REGULATIONS OF GUANGDONG PROVINCE ON FOREIGN-RELATED COMPANIES IN ITS SPECIAL ECONOMIC ZONES

REGULATIONS OF GUANGDONG PROVINCE ON
FOREIGN-RELATED COMPANIES IN ITS SPECIAL
ECONOMIC ZONES

(Issued on September 28, 1986)

SUBJECT: COMPANIES & ENTERPRISES

ISSUING-DEPT: GUANGDONG PROVINCE

ISSUE-DATE: 09/28/1986

IMPLEMENT-DATE: 01/01/1987

LENGTH: 12930 words

TEXT:

CHAPTER I GENERAL PROVISIONS

[Article 1] With a view to strengthening the administration of companies in which foreign capital is involved in Guangdong's Special Economic Zones (hereinafter referred to as the SEZs), affirming their legal status and protecting the lawful rights and interests and to promote the economic development in the SEZs, the present Regulations are formulated in the spirit of the laws and regulations of the People's Republic of China and in the light of the specific local conditions.

[Article 2] The present Regulations shall be applicable to equity joint venture and contractual joint venture companies using Chinese and foreign capital, wholly-owned foreign companies and joint stock companies using Chinese and foreign investment (hereinafter referred to as DFICs since all of them belong to the category of direct foreign investment companies).

[Article 3] DFICs in the SEZs shall be established in compliance with the procedures prescribed in the present Regulations, the requirements on capitalization, articles of association, organizational framework and location, and shall be capable of assuming civil obligations independently upon registration at the municipal bureau of the Administration of Industry and Commerce where these companies are located (hereinafter referred to as the municipal industry and commerce bureau).

All the DFICs in the SEZs are limited liability companies.

[Article 4] The investment of a DFIC in a SEZ, its profits and other lawful rights and interests shall be protected by Chinese law.

All the activities of a DFIC shall be governed by Chinese laws and regulations.

[Article 5] The establishment, changes and dissolution of a DFIC in a SEZ shall be approved by the people's government of the city where the SEZ is located (hereinafter referred to as the municipal government).

The municipal government shall, within 90 days upon receipt of an establishment application for a DFIC, give an official reply to the applicant.0 An approval certificate must be issued to the company concerned upon approval.0 The deadline for approving (or disapproving) an application of changes or dissolution is 30 days.

[Article 6] The municipal government shall guide and supervise over the activities of DFICs in a SEZ.

[Article 7] To apply for establishment of a DFIC in a SEZ, the applicant must meet the following requirements;

(1) Of compliance with China's laws and regulations;

(2) Being beneficial to the development of national economy;

(3) The registered capital is no less than Rmb 1 million (or of equivalent amount in other currency) and the initial paid-up capital (in cash) must not be less than 25% of the amount of the registered capital;

(4) Being advanced in production technology, operation and management methods; and

(5) All or most of the products produced must be for export and the products must be competitive in the international markets.

[Article 8] Under the following conditions, the municipal government will not approve an establishment application in a SEZ:

(1) Being detrimental to China's sovereignty;

(2) Being in violation of Chinese laws and regulations;

(3) Not being beneficial to the development of the national economy;

(4) May cause environmental pollution; and

(5) The agreement, contract or articles of association signed are obviously unfair and impairing to the rights and interests of either party to the joint undertaking.

[Article 9] A DFIC shall, after being approved by the municipal government to be set up in a SEZ and having issued the approval certificate, go through the following formalities in accordance with the relevant laws and regulations:

(1) To apply for registration and business license at the municipal industry and commerce bureau and to obtain the status of a Chinese legal person;

(2) To register at the tax bureau of the city where the SEZ is located (hereinafter referred to as tax bureau);

(3) To make the necessary arrangements concerning foreign exchange with the municipal authorities in charge of foreign exchange control of the city where the SEZ is located;

(4) To open its account(s) in a local bank in the SEZ;

(5) To make the necessary arrangements concerning the import and export of goods and materials with the local Customs office in the SEZ; and

(6) Any other necessary formalities.

[Article 10] The registered name of a DFIC in a SEZ shall be its legal name.

A DFIC in a SEZ shall indicate clearly in its name whether it is a limited liability company or a joint stock company (whose liability is limited to its share capital).

[Article 11] The location of the office of operation and management in the SEZ shall be the domicile of the DFIC.

The address of the domicile of the DFIC shall be the effective address of the DFIC.

