

2. The writing of a Letter of Credit (L/C)

Buyers must fill in an application according to regulations in the contract so as to write out a letter of credit once the import contract is signed. The content of the L/C must conform with the articles in the contract.

The time decided in the L/C must also fit for the regulations in the contract.

After the L/C is written, buyers can apply for correction in the Bank of China.

3. Booking space and pushing for shipment

The buyers are responsible for booking space if the import contract is signed under the FOB price terms. At present, the space booking of China's import trade is generally entrusted to China National Foreign Trade Transportation Corporation. After the shipment matters are settled, buyers should inform sellers the time and name of the ship so that the seller can make preparations and be ready for loading. In the meantime, buyers should push for the shipment so that the transportation company can load on time.

4. Insurance

The insurance of import contract under FOB and CFR terms is on the purchasing side. At present, the insurance of import goods carried through ocean shipping is entrusted to China National Foreign Trade Transportation Corporation, which is responsible for signing preliminary insurance contract with the People's Insurance Company of China (PICC).

5. Checking documents and making payment

The Bank of China will check the number of documents and contents by referring to the regulations in the Letter of Credit after receiving bank drafts and documents. If they are found correct, the Bank of China will make the payment to the overseas enterprises. The import enterprises can buy money orders from the Bank of China with Renminbi according to the announced foreign exchange rate. If something is found wrong, the bank can inform the other side to make the correction or stop making the payment.

6. Customs declaration and receiving shipment

Import enterprises, after retiring documents, should prepare for receiving the imported products. Once the product reached the port of arrival, they should start customs declaration and receiving the import articles.

The customs declaration and goods receiving are usually done by China National Foreign Trade Transportation Corporation instead of import enterprises.

7. Checking, receiving, and goods delivery

Imported goods must be inspected by commodity inspection organizations. If the import goods are found missing, damaged or in short, import enterprises can claim an indemnity with proof from commodity inspection organizations.

After the above documents are completed, import and export enterprises must entrust the foreign trade transportation company to pick up goods and deliver them to ordering enterprises.

8. Claiming an indemnity

Claiming for an indemnity often happens in cases in which foreign sales parties cannot deliver products, or cannot deliver them on time or the quality, packaging, amount cannot fit those prescribed in the contract.

The target of claiming for an indemnity is concentrated on the commodity supply parties, shipping corporations or insurance companies in line with different degrees in economic losses.

II. China Export Procedures

In China's export business, BOF terms apply only in a small number of countries and regions which have signed agreements with China on the same delivery terms. The majority of countries do business on CIF or CFR terms and get paid in letter of credits. This kind of export contracts involve many links with complicated procedures and are associated with many aspects and departments.

Export procedures usually include: the establishment of an export contract, preparing export commodities, push for documents, checking and changing documents, booking space, customs declaration, commodity inspection, insurance, loading, writing documents and settlement of exchange. Among them, the four procedures such as goods (preparing for export goods), documents ( push for documents, checking and changing documents), ships (booking space), payment ( writing a document and settlement of exchange) are the most important.

Industries & Infrastructure

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In 1998 China's gross domestic product (GDP) stood at 7,955.3 billion yuan, up 7.8% over the previous year. Of which, the first industry increased 1,429.9 billion yuan, the secondary industry, 3,915 billion yuan, and tertiary industry, 2,610.4 billion yuan.

China Basic Industries and Infrastructure

I. Energy Industry

China is the largest coal producer and the second largest electricity producer in the world. So far, it has preliminarily formed an energy production system which takes coal as the mainstay and in which various forms of energy supplement one another. In 1998, China's energy production totaled 1,240 million tons standard coal and energy consumption totaled 1,360 million tons of standard coal.

1. Coal industry

China's coal resources are estimated at 5,059.2 billion tons, with enormous reserves and high quality. Its coal mines have reserves verified at 972.4 billion tons, one third of which are coking coal. There are many coal fields, but relatively concentrated in north, northwest, northeast and east China, as well as some areas in southwest China. The vast area south of the Yangtze River is deficient in coal resources. In 1998, China's raw coal production totaled 1.233 billion tons.

