1. China Stimulus Package Geoffrey G. Revelle Stoel Rives LLP www.stoel.com O r e g o n W a s h I n g t o n C a l I f o r n I a U t a h I d a h o

2. Summary $586 billion announced 11/2008 over the next 2 years Part of “proactive fiscal policy” to create jobs and maintain 8% GDP growth Main beneficiaries – government owned and private Chinese companies, provincial governments High-tech and other foreign products and services not available in China also will benefit

3. Chinese Business Entities State-owned enterprises (“SOE”) Provincial Investment Vehicle (“PIV”) Domestic Private Enterprise (“DPE”) Foreign Invested Enterprises

4. Foreign Invested Enterprise (“FIE”) Wholly Foreign-Owned Enterprises (“WFOE”) −100% foreign-owned −Only engage in business in China when foreign investment permitted or encouraged −Typically in manufacturing, consulting, trading, wholesale and retail −Limited liability

5. FIE’s (cont.) Equity Joint Venture (“EJV”) −Chinese and foreign ownership −Commonly used to invest in restricted areas of Chinese economy −Limited liability

6. FIE’s (cont.) Cooperative Joint Ventures (“CJV”) −Can be limited liability company or an unincorporated entity −Engage in restricted activities Foreign invested companies limited by shares (“FICLS”) −Stock exchange company Representative office: conduct research, establish contacts, cannot engage in profit- making activities

7. Prohibited Foreign Investment Arms and munitions Construction and operation of power grids Motion picture distribution

8. Restricted Activity Requires participation of Chinese company Categories −Outdated technology −Harmful to environment −Protected economic sectors Examples −Gold, silver, and platinum mining −Mobile and data telecom services −Grain production

9. Encouraged Activities No participation by Chinese company required Examples: −Development of agricultural technologies −Production of engineering plastics and plastic alloys −Software −Construction of large thermal power stations

10. Stimulus Package Goals Maintain GDP gross at or near 8% and create jobs (6.1% first quarter) Focus on 10 sectors of the economy In line with latest Five-Year Plan Boost domestic demand (spending) to counter export losses

11. Focus Areas Rural Infrastructure Roads Power grid −Drinking water safety and conservation $54 billion

12. Focus Areas Transportation Rail −extending lines, more passenger links, coal routes −$147 billion in 2009, $147 billion in 2010 Airports in central and western regions −$30 billion in 2009, $37 billion in 2010

13. Focus Areas Environment Water safety and conservation Expand recycling Energy and clean energy technologies $31 billion 2009/10

14. Focus Areas Power Grid $175 billion on grid structure 2009/10 Goal to address grid bottlenecks and add renewables to system Wind and solar investment – energy stimulus, plan coming later – $290 billion in alternative energy industry through 2020 – replace coal with clean energy

15. Focus Areas Finance Likely remove previously imposed loan quotas – lending has increased Increase bank credit for key stimulus projects State owned banks Various tax incentives being put in place

16. Focus Areas 5/2/08 Earthquake Reconstruction $146 billion

17. Focus Areas Housing, Health Care & Education, Industry $58 billion for low rent housing and slum clearance $27 billion – health care and education project $53 billion in modernizing aging industries and high tech

18. February National People’s Congress Changed Priorities Prioritized Sectors Original Total (billion) Revised Total (billion) Change (billion) Infrastructure: railway, highway, airport, grid construction 263219-44 Sichuan Earthquake Reconstruction 146 0 Housing4158+17  Rural Livelihood and Infrastructure 54 0 Industry Innovation2353+30  Environmental Projects5131-20 Healthcare and Education827+19  No new money

19. Approval Process for Funding Approval by central government for all projects, National Development and Reform Commission (“NDRC”) Projects all implemented at the provincial level Provinces and municipalities apply to central government for funds (NDRC and other Ministries) Not much visibility on the process at this point

20. Factors Fit the Stimulus Package Criteria Create jobs, bolster GDP Applicant province’s ability to secure all of the funds needed to complete the project Vague standards but predicted 25-30% from central government, the rest from provincial governments (PIV’s), banks, SOE’s and private companies (DPE’s mostly)

21. FIE Opportunities Subcontractors only Focus on advanced IP and value added services that DPE’s and SOE’s can’t provide

22. FIE Opportunity Examples Clean energy technologies, solar, wind Technical systems like control and automation processes for machinery used in railway and other infrastructure projects Logistics and project management services in rural infrastructure development and earthquake reconstruction efforts High-tech equipment in all areas Medical equipment

23. Foreign Investment Process Need to be approved or licensed by government pursuant to Administrative Permissions Law Complex process to approve projects with foreign investment Both national and provincial approval required

24. Factors for Success Understand and keep track of changes in bureaucracy Understand national and provincial procedures and guidelines Understand the Foreign Investment Industrial Guidance Catalogue – prohibited, restricted, encouraged or permitted

25. Factors for Success (cont.) Policy changes and priorities as they change Understand needs of each province As economy’s conditions change, so will the package (GDP drops, more spending likely quickly)

26. Factors for Success (cont.) Understand what services and technologies Chinese companies can and cannot provide Hire good consultants