The Law of the　People's　Republic　of　China　on　Chinese-Foreign Equity Joint Ventures, was formally publicized by the National People's Congress in 1979. The utilization of foreign capital as an important component of opening up to the outside world was initiated as China's fundamental principle. After twenty years of great efforts, the scale of absorbing foreign capital has continued to expand whilst China's law and managerial system on foreign investment has gradually improved. The achievements have won the whole world's attention, which effectively promoted the continuous, fast and healthy development of the national economy.

I The basic means for China's absorption of foreign investments
Foreign investments are basically divided into direct investment and other means of investment. The direct investment, which is widely adopted, includes Sino-foreign joint ventures, joint exploitation, exclusively foreign-owned enterprises, foreign-funded share-holding companies and joint development. The other means of investment include compensation trade and processing and assembling.

1. Sino-foreign joint ventures
Sino-foreign joint ventures are also known as share-holding corporations. They are formed in China with joint capital from foreign companies, enterprises, other economic organizations and individuals along with capital from Chinese companies, enterprises, other economic organizations and individuals. The main feature is that the joint parties invest together, operate together, jointly take risks according to the ratio of their capital and jointly take responsibility for losses and profits. Capital from different parties is translated into the ratio of capital, and in general the capital from the foreign party should not be lower than 25%.
The Sino-foreign joint ventures are among the first forms of China's foreign direct investment and they have accounted for the biggest portion. At present they are still a great part of total foreign investments.

2. Cooperative businesses
Cooperative business is also called contractual cooperation businesses. They are formed in China with the joint capital or terms of cooperation of foreign companies, enterprises, other economic organizations and individuals along with Chinese companies, enterprises, other economic organizations and individuals. The rights and obligations of different parties are embedded in the contract. To establish a cooperative business, the foreign party generally speaking, supplies all or most of the capital while Chinese party supplies land, factory buildings, useful facilities, and some supply a certain amount of capital too.

3. Exclusively foreign-owned enterprises
An exclusively foreign-owned enterprise is totally invested in by a foreign party in China, by foreign companies, enterprises, other economic organizations or individuals in accordance with the laws of China. According to the law of foreign-funded enterprises, the establishment of foreign enterprises should benefit the development of China's national economy and agree with at least one of the following criteria: the enterprise must adopt internationally advanced technology and facilities and all or most of the products must be export-oriented. Foreign funded enterprises often take the form of a limited liability company.

4.Joint exploitation
Joint exploitation is the abbreviation for maritime and overland oil joint exploitation. It is a widely adopted measure of economic cooperation in the international natural resources field. The striking features are high risk, high investment and high reward. A joint development is often divided into three steps: exploitation, development and production. Compared with the other three means mentioned above, joint cooperation accounts for a small ratio.

5.Foreign-funded share-holding companies
Foreign companies, enterprises, other economic organizations or individuals can form foreign funded share-holding companies in China with Chinese companies, enterprises, and other economic organizations. The total capital of the share-holding company is formed by equal shares; shareholders will take due responsibility for the company according to shares purchased; the company will take responsibility for all its debts through all its assets and the Chinese and foreign shareholders will hold the shares of the company. Among them, the shares purchased and held by foreign investors account for more than 25% of the total registered capital of the company. A limited company can be founded either by starting-up or raising, and a limited liability company invested in by foreigners can also apply to turn into a share-holding company. The qualified enterprise can also apply to issue A & B shares and list abroad.

6. New types of foreign investment
Whilst expanding areas and opening-up the domestic market, China is also exploring and actively expanding new types of utilizing foreign investment such as BOT, investment companies and so on. Since multinational mergers and acquisitions have become the major type of foreign direct investment, the Chinese government is now researching and enacting related policies so as to encourage foreigners to invest in China by means of merger and acquisition.