2. Power industry

By the end of 1996, China's thermal power generating capacity had reached 236.54 million kw. The power industry as a whole generated 1,079.4 billion kwh in 1996. China ranked second in the world in terms of both power generating capacity and electricity output.

China's power resources are not distributed evenly. The vast central and western region is rich in hydropower resources and has large coal reserves, whereas economically developed eastern coastal region is relatively deficient in energy resources. For a considerably long time to come, China will accelerate energy development and construction of energy production centers in the central and western region, propel abundant power supply from the central and western region to the eastern region, and connect all of its power grids as soon as possible. The specific contents are: by the year 2000, its power generating capacity is projected to rise to 290 million kw, its annual power production will reach 1.4 trillion kwh, the length of its power transmission lines of 220 kv and higher will increase to 171,200 km and its substation equipment will reach 398 million kilovolt amperes. Meanwhile, it will renew and upgrade generating units with a combined capacity of 12 million kw, replace generating units with a total capacity of eight million kw that have exceeded their service spans, and put into operation and install generating units with a combined capacity of 10 to 12 million kw that will have desulfuration equipment. Electricity will be available in all counties across the country so that the problem of 70 million rural residents with no access to electricity will be solved. By the year 2010, China's generating capacity will rise further to 500 million kw, and the Three Gorges Hydropower Station will be able to supply electricity to central China, east China, Sichuan Province and Chongqing Municipality. An inter-regional and inter-connected power grid covering north, central and south China will be formed. Rural areas will achieve electrification by and large. China's power technological and economic indexes will become closer to advanced international standards. By the year 2020, its generating capacity is projected to rise further to 700 to 800 million kw. On the basis of making the structures of hydropower, thermal power, nuclear power and new energy rational, a nationwide power grid will be formed to make sure that power resources will be distributed rationally and score sustainable development all over the country. By the year 2050, a power industrial system suited to a modern China will be established.

3. Petroleum industry

In 1998, China's on-shore oil industry pumped out a total of 162.603 million tons of crude oil and 22.297 billion cubic meters of natural gas; and its offshore oil industry produced a total of 16.32 million tons of crude oil and 3.84 billion cubic meters of natural gas.

Its on-shore oilfields are primarily concentrated in the eastern part, such as Daqing, Shengli, Liaohe, Central China, Jilin, Dagang and Jianghan, whose crude oil production constitutes the lion's share of China's total. Western oilfields such as Xinjiang, Tarim, Tulufan and Hami, Changqing and Qinghai are being developed and built. In recent years, with constant development, offshore oilfields have reported rapid growth of crude oil production. Apart from the fact that major oilfields pump out natural gas, China's natural gas is primarily produced in Sichuan, Shaanxi, Gansu and Ningxia, the Tarim Basin and the Jungar Basin, as well as by offshore gas fields.

Since China's economy has been growing rapidly, its domestically-produced crude oil cannot fully meet its needs. So, since the beginning of the mid-1990s, China has had to import some crude oil each year.

II. Transportation

In 1998, the mileage of railways in China open to traffic reached 57,600 km, that of highways, 1,278,500 km, that of inland river shipping routes, 110,300 km, that of air routes, 1,505,800 km, with international air routes accounting for 504,400 km, and the length of pipelines was 23,100 km. China's passenger turnover totaled 1,055.9 billion persons-km and its cargo turnover, 3,784.1 billion tons-km. Major coastal ports handled a total of 922.37 million tons of cargo.

1. Railway transport

By the end of 1998, the mileage of China's railways open to traffic had reached 57,600 km, with double-tracked ones making up 34.16% and electrified ones accounting for 22.57%. China had 15,562 locomotives including 10,1159 internal combustion ones, 440,000 freight trains and 34,200 passenger trains.

Railways have always played a leading role in China's comprehensive transportation system.

Today, a railway network has covered all parts of China, with the exception of Tibet. However, railways are not distributed evenly because they are mainly distributed in northeast China and the coastal areas in east China. respectively. Except that existing railways in northeast China have formed a network by and large, they have not done so in other areas. Consequently, transportation has been concentrated on trunk lines. So, China's railway transport load is very heavy and its railway transport capacity cannot fully meet growing needs.