CHAPTER II SINO-FOREIGN JOINT EQUITY VENTURE COMPANY, SINO-FOREIGN COOPERATIVE COMPANY AND WHOLLY-OWNED FOREIGN COMPANY

SECTION I ESTABLISHMENT PROCEDURES

[Article 12] To apply for the establishment of a Sino-foreign joint equity venture company, Sino-foreign cooperative company (hereinafter referred to as joint venture company or cooperative company) or wholly-owned foreign company, the following documents shall be submitted:

(1) A written application;

(2) A feasibility study report for the setting up of the company concerned;

(3) Contract signed (not required for wholly-owned foreign company) and the articles of association;

(4) A list of the members of the board of directors of the company to be set up; and

(5) Credit standing certificates of all parties of the company.

[Article 13] A feasibility study report concerning the establishment of a joint venture company, cooperative company or a wholly-owned foreign company shall include the following items:

(1) The scale and scope of production, operation or services;

(2) The nature of the company;

(3) How the capital is contributed and in what forms (or conditions of cooperation), total amount of investment and time limit for making the capital contribution;

(4) The duration of the company;

(5) International market demand and the company's capacity;

(6) How the products are to be marketed and in what forms will the service be provided and measures to balance its foreign exchange account;

(7) A study report on techniques employed and the technology program;

(8) Economic return report;

(9) How the work force is to be organized in production, the number of staff and workers and their training program(s);

(10) An evaluation report on the impact on environment;

(11) An evaluation report on labor safety and hygiene;

(12) Site selection and the area of land to be occupied;

(13) The amounts of capital, power and water supply and raw materials and labor supply needed for the operation and infrastructure construction and ways and means to provide for such inputs; and

(14) A comprehensive plan of the project.

[Article 14] The contract and the articles of association of a joint venture company or a cooperative company and the articles of association of a wholly-owned foreign company shall be formulated and put into effect in compliance with laws of the State and regulations and rules of the SEZ.0 This principle shall also govern the revision or amendment made on any of the above mentioned documents.

The contract and articles of association of a cooperative company shall clearly stipulate the methods of how to pay for the investment made by the foreign investor(s).0 The above mentioned documents shall also stipulate the methods of how to settle the ownership of assets of the company after the termination of the cooperation contract.

SECTION 2 ORGANIZATION

[Article 15] The highest authority of a joint venture company or a cooperative company shall be the board of directors.0 The board shall consist of no less than three persons.0 The arrangement of the members of the board shall be settled by all parties involved in the company.

The chairman of the board of directors shall be appointed by the party from the SEZ and one/two of the vice chairman(men) of the board by the foreign party(ies).0 However, upon approval by the municipal government, the appointments of the chairman and the vice chairmen can be alternated among the SEZ and foreign parties.

The chairman is the legal representative of the DFIC.0 The chairman may entrust a vice chairman or one of the directors to perform his/her duties in case he/she is unable to perform his/her duties temporarily.

The chairman shall, during the period when the board is not in session, in compliance with the provisions in the articles of association and the decision of the board, manage the essential issues concerning the company, inspect and supervise the execution of the decisions of the board of directors of the company.

[Article 16] The board of directors shall exercise its authority as follows:

a.0 formulation of and amendment to the articles of association;

b.0 Preparation of the development plan and operation and management program of the company;

c.0 To decide on matters regarding additional capitalization, assignment (transfer), merging, discontinuity and dissolution of the company;

d.0 To examine the business operations, budget and the final settlement of account of the company;

e.0 To decide on profit distribution or methods to compensate for the losses of the company;

f.0 The employment of the general manager, deputy general managers, chief engineer, chief accountant, chief accountant, auditors and other senior managerial personnel of the company; and

g.0 To decide on the wages of staff and workers and to formulate the reward and punishment scheme of the company

Other matters can be settled according to the rules on procedures as stipulated in the articles of association of the company.

[Article 17] The board meeting must be held at least once a year.0 interim meeting may be called if more than one-third of the directors do so propose.

The board meeting shall be called and chaired by the board chairman.0 The board meeting notification must be issued to all directors of the board at least ten days before the meeting, including the agenda and the location where the meeting is to be held.

The board meeting requires a quorum of more than half the number of its directors.0 Should any director be unable to attend the board meeting, he/she must entrust someone else to represent him/her to attend and to exercise that authority entrusted to him/her with the proxy submitted to the board.