II. China's policy direction for absorption of foreign investment
We should hold up high the flag of Deng Xiaoping's theory, follow the requirement of three representatives, centered on the principles and policies of our nation's economic and social development determined at the 16th National Congress of the Communist Party of China, adapt to the new situation of world economic development, stick to the principles of active and reasonable utilization of foreign capital, combine foreign capital absorption with economic structure adjustment and industrial upgrade promotion, improve the socialist market economy system, reinforce enterprise competitiveness, expand the export and development of an open economy, vigorously exploit China's western area, and promote regional economies' harmonious development. Measures should be taken to further improve the soft environment for foreign investment, actively explore new methods for absorbing foreign capital, putting emphasis on absorbing advanced technologies, modern management and special talents, and actively absorb foreign capital to invest in industries of new and advanced technologies, encourage multinationals to set up district headquarters, research and procurement centers; speed up the development of supporting industries and push the service trade field to open up to foreign countries step by step.

1. Energetically improve the political and legal environment for foreign investment, and enhance the legal administration level. According to China's commissions for joining the WTO and the requirement for the opening-up process, China will further improve the legal system for foreign investment, keep the steadiness, consistency, predictability and feasibility of the policies and laws of foreign investment and try to create a united, steady, transparent and predictable environment for foreign investment. China will further simplify the examination and approval procedures for foreign investment and adopt a standardized system; reinforce China's sense of legality, try to be open, just and transparent, and establish an incorruptible, industrious, pragmatic and effective government, creating a good administrative environment for foreign investment.

2. Maintain and improve an open and fair market environment. China should combine this with the current work of rectifying and standardizing the order of a market economy, prohibit firmly the improper collection of fees from foreign companies as well as improper inspection and fines of them. Measures should be taken to destroy local protectionism and industrial monopolies. China should also enhance lawful measures to protect intellectual property rights and take strong actions against illegal piracy, therefore, establishing an open, unified and fair market environment, further perfecting the complaint mechanisms for foreign enterprises and protect the legal rights of foreign merchants according to law.

3. Further open the service industry. In accordance with China's self-development and commitment to the WTO, the country will open the service field vigorously, steadily and systematically, perfecting the rules and regulations for the service industry and formulating a united and standard system for accession into the market for foreign investment services. We will encourage the import of modern service concepts and advanced management experiences, technologies and modes of modern market operation, improving the structure of the service industry in China.

4. Encourage foreign businessmen to invest in the new high-tech industry, basic industry, and supporting industry. The presence of technology, innovation and sustainable development directly reflect the competitive advantages of a country. We will continue to encourage foreign investors to introduce, develop and innovate technology and to invest in technology-intensive projects; projects with advanced technology and to guide the enterprise registered capital proportion limitation and funding conditions. The relevant stipulations of setting up a pioneering investment enterprise should also be consummated in order to facilitate the conditions of setting up and developing high-tech corporations. China should attract foreigners to invest in supporting industries and encourage the localization of new materials, pushing domestic small and medium-sized enterprises to cooperate with foreign companies and introduce advanced and applicable technology to match the large foreign-funded enterprises, thus entering the production and sales network of multinational companies.

5. Actively attract more multinational companies to invest in China. Multinational companies are a leading force in today's world economy. China is dedicated to improving the relevant policies to attract multinationals to invest in China, establish local headquarters and set up cross-country procurement centers. Using the experience and methods of mergers and acquisitions in other countries and taking into consideration the characteristics and realities of China's economic system, China is speeding up steps to draft and improve the policies and stipulations for investment through mergers and acquisitions, further revise the relevant stipulations for foreign-invested share-holding companies, push the formulation and perfecting of BOT, special permission transfer investment methods and the various stipulations for foreign-funded enterprise's listing domestically and abroad.

6. Further promote foreign investment in the central and western regions. Vast areas in these regions are rich in resources for farming, stock raising, minerals and tourists. With a large population, a great potential labor-force, other key elements for production being relatively inexpensive, steady progress and western development strategies, such facilities as transportation, communication and construction have improved impressively. Because of improvements in the investment environment, ecological developments and the potential for the development of a specialty economy, foreign businesspeople that invest in these regions are facing new opportunities and a great development space.