At present, more than 80% of the country's freight transports are raw materials and staple materials, including coal, iron and steel and nonferrous metals, metals and non-metallic ore, building materials and grain, with coal transport exceeding 40%. Every day more than 1,000 pairs of passenger trains are dispatched.

At present, China is speeding up construction and upgrading of trunk lines, with emphasis placed on the central and western region. Special efforts will be made to solve the problem of insufficient transport capacity in northeastern China, and further improve the modernization level of equipment on trunk lines. By the year 2002, the mileage of railway lines open to traffic will exceed 70,000 km, with double-tracked ones reaching 21,000 km and electrified lines accounting for 15,000 km. Internal combustion and electric locomotives will be used for traction power. The railway digital transmission corridor will be built. A transport managerial information system and a national railway ticket booking system will be introduced.

2. Highway transport

By the end of 1998, the mileage of China's highways open to traffic had reached 1,278,500 km, with grade-one and grade-two special roads accounting for 11.7% and expressways totaling 8,733 km. Now 98.7% of towns and townships and 87.7 villages all over the country have access to roads. Areas with no access to transport service is virtually non-existent. High-grade highways have formed networks in developed areas preliminarily.

Highway transport plays a significant role in China's transport sector, especially in passenger transport.

In China' national highway network, the trunk national route system composed primarily of high-grade roads for motor vehicles constitutes the major framework. Trunk national routes link the nation's capital of Beijing and other municipalities directly under the central government and the capitals of various provinces (autonomous regions), as well as all exceedingly large cities with a population of more than one million and the overwhelming majority of cities with a population of over half a million.

3. Waterway transport

Waterway transport holds an extremely important position in China's cargo transports.

Waterway transport is concentrated in coastal areas in eastern China and in south China.

(1) Inland river transport

By the end of 1998, the mileage of the country's inland rivers had reached 110,300 km, with channels capable of accommodating ships of 1,000 DWT accounting for 5,800 km. Major inland river harbors had a total of 8,575 wharves and berths, including 47 for ships of more than 10,000 DWT. China's inland rivers enjoy an enormous shipping potential. Holding a leading position in inland river shipping are the shipping routes on the Yangtze, Pearl, Heilongjiang and Huaihe rivers, as well as the Jinghang (Beijing-Hangzhou) Grand Canal shipping route.

(2) Ocean transport

Ocean transport holds a dominant position in the country's waterway transport, with the ocean cargo turnover making up roughly 70% of the waterway transport cargo turnover. At least 85% of China's foreign trade goods rely on ocean transport. In 1998, the amount of China's sea freight transport in foreign trade stood at 330 million tons.

China has more than 60 ports along the coasts. For the 16 chief ports, the number of the berths at the end of 1998 reached 1,608, and 468 deep water berths among them are able to accommodate 10,000 ton boats. The goods handled in 1998 registered 922 million tons. The order of chief ports with an annual handling capacity of over 50 million tons is as the following: Shanghai, Ninbo, Guangzhou, Qinhuangdao, Dalian, Qingdao and Tianjin. China's chief ports along the coasts are usually linked with the hinterland through high grade roads or trunk railways, forming basically an international container system consisting of ocean transport, port loading and unloading, and inland transport (water, road and railway).

Currently, more than 40 ports in China are engaged in container loading and unloading, and there are over 50 special container berths and 16 ports have special berths for 10,000-ton containers.

In 1998, the handling capacity of the international container ports registered 13.16 million TEU, and China's container fleet has ranked among the top four in the world.

By the end of 1998, China boasted 260 international sea transportation ship companies, and 410 ship companies which owned 1,620 ships flying Chinese flags and sailing on the international lines and Hong Kong and Macao lines, and with a loading capacity of 17 million tons. There were 237 international ship agent enterprises and 380 foreign navigation company representative office, as well as 72 foreign solely-funded ship companies, container transport service companies and branches. So far, China has opened navigation with 1,100 ports in 150 countries and regions in the world. In 1998, each month there were 2,532 ships leaving Chinese ports and there were 279 monthly voyages sailing across the ocean. Beginning from 1989, China has been successively elected Class A Council Country in the International Maritime Organization.

