According to Ministry of Commerce's "Regulations on Establishing Investment Company by Foreign Investors" promulgated Thursday, transnational companies will have the chance to expand their investment field in China in a big way by putting up investment companies. They will be able to engage in the service of outsourcing, purchasing and entering into logistic areas. The Regulation also stipulates that the investment companies are permitted to hold non-circulated legal person shares of domestic enterprises.

In accordance with the Regulation, foreign investors are allowed to set up their wholly owned or joint venture investment companies. To engage in direct investment, the company's registered capital should be no less than US$30 million. However, their investment activities are not restricted by the registered location of the company.

Foreign investors are allowed to enter into the areas of logistic procurement. Under the written trust of its invested enterprises, the investment company can assist or act in the name of its invested enterprise to purchase from domestic or international market machine equipment and office equipment for self-use and materials as well as components and accessories for production; to sell products from its invested enterprises in domestic and international markets and to provide follow-up services. However, the investment companies are not permitted to engage in productive activities. Investment companies serving as regional headquarters of transnational companies are allowed to supply material, spare parts to its invested enterprises.

Notwithstanding, investment companies serving as regional headquarters are allowed to accept service for outsourcing from domestic and foreign enterprises. They can engage in logistic service in accordance with the related policy. Once approved by Banking Supervisory Authority, investment companies can establish finance company that provides financial service to themselves and their invested enterprises. After receiving approval from Ministry of Commerce, it is permitted to perform engineering contract business and make investment abroad, put up financing leasing company and provide related services.

The Investment Company as initiator can establish joint-stock company limited with foreign investment or hold non-circulating legal person's share of a joint-stock company limited with foreign investment. It can also hold non-circulating legal shares of the other companies in China. The Investment Company shall be treated as foreign initiator or shareholder of a joint-stock company limited.

This means that the Investment companies will launch some new actions in acquiring circulating shares of the domestic public companies. It is predicted that transnational companies will experience a new round of acquisition fever. Prior to this, Hu Jingyan, Director of Foreign Investment Administration Department, Ministry of Commerce pointed out that 80 to 90 percent of international investment came from acquisition. China is encouraging transnational companies to invest in China by "acquisition", the new investment method. He said China had millions of SOEs, a broad market for acquisition in the future.

(People's Daily February 20, 2004)