[Article 18] Minutes of the meeting shall include such items as time, duration, place, persons attending and matters discussed and decided.

All directors who have attended the meeting shall affix their signatures to the minutes of the meeting.

All board meeting minutes shall be kept by a person(s) specifically appointed by the board.0 All minutes shall not be destroyed within a specified period of time.

[Article 19] A joint venture company or a cooperative company shall set up its management office at where its domicile is located.

The management office shall have a general manager and several deputy general managers to be responsible for day-to-day management of the company.

[Article 20] The general manager shall exercise the following authority:

a.0 To carry out the decisions of the board meeting;

b.0 To organize and conduct the day-to-day management of the company;

c.0 Within the scope of authorization by the board, the general manager can represent the company to manage the external affairs of the company and internal affairs such as employment of staff; and

d.0 To exercise any other duties as authorized by the board of directors.

A deputy general manager shall assist the general manager in his work.0 The general manager shall decide on all major issues concerning the company through consultation with the deputy general managers.0 If the general manager and the deputy general managers can not reach an agreement on an issue, the board chairman shall make the final decision.

[Article 21] The general manager and the deputy general managers shall be employed by the board of directors.0 They can either be Chinese or foreign citizens.

The chairman, vice chairmen and any directors of the board can concurrently take up the post of general manager or deputy general manager or upon appointment by the board.

The general manager and the deputy general managers shall be full-time employees of the company at the legal address of the domicile of that company.0 They are neither allowed to hold concurrent posts in other companies in the capacity of general manager or deputy general manager nor to engage in any competition with the company in the interests of another economic organization.

[Article 22] Directors of a company shall be held legally responsible for any losses suffered by the company as a result of graft or serious dereliction on their duties.

In case of graft or serious dereliction of the general manager or deputy general managers, the board of directors may decide to terminate their employment with the company.0 The general manager or the deputy general managers shall be held legally responsible for any losses suffered by the company as a result of graft or serious dereliction on their duties.

[Article 23] The organizational structure of a wholly owned foreign company shall be determined by the foreign company according to its own articles of association.0 The legal representative of the company shall be one who is authorized by the foreign company (100% foreign-owned investment in this case) to represent the company.

SECTION 3 OPERATIONAL GUIDELINES

[Article 24] Parties to a JVC (joint venture company) or a CC (contractual company) may contribute cash or buildings, land use rights, machinery and equipment or other materials, industrial property rights and proprietary technology to the company either as investment or as terms of cooperation.0 Such contributions shall be valued as commonly agreed by all parties to the JVC or the CC.0 The valuation of the contributions may be verified by a professional consultancy company or registered accountants of the People's Republic of China hired jointly by all parties to the JVC or the CC concerned.

[Article 25] The machinery, equipment or other materials contributed by any parties to a JVC or a CC as investment or terms of cooperation must meet the following requirements:

a.0 They are indispensible to its production and operation;

b.0 The machinery or equipment must, technically, be of advanced international standards and that of the materials contributed must be comparable to similar international ones;

c.0 The price affixed shall not exceed the current market price in the international markets for similar machinery, equipment or materials;

D.0 They have passed the examination conducted by the China Import and Export Commodity Inspection Administration or its subordinate entities.

Any party to a JVC or a CC uses outdated or worn-out equipment as contribution to deceive the other party(ies) to the same JVC or CC will be held responsible and must compensate for the losses suffered by the company.

[Article 26] Industrial property rights contributed by the foreign investor(s) as their investment in a JVC or terms of cooperation in CC shall be governed by the laws and regulations relating to the import of technology of the State as well as that of the special economic zones.

[Article 27] Investment contributed by all parties to a JVC or a CC shall be verified in respective period(s) as stipulated in the contract.

Investment contributed in each period shall be, within 30 days after the contribution, verified by a PRC registered accountant who shall submit a verification report to the company.0 The company shall, based on the report from the accountant, issue investment certificate to the party which makes the contribution and a duplicate copy of the certificate must be submitted to the municipal industry and commerce bureau for the record.

[Article 28] Any party to a JVC or a CC shall pay up its share of contribution either as investment or terms of cooperation within the time limit as prescribed in the contract.0 Failure in meeting this obligation, the party concerned shall, according to the contract, pay interest to the company for the delay, or shall compensate for any losses so suffered by the company.0 The municipal industry and commerce bureau may revoke the business license of a JVC or a CC if the delay is over one year.