4. Civil aviation transport

At the end of 1998, China had 143 airports open to traffic, 1,122 regular air routes( including 983 international air routes ) with a total length of 1,858,700 km, and 135 civil cities(Hong Kong is exclude) with access to air service. Its international air routes reach 64 cities in 34 countries and regions.

In 1998, Chinese airports handled 113.71 million passengers. Among them, 27 were capable of handling more than one million passengers each annually and accounted for 86.7% of the total passenger handling capacity. The Capital Airport in Beijing, the Baiyun Airport in Guangzhou and the Hongqiao Airport in Shanghai accounted for 38.2% of the total passenger handling capacity. Chinese airports handled a total of 2,884,000 tons of mails. Among them, 33 were capable of handling more than 10,000 tons each a year and accounted for 95.8% of the total. The Capital Airport in Beijing, the Baiyun Airport in Guangzhou and the Hongqiao Airport in Shanghai accounted for 51.7% of the total.

III. Telecommunications industry

China's telecommunications industry has developed rapidly. In 1998 China's telephone subscribers totaled 87 million. Of which, 69.69 million were residence subscribers. And 67.1% of the administrative villages had telephones. The total capacity of bureau telephone switchboard comprised 130 million telephones, and the network scale ranked second place in the world. In the state public service telecommunications networks, optical cable totaled 1 million kms, linking all the provincial capitals. 99.8% of the counties in the country had installed program controlled telephones. By the end of 1998, China had opened direct line with 87 companies in 72 countries and regions, international 800 with 18 countries, global 800 with 11 countries, international 300 telephone cards with 14 countries; and China Telecom's ISDN had connected with Japan, the USA, Britain, Germany, Singapore, and China's Hong Kong, Macao and Taiwan.

In 1998 China's mobile phone subscribers totaled 24.98 million, ranking 3rd place in the world. There were 18.73 million digital mobile phone users, accounting for 75% of the total, and the number of pager users reached 58 million. The GSM mobile network had covered 2,000 counties in 330 prefectures throughout the country and had automatic link with 60 businesses in 38 countries and regions.

In 1998, China saw 750,000 ports in the total capacity of its digital telecommunications network; of which, CHINA PAC ports reached 212,000, CHINA DDN ports reached 376,000, CHINA FRN ports reached 5,930,and China's public media telecommunication network and China computer and network ports totaled 140,000. China has successfully enforced the "government network project," sharing office network and information data among various government departments.

IV. Post Telecommunications

In 1998 the number of China's post office reached 84,134, with 236 central post offices. The country's 23,272 post lines totaled 270 kms in length.

At present China's post telecommunications include the following business:

1. Post business which includes letters, parcels, express mails and confidential communications, and distribution of newspapers and publicaton.

In China, there are now 16,272 electronic post branches, 106 sets of automatic letter sorting machine, 138 sets of parcel sorting machine, and express mails reach 1,983 cities. And 559 cities have opened the service of electronics mails.

2. Post deposit and remittance

By 1998, the post deposit computer network has covered 527 counties in 31 provinces in the country, and there were 5,738 networks handling deposit and remittance, with a daily turnover of 138 million yuan on average. By 1998, China had direct post relations with 150 countries and regions, and its international mails and parcels can reach many parts of the world. Today 96 countries and regions have set up international express mail service with China, and international post remittance from China can reach 18 countries and regions.

Policy on Foreign Investment

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I. Attracting Direct Foreign Investment

The focus of China's utilization of foreign funds is to attract direct foreign investment. The policy finds expression primarily in the following:

It is necessary to further optimize the structure of industries seeking foreign investment. Emphasis is placed on encouraging foreign investment to flow to agriculture, high- and new-tech industries, basic industries, infrastructure, the environmental protection industry and export-led industries. Positive efforts are being made to guide foreign investment to flow to the technological upgrading of traditional industries and old industrial production centers. Work continues to be done to expand labor-intensive projects complying with the industrial policy. Projects that jeopardize national security or damage social and public interests, pollute the environment and disrupt the ecology are strictly prohibited.

