Decree No. 113 expressly repeals Decree No. 32. Therefore, after 1 April 2004, in principle, foreign contractors may no longer use their Decree No. 32 FCQCs to contract for construction projects in China. Foreign contractors must now set up a local entity to apply for a construction qualification in order to carry out construction activities in China. No further qualification certificates will be issued to foreign contractors who have not established a local entity in China.
The type of local entities established by foreign contractors may take the form of a Sino-foreign equity joint ventures ("EJVs"), Sino-foreign co-operative joint ventures ("CJVs") or wholly foreign-owned enterprises ("WFOEs"). Compared with the old regime, Decree No. 113 has streamlined the examination and approval process in relation to the establishment of foreign-invested construction enterprises. Decree No. 113 outlines a two-step industry in China. If the proposed Decree No. 113 entity only applies for a Grade-B or lower qualification, the MOC and MOFCOM authorities at the provincial level are authorized to approve the application. Applications for the establishment of a Grade-A or higher Decree No. 113 entity require approval by the MOC and MOFCOM at the central level.
Decree No. 113 specifies that a Decree No. 113 WFOE is limited to undertaking the following four types of projects, namely, foreign-financed projects, projects financed by international financial institutions, sino-foreign joint venture projects or projects which are technically demanding and which domestic contractors do not have the skills to perform by themselves. However, there are no restrictions on the type of projects a Decree No. 113 Sino-foreign joint venture ("Decree No. 113 JVs") may undertake, and for those applicants which have an entity which has obtained certification as a Hong Kong Service Supplier ("HKSS") under the Closer Partnership Arrangement between Hong Kong SAR and the Chinese mainland (or the corresponding provisions of the treaty with Macao SAR (collectively referred to below as "CEPA")), they will not be subject to such restrictions.
Decree No. 113 provides that a Decree No. 113 entity must, after its establishment, apply for a construction qualification, and for this purpose it will be subject to the same requirements in terms of registered capital, track record, personnel and equipment as are required of local PRC construction companies in accordance with relevant PRC regulations, including, notably, MOC Decree No. 878 .
Circular No. 159 also addressed other issues in relation to the evaluation and determination of the grade of construction enterprise qualification certificates. Under Circular No. 159, the track record of a foreign contractor outside of China may now be taken into account in determining the grade of qualification awarded to the Decree No. 113 entity established by such foreign contractor.
