GUIDELINES ON EXAMINATION AND APPROVAL OF CONTRACTS
AND ARTICLES OF ASSOCIATION OF
FOREIGN INVESTMENT ENTERPRISES

(Formulated on July 11, 1991 by the Ministry of Foreign Economic Relations and Trade and
Published by Ministry of Foreign Trade and Economic Cooperation on Oct. 5, 1993)

SUBJECT: CONTRACTS; ENTERPRISES WITH FOREIGN INVESTMENT

ISSUING-DEPT: MINISTRY OF FOREIGN TRADE AND ECONOMIC COOPERATION

ISSUE-DATE: 10/5/1993

IMPLEMENT-DATE: 10/5/1993

LENGTH: 807 words

TEXT:

In order to strengthen the administration of the examination and approval of the foreign investment enterprises, guidelines on the examination and approval and contents of the approval documents are formulated as follows:

1. Guidelines to be followed in the examination and approval of Contracts and Articles of Association

(1) Conformality of Contract and Articles of Association with the laws and regulations and the Government provisions of the People's Republic of China;

(2) Conformality of Contract and Articles of Association with the feasibility study reports of the project and the requirments of the approval documents;

(3) Conformality of Contract and Article of Associations with principle of equality and mutual benefit;

2. The main issues to be re-examined

(1) The legal validity of the Contracts and Articles of Association, which includes whether or not the Contract and Article of Association has the date and place of signing the Contracts and Articles of Association and whether or not the persons signing the Contracts and the Article of Association are the legal representative or are authorized by the legal representative;

(2) Any omission which shall have been included in the Contracts and the Articles of Association and the completeness of the documents which shall be submitted;

(3) Any clause in the Contracts and the Articles of Association involves the Government action or binds the third party (i.e. the non-contract party);

(4) For the projects which fall within the restrictive one on the utilization of foreign investment or whose import of the machinery and electric equipment is restricted by the State, or whose products are subject to the administration of export license, whether or not they have completed the procedure for application and approval according to the procedure formulated by the State;

(5) Whether or not the scope of business is clear and specific, the wordings is appropriate;

(6) The ratios of the contributions made by each party, the ratio of the total amount of investment to the registered capital, and the form and time limit for making contribution;

(7) Consistency of the technology transfer clauses with Regulations of Administrations of Technology Import Contract and with the feasibility study report;

(8) The purchase of equipment and raw materials and the responsibility, ratio, form and pricing principle of the products sold inside and outside China;

(9) Feasibility of maintaining the balance between the venture's exchange receipts and expenditures;

(10) The salary and wage and welfare benefit of the Chinese and foreign staff and workers;

(11) The composition and power of the board of directors, the procedure for holding the board of director meeting and the establishment of the management structure;

(12) The settlement of disputes and liabilities of breach of the Contract;

(13) The handle of the venture's assets after its expiration, dissolution and liquidation;

(14) The conformality of the Contracts, the Articles of Association and other documents with the requirement of Chinese law.

3. The contents to be included in the approval documents

The approval documents of the Contracts and Articles of Association shall generally include:

(1) The name of the venture, and the names of the parties to the venture;

(2) The scope and scale of the venture's business operation;

(3) The total amount of investment, the registered captial, the ratio of the contribution made by each party and the form of making contribution, and the principle of profit distribution;

(4) The term of the venture's business operation;

(5) The confirmation of the lists of the imported equipment;

(6) Other matters considered necessary by the examining and approving authority;

The wording in each of the above-mentioned documents shall be accurate.

4. Miscellaneous

(1) The documents submitted to the examining and approving authority shall be written in Chinese language. The parties to the contract shall make sure the consistency of the Chinese copy and the copy in foreign language;

(2) The technology transfer of land, etc, which are of no technology transfer agreement and the contracts for entrusted management or contracted management shall be appended to the contracts of the joint venture contracts or shall be submitted as independent contracts for examination and approval. The venture's loan agreement and the contracts, for the purchase of equipment for the lease of the factory building, for the use of land and the transfer contents, needn't be submitted for examination and approval;

(3) The Contracts and Articles of Association shall not be approved if there are inconsistencies in matters of principle in the contracts until the inconsistencies are removed by the parties to the venture.