It is imperative o continue expanding foreign investment areas. Efforts are being made to open wider competitive industries to overseas investors and increase the scale of utilizing foreign investment in petrochemical and building industries. It is necessary to attract foreign investment in a differentiated and selected manner to develop and utilize mineral resources. Efforts are being made to promote step by step the opening of service trade to the outside world; active efforts are being made to try out the utilization of overseas funds in the development of tourism resources and water transport; work is being done to expand the scale of experiments in opening up in domestic commerce, foreign trade and travel agencies; efforts are being made to open wider accounting and legal consulting service sectors and air transport and agent business; and work is being done to make experiments in opening up financial and telecommunications sectors in a step-by-step and controlled way, while establishing a perfect and effective supervisory mechanism.

It is necessary to improve the regional layout of foreign investment. Efforts are being made to continue to exhibit the advantages of the eastern region in opening up and utilizing foreign funds, aid the region in vigorously expanding capital- and technology-intensive industries and export-oriented industries, and actively guide and encourage foreign investment to flow to the central and western region.

It is imperative to energetically attract investment from developed countries and regions, including North America, Japan and EU. Vigorous efforts are being made to adopt internationally accepted multiple foreign investment forms, and continue the experiments in establishing the companies Ltd. involving foreign investment, undertaking projects specially designated for overseas investors and using projects' operational authority or proceeds right to introduce foreign funds, and promptly formulate and improve relevant laws and regulations. Energetic efforts are being made to continue expanding processing trade and compensation trade. It is necessary to implement the system under which a bank opens a separate and special account number for imported materials and parts for processing trade. It is necessary to encourage large and medium-sized state-owned enterprises to take various forms to utilize foreign funds for their asset reorganization, so as to improve their managerial efficiency. Bidding invitation and tendering bids are being adopted to encourage foreign-financed enterprises to use Chinese-built equipment. It is imperative to formulate and improve relevant laws and regulations to permit small state-owned enterprises and collectively-owned enterprises to establish joint ventures and cooperative businesses with foreign companies or to be sold to overseas companies, and permit private enterprises to introduce foreign funds.

It is necessary to positively guide the investment of trans-national companies and open wider the domestic market to the rest of the world. It is necessary to promote in a selected manner cooperation between large state-owned enterprises with trans-national companies, encourage Chinese companies to cooperate with trans-national companies in establishing research and development centers or in forming a complete set of system. Efforts are being made to give full scope to the role of existing laws and policies concerning the utilization of foreign funds, in order to advance the sound development of existing foreign-funded enterprises.

It is imperative to further improve the hard investment environment, and stepping up construction of infrastructure such as energy, transportation and public utilities in urban areas, while energetically improve the soft investment environment.

In accordance with the state industrial policy and the policy on foreign funds, high-quality large and medium-sized state-owned enterprises will be selected to be listed on the international securities market. While trying to make a success of the enterprises listed in Hong Kong, efforts are being made to explore other international securities markets.

II. Industrial Direction Guidance

To guide the direction of foreign investment, to enable the direction of overseas investment to suit the plan for China's national economic and social development and to help protect legitimate rights and interests of overseas investors, the Chinese government, in line with the requirements of the industrial policy, released on June 20, 1995, the "Provisional Regulations on Guiding the Direction of Foreign Investment" and the "Guidance Catalog for Industries Seeking Foreign Investment." In December of 1997, it also revised the "Guidance Catalog for Industries Seeking Foreign Investment" and expanded the scope of foreign investment encouraged by the state. (please refer to Appendix II)

The "Guidance Catalog for Industries Seeking Foreign Investment" serves as the basis for guiding examination and approval of foreign-financed projects. Foreign-financed projects fall into four categories, namely, the categories of encouragement, permission, restriction and ban. Foreign-financed projects under the categories of encouragement, restriction and ban are included in the "Guidance Catalog for Industries Seeking Foreign Investment." Foreign-financed projects other than the three categories fall under the category of permission. Foreign-funded projects under this category are not included in the "Guidance Catalog for Industries Seeking Foreign Investment."

