MoFo News Item

China Opens Road Transportation to Foreign Investment

12/20/2001

The PRC Ministry of Transportation ("MOT") and Ministry of Foreign Trade and Economic Cooperation ("MOFTEC") jointly promulgated the Regulations on the Administration of Foreign Investment in the Road Transportation Industry (the "Regulations") on November 20, 2001. The Regulations came into effect on the same day.

WTO Commitment

The Regulations reflect the Chinese government's commitment to open up the road transportation industry to foreign investors. With respect to road cargo transportation, handling, loading and unloading, warehousing, as well as other auxiliary services in connection with road transportation and repair and maintenance of vehicles, sino-foreign equity joint ventures, cooperative joint ventures or wholly foreign-owned enterprises ("WFOE") are allowed. Investment by way of joint ventures (or "JVs") is available immediately, and investment by way of a WFOE is subject to a timetable to be determined by China's State Council.

With respect to road passenger transportation, the Regulations allow foreign investors to set up a sino-foreign equity joint venture with a Chinese partner, but foreign shares shall not exceed 49%.

Conditions for Operation of Road Passenger Transportation Business

The Regulations provide for the following special conditions for operation of road passenger transportation businesses:

  1. At least one of the key investors shall be an enterprise with more than five years' experience in operating road passenger transportation in China.
  2. Foreign Party shall not hold more than 49% of the equity interests of the joint venture enterprise.
  3. 50% of the registered capital of the joint venture enterprise shall be used for the construction and improvement of the infrastructures for road passenger transportation.
  4. The vehicles provided for operation shall be passenger vehicles of middle or higher grade.

Procedures for Setting Up Road Transportation Enterprise

The Regulations outline the procedures for setting up a road transportation enterprise and have clearly identified the relevant approving authorities:

  1. Project Proposal: Project proposal shall be submitted to MOT for approval through the local Transportation Department at the municipality level. The processing time for the approval of the project proposal shall not exceed 60 working days.
  2. Approval Certificate: Upon receipt of project approval from MOT, the applicant needs to apply for an Approval Certificate from the Department of Foreign Economic and Trade at the provincial level. MOFTEC, or its authorized department, has the right to decide whether to issue an Approval Certificate to the applicant. The processing time for the issuance of an Approval Certificate will not exceed 45 days.
  3. Road Transportation License and Business License: Upon receipt of the Approval Certificate from MOFTEC, the applicant shall obtain a Road Transportation License from the Transportation Department at the provincial level and obtain a Business License from the local branch of the State Administration of Industry and Commerce.

Operation Term

The operation term of a foreign investment road transportation enterprise generally shall not exceed 12 years. However, those enterprises using more than 50% of their investment on the construction of infrastructures for cargo transportation stations may operate for 20 years.

According to the recent presentation given by Mr. Hu Xi Jie, Vice-Minister of MOT, at the China Road Transportation Working Conference, China is planning to build 45 major road transportation hubs in the next 10 years, thereby requiring huge amounts of capital in the building industry. With the promulgation of the Regulations, the legal framework for foreign investment in road transportation has been set up. These Regulations are expected to help boost foreign investment in the Chinese domestic road transportation sector.

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