WORLD TRADE
ORGANIZATIONG/TRIMS/W/26
11 October 2002
(02-5520)
Committee on Trade-Related Investment Measures Original:  English
COMMUNICATION FROM CHINA
The following communication, dated 10 October 2002, has been received from the Permanent
Mission of the People's Republic of China.
_______________
TRANSITIONAL REVIEW MECHANISM PURSUANT TO PARAGRAPH 18 OF THE
PROTOCOL ON THE ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA ("CHINA")
Information provided by China on Annex 1A of the Protocol
in the context of the Transitional Review Mechanism1
Pursuant to paragraph 18 of the Accession Prot ocol of the People's Republic of China, China
hereby provides the following information for the transitional review of the Committee on trade-
Related Investment Measures.
II. ECONOMIC POLICIES
3. Investment Regime (to be notified to the Committee on Trade-Related Investment
Measures)
(a) completed revisions to investment guidelines in conformity with the WTO Agreement
To implement its commitments made for the accession to the WTO, China modified its policy on
foreign investment in 2002 by promulgating the revised Provisions on Guiding Foreign Investment
Direction and Industrial Catalogue for Foreign Investment, which came into force as from 1 April
2002.  To fully embody the commitments made for the accession to the WTO, China has liberalizedfurther the restrictions imposed on the proportion of foreign equity in investment projects and opened
new sectors to foreign investment.  The newly-opened sectors include telecommunications, urban
water supply and drainage, construction and operati on of gas and heat distribution network, which all
were previously prohibited from any foreign investment.  In light of commitments made in the WTO
with respect to geographic restrictions, quantitative restrictions, business scope, proportion of equityand timeframe, China has opened further such service sectors as banking, insurance, distribution,
trading right, tourism, telecommunications, transportation, accounting, auditing and legal services.
The timeframe and pace of opening of these markets, as committed in China's accession to the WTO,
has been contained in annexes to the Industrial Catalogue for Foreign Investment.
                                                     
1 This "information" refers to information other than that required by the general notification
requirements for WTO Members.  To avoid duplicatio n, it is understood that members will accept information
provided on an annual basis by China to other WTO bodies as satisfying the information requirements in
Annex 1A.G/TRIMS/W/26
Page 2
IV. POLICIES AFFECTING TRADE IN GOODS
8. Trade-Related Investment Measures (to be no tified to the Committee on Trade-Related
Investment Measures)
(a) elimination and cessation of enforcement of trade and foreign exchange balancing
requirements, local content and export performance offsets and technology transfer
requirements made effective through laws, regulations or other measures
The basic laws in China concerning foreign investment are:  law of the People's Republic of China on
Chinese-Foreign Equity Joint Venture;  Law of the People's Republic of China on Chinese-Foreign
Contractual Joint Venture;  and Law of the People's Republic of China on Wholly Foreign Owned
Enterprises.
Upon approval by the National People's Congress and its Standing Committee, modifications have
been made on the following laws and regulations at the time given:  in October 2000, Law of the
People's Republic of China on Chinese-Foreign Contractual Joint Venture;  in October 2000, Law of
the People's Republic of China on Foreign-Invested Enterprises;  in march 2001, Law of the people's
Republic of China on Chinese-Foreign Equity Joint Venture;  and in July 2001, Implementation Ruleson Law of the People's Republic of China on Chinese-Foreign Equity Joint Venture.  Modifications
relating to implementation of commitments made in the WTO are as follows:
1. deletion of the following provisions on foreign exchange balancing requirements
1.1 Provisions in Article 20 of the Law of the People's Republic of China on Chinese-
Foreign Contractual Joint Venture, i.e., "a  contractual joint venture shall maintain
foreign exchange balance by its own;  if not, it may, in light of the State regulations,
request for assistance from the authorities concerned";
1.2 Provisions in Article 18.3 of the Law of the People's Republic of China on Foreign-
Investment Enterprises, i.e., "a wholly foreign owned enterprise shall maintain
foreign exchange balance;  in case a foreign-invested enterprise, upon approval by
the authorities concerned, engages in sales in the Chinese domestic market, which
causes imbalance of its foreign exchange, the authorities granting the approval of its
sales in the domestic market shall be responsible";
2. modification or deletion of the following provisions on local content requirements
2.1 Article 9 of the Law of the People's Republic of China on Chinese-Foreign Equity
Joint Venture has been modified as "within its business scope approved, an equity
joint venture can purchase raw materials, fuel and others that it needs in the domestic
market as well as in the international market";
2.2 Article 15 of the Law of the People's Republic of China on Wholly Foreign Owned
Enterprises has been modified as follows:  "within its business scope approved, a
wholly foreign owned enterprise can, in light of fair and reasonable principle,
purchase raw materials, fuel and others that it needs in the domestic market or in the
international market";  previous provision, i.e., "in the same conditions, priority
shall be given to purchase in the domestic market", has been deleted.G/TRIMS/W/26
Page 3
3. modification or deletion of the following provisions on export performance requirements
(a) Article 3.1 of the Law of the People's Republic of China on Wholly Foreign Owned
Enterprises has been modified as follows:  "the establishment of a wholly foreign
owned enterprise shall be conducive to the development of Chinese nationaleconomy.  The State encourages the establishment of wholly foreign-owned
enterprises with export orientation and adoption of advanced technology".  Previous
provisions, i.e., the establishment of a foreign-invested enterprise "must adopt
advanced technology, or export all or the most of its products", has been deleted.
In addition, the authorities concerned have repealed the Notice concerning Export for
Balancing Foreign Exchange of Chinese-Foreign Joint Ventures, modified
Regulations of the People's Republic of China on the Exploitation of OffshorePetroleum Resources in Cooperation with Foreign Enterprises, Regulations of the
People's Republic of China on the Exploitation of On-shore Petroleum Resources in
Cooperation with Foreign Enterprises, and other rules, which all are incompatible
with the commitments made by  China for accession to the WTO .
(b) amendments to ensure lifting of all measures applicable to motor vehicle producers
restricting the categories, types or models of vehicles permitted for production (to be
completely removed two years after accession).
The Chinese government shall completely li ft the said measure in line with the
commitment made with respect to the timefram e, so as to ensure that motor vehicle
producers have right to choose categories, types or models of vehicles they willproduce.
(c) increased limits within which investments in  motor vehicle manufacturing could be
approved at the provincial government at the levels outlined in the Report.
It is expected that in compliance with its commitments made with respect to the
timeframe, by the end of 2002 the Chinese government shall publish a circularincreasing limits of investment to be approved by provincial authorities.
__________