III. Regional Direction Guidance

China's opening-up endeavor began first in the eastern coastal region, and moved to interior regions gradually in phases and tiers. The eastern region enjoys a fairly favorable investment environment and many preferential policies. That is why most reform measures were initiated in the eastern region, which is home to the five special economic zones, 14 coastal open cities and the Pudong New Area in Shanghai. So, to date, the overwhelming majority of overseas-funded enterprises have been established in the region. In contrast, foreign companies have launched fewer investment projects in China's central and western region.

In recent years, with the strategic focus of China's economic development shifting gradually westward, the Chinese Government has formulated relevant policies on assistance regarding the central and western region, vigorously increased investment in the region, and speeded up construction of infrastructure such as water conservancy, transport and telecommunications there. Meanwhile, it has been encouraging foreign companies to invest in the region. These policies are as follows:

-- Foreign companies are being encouraged to invest in infrastructure construction and agricultural projects in the region. As regards investors in infrastructure projects such as energy and transport ones in the region and agricultural projects encouraged by the state, in accordance with the tax laws and with approval by authorities, the enterprise income tax shall be levied and collected at a reduced rate of 15%.

-- Foreign companies are being encouraged to invest in the central and western region. All provincial capital cities (capitals of autonomous regions) of interior provinces pursue the same policies as the coastal open cities. The conditions on approving projects which fall under the category of restriction in coastal areas or projects whose set ratio of foreign companies' stock rights is subject to restriction and on the degree of the market openness, appropriate relaxation can be made in the central and western region. Efforts are being made to encourage and attract labor-intensive projects in the coastal areas to move to the central and western region. If foreign-funded enterprises in coastal areas to re-invest in the central and western region, provided the ratio of foreign investment exceeds 25%, they can enjoy the same treatment as foreign-funded enterprises. for the areas and projects in which the state permits experiments, the central and western region can in principle proceed simultaneously with the eastern region.

-- Foreign companies are being encouraged to carry out technological upgrading of military enterprises shifting to production of civilian goods. With respect to the projects involving the establishment of joint ventures between foreign companies and backbone state-owned enterprises in the central and western region, if they involve the projects which fall under the category of restriction in the "Guidance Catalog for Industries Seeking Foreign Investment" or the projects whose ratio of foreign companies' stock rights are restricted, restrictions can be relaxed appropriately, and necessary assistance will be granted in utilizing foreign loans, the allocation of domestic supporting funds, preferential loans and the financial refunding.

-- Foreign companies are being encouraged to participate in developing mineral and tourism resources and related industries in the central and western region, and to undertake crop cultivation, aquatic breeding and animal husbandry projects with special characteristics.

-- Foreign companies are being encouraged to join hands with enterprises in coastal areas in establishing Sino-foreign joint ventures in the central and western region.

Although the central and western region is relatively backward, it enjoys an enormous development potential.

In the first place, the potential in developing resources. China's major mineral, energy and primary products all come from the central and western region. Northeast China, north China, the Yellow River Valley and the Jianghan Plain are the best-known granaries in China. A considerable part of water, land, heat and solar energy resources in Xinjiang and the Hexi Corridor in Gansu has not been developed or utilized fully. Coal in Shanxi Province, Shaanxi Province, the Inner Mongolia Autonomous Region, Henan Province and Anhui Province, hydropower in Yunnan, Guizhou and Sichuan provinces, and nonferrous metals, precious metals, petroleum and natural gas in northwest China all have enormous reserves and are of great value of development. A great many cultural relics along the Yellow and Yangtze rivers, the Silk Road in northwest China, beautiful mountains and rivers and scenery of ethnic minority areas in southwest China, well-known mountains and rivers in Hunan, Anhui and Jiangxi Provinces are world-famous tourist sites.

Second, the potential of the industrial foundation. The central and western region has had a certain industrial basis. The petrochemical and power equipment manufacturing industries in northwest China, the textile industry in Shaanxi and Henan provinces, the metallurgical and automobile industries in Hubei Province, the machine-building and electronic industries in Sichuan Province and the tobacco industry in Yunnan Province are vital to China. In the 1960s and 1970s, China carried out large-scale construction the "Third Line" (military factories) by undertaking a number of basic industrial and military projects in southwest China. Since China initiated reforms and opening up, "Third Line" enterprises have made great progress in shifting to production of civilian goods.

Third, the potential of labor and human resources. Labor costs in the central and western region are comparatively low. Large numbers of agricultural laborers in some densely-populated areas in the central region need to shift to the non-agricultural sector at present and in the future. Although the educational quality of the population in the central and western region is, on the whole, lower than that of the population in the eastern region, some areas in which universities, colleges and research institutes are concentrated or which have a solid industrial foundation, such as Wuhan in Hubei, Changsha in Hunan, Xi'an in Shaanxi, Hefei in Anhui, Chengdu in Sichuan and Chongqing, have large numbers of technical and managerial personnel.

Fourth, the market potential. The central and western region makes up about 60% of China's population. With economic growth and the increase in earnings of residents, potential market demand in the region will be enormous. A number of central cities are backed by a vast hinterland, with their markets extending far and wide.

Fifth, the potential in expanding trade with neighboring countries. The central and western region shares a land border line of tens of thousands of km with ten-plus countries. Many of the countries have been pursing the policy of economic restructuring and increasing trade in recent years. The region enjoys a unique advantage in enhancing economic and trade relations with these countries. The tentative plan being discussed for the establishment of a new Asia-Europe bridge economic belt will push forward economic cooperation between ten provinces and autonomous regions (including eight in the central and western region) in China's eastern, central and western regions and Central Asia and Europe. The plan for cooperation and development in the Mekong River Valley will help accelerate the development of hydropower resources in China's southwestern region. The Tumen River cooperation and development plan will enable Heilongjiang and Jilin provinces to bring their comparative advantages into full play and expand their export-led economy. The central and western region enjoys bright prospects in economic and trade cooperation with neighboring countries.

Political System

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The People's Republic of China is a socialist country under the leadership of the Communist Party of China. According to the "Constitution of the People's Republic of China," the state's fundamental law, the socialist system is the basic system of China; the people's congress is China's political system; and the form of ownership with the public ownership as the basis and multiple sectors of the economy existing side by side is China's economic system.

I. State Institutions

According to the Constitution of the People's Republic of China, China's state institutions are composed of the following sections:

1. The National People's Congress. It is China's supreme organ of state power. It regularly holds an annual plenary session, and is elected for a term of five years. Delegates are elected according to their present administrative regions through the universal suffrage. The national congress has regular and temporary special committees, which are led by the permanent committee, the Standing Committee of the People's National Congress, when the congress is not in session. Altogether eight national people congress have been held since 1954, when the first congress took place. The number of delegates to the ninth National People's Congress totaled 2,980. Li Peng is the incumbent Chairman of the present Standing Committee of the National People's Congress.

2. President of the People's Republic of China. The incumbent president of the People's Republic of China is Jiang Zemin, and the vice-president is Hu Jintao.

3. State Council, i.e. the Central people's Government. It is the executive organ of the supreme organ of state power and the state's supreme administrative organ. The State Council consists of the premier, vice-premiers, state councilors, ministers of different ministries and commissions, the auditor-general and secretary-general. The premier is responsible for the State Council, and the premier is decided by the National People's Congress according to the president's nomination and appointed and removed by the president. At present, the incumbent premier of the State Council is Zhu Rongji, and vice-premiers are Li Lanqing, Qian Qichen, Wu Bangguo and Wen Jiabao.

4. The Central Military Commission of China. It is the supreme military leading organ, leading and commanding the country's armed forces. The National People's Congress elects the chairman of the Central Military Commission of China. The incumbent chairman is Jiang Zeming, and vice-chairmen are Hu Jintao, Zhang Wannian and Chi Haotian.

5. The Supreme People's Court. It is the country's highest judicial organ. The president is elected by the National People's Congress and the incumbent president is Xiao Yang.6. The Supreme People's Procuratorate. It is the country's highest procuratorial organ. The procurator-general is elected by the National people's Congress and the incumbent procuartor-general is Han Zhubing.Apart from the central state institutions mentioned above, people's congress and people's government in the localities and the autonomous minority nationality areas are also components of China's state organs.

II. Political Parties and Organizations, Political Consultative System.

1. The Communist Party of China, which was founded in July 1921 in Shanghai, is China's ruling Party. The Constitution has stipulated the CPC leading position in the country. In the state leading system, however, the Party cannot substitute for the government's functions. The Party carries out activities within the scale of the constitution and law. The Party has more than 58 million members. The incumbent general secretary of the CPC Central Committee is Jiang Zemin.

2. The Chinese People's Political Consultative Conference (CPPCC). The system of multi-party cooperation and consultation under the leadership of the Communist Party of China is the basic political system. CPPCC is a manifestation of this system, and CPPCC consists of different political parties and groups, people's organizations and patriotic democratic personages. Its major function is to follow the principle of cooperation between the Communist Party of China (CPC) and different democratic parties and personages in discussing key state political principles, and participating in government affairs. According to the regulations, CPPCC has national committee and standing committee, and the delegates of the CPPCC is elected for a term of five years. Most of the CPPCC members are political activists, social celebrities, experts and scholars. The ninth CPPCC National Committee has 2209 members and the incumbent chairman is Li Ruihuan.

3. Non-communist parties with a general designation of democratic parties: the Revolutionary Committee of the Chinese Kuomintang, the China Democratic League, the China Democratic National Construction Association, the China Association for Promoting Democracy, the Chinese Peasants and Workers Democratic Party, the China Zhi Gong Party (Public Interest Party), the Jiu San (September 3) Society, and the Taiwan Democratic Self-Government League. All the democratic parties participate in government and political affairs, and enjoy rights of political freedom and organization independence.

4. Major national organizations: the All-China Federation of Trade Unions, the Communist Youth League of China, the All-China Women's Federation, and the All-China Federation of Industry and Commerce, etc.

III. Laws and Jurisdiction China's law standard includes the state's fundamental law, basic law, laws, administrative laws and regulations and local laws and regulations.

Being the legislative body, the National People's Congress (NPC) formulates the state's fundamental law, basic law and laws. All the administrative laws, regulations, resolutions and orders, issued by the State Council, and local laws and regulations, issued by people's congresses of different provinces, autonomous regions, municipalities and special economic zones, have the legal effect.

The "Constitution of the People's Republic of China" was promulgated in 1954, and reissued in 1975, 1978 and 1982 after its revisions.

Court and procuratorate, which are the main judicial organs in China, consist of the Supreme People's Court, the Supreme People's Procuatorate and local people's courts and procuratorates, each independently exercising judicial authority and procuratorial power. Local court consists of the higher people's court (at provincial level), intermediate people's court (at prefecture level) and county (district) court, and the local procuratorate can be divided into procuratorates and sub-procuratorates at provincial, prefecture and county levels. A people's court carries out the public judicial system and two systems of final adjudication to enable defendants to have the right to defend themselves.

IV. Administrative Divisions and local Organizations.

The provincial administrative unit is the highest local administrative division directly under the jurisdiction of the China State Council. It consists of province, autonomous region and municipality. At present, China has 22 provinces (except for Taiwan), five autonomous regions and four municipalities. County is China's basic administrative division. Prefecture or prefecture-level city under the jurisdiction of a province is an administrative division between province and county. Town under the jurisdiction of a county and township is the basic administrative division in the vast countryside.

When it is necessary, the state establishes Special Administrative Region. There are now the Special Administrative Region of Hong Kong and the Special Administrative Region of Macao.

Local city can be divided into a city under the jurisdiction of a province or a county-level city. In recent years, a number of regional central cities have replaced the prefectures, where the organizations sent by provincial government were located, and become prefecture-level administrative units. Such a city under the jurisdiction of the province usually has several counties or county-level cities. By the end of 1998, the country had 331 prefectures and prefecture-level cities, 2,216 counties and county-level cities. Of total 668 cities in China, four are under the jurisdiction of the central government, 227 prefecture-level, and 437 county-level.

According to the constitution, people's congress and people's government at the levels of province, prefecture (or city), county and township is a local organ of state power and an executive organ of power.

City where the provincial government is located is called the capital. Every province, municipality and autonomous region has its own abbreviation, which has been used for a long period of time in history and is still in use.