[Article 29] A JVC, a CC or a wholly owned foreign company shall work out its production and operational plan on the basis of the business scope approved by the municipal industry and commerce bureau and its production scale.0 The production and operational plan shall, upon approval by the board of directors of the company, be carried out in the company.0 A copy of the plan must be submitted to the department in charge for the record.

[Article 30] A JVC or a CC shall have the right to decide whether it shall purchase its required machinery, equipment or any materials in China or from abroad.0 However, where all conditions being equal, the company shall give priority to purchase in China.0 The company shall prepare a materials procurement and inspection scheme which shall include the following items:

a.0 The obligations of the person(s) responsible for the materials procurement and inspection;

b.0 Methods concerning how to conduct the procurement and inspection of materials with respect of the variety, specifications, quality, quantity and packaging of the said materials;

c.0 Methods of how to check and verify the prices of materials purchased and confirmation of invoices;

d.0 The scope and level or authority of members of the board and management (regarding their examination and approval of materials procurement and inspection), and

e.0 A reward and penalty scheme.

In the purchase of materials in large quantity and involving large sums of money, the purchase shall be decided by all parties to the JVC or the CC through consultation, or the materials required shall be purchased through an agent agreed upon by all parties, or the company can invite tenders for such a purchase.

Any person(s) who is in charge of materials procurement and inspection and is found to have engaged in deception, graft or dereliction of duties against his/her company shall be dealt with according to the reward and penalty scheme of the company.0 In case of a serious offence, the board of directors of the company can take legal actions against the person(s) concerned.

[Article 31] When marketing its product(s) in the international markets, the board of directors of a JVC or a CC can decide on the lower margin of price to be set on the product(s) after it has considered the international market quotations of similar product(s) over a certain period of time.0 The general manager and deputy general managers may jointly set the actual selling price that is higher than the lower price margin set by the board.0 If the general manager and/or the deputy general managers has/have, without the consent of the board, sold the product(s) at a price below the lower margin, the board of directors can hold the general manager and/or the deputy general managers responsible for any economic losses suffered by the company as a result of their violation of the board's decision.

[Article 32] A JVC, a CC or a wholly owned foreign company shall, in compliance with the relevant provisions, prepare its production, supply and sales statistics and report them to the departments in charge which will, upon collection of all these data, submit them to the municipal statistics bureau.

[Article 33] A JVC, a CC or a wholly owned foreign company shall set up its own accounting unit and maintain its own set of books (accounting) in the SEZ where the company is established.

A JVC,a CC a wholly owned foreign company shall submit its quarterly and annual financial report to the municipal tax bureau, departments in charge and municipal finance bureau.

[Article 34] The auditor of a JVC or a CC shall be responsible for the examination and auditing of the incomes and expenditures and other accounting items of the company.0 He(she) shall furnish a report to the board of directors and the general manager of the company about his(her) examination and audit.

[Article 35] A CC shall pay back the principal plus interest of investment contributed by the foreign investor(s) by either one of the following means:

a.0 Within a certain period of time, the amount of profits or the proportion of products to be distributed to the foreign investor(s) will be increased; or

b.0 Within a certain period of time, all profits will be first used to pay back the foreign investor's contributed principal plus interest.

In case of a CC where a foreign investor can not recoup his (her) share of investment due to force majecure before the expiration of the cooperation contract, the foreign investor may apply for extension of the cooperation duration.

SECTION 4 ASSIGNMENT AND MORTGAGE

[Article 36] The assignment, in part or in whole, by one party to a JVC to third party of the shares he owns shall be authorized by the board of directors and subject to the approval by the local municipal people's government.

If one party intends to assign, in part or in whole, the shares he owns, preference in the purchases should be given to the other party to the same JVC, all conditions being equal.

The conditions given to a third party for the purpose of the assignment shall not be more favorable than that to the other party to the JVC.

Violation of the above stipulations shall mean invalidation of the assignment concerned.

[Article 37] Any mortgage, in part or in whole, by one party to a JVC of the shares he owns to a third party must be authorized by the board of directors.

[Article 38] The assignment, in part or in whole, of the rights and interests by foreign investors or, in the case of a Special Economic Zone (SEZ) party, the assignment of the land use right and buildings of a CC, shall be subject to approval by the board of directors and the authorization by the local municipal people's government.

The SEZ party(ies) shall be given preference in purchase, all conditions being equal, where foreign investors intend to assign, in part or in whole, their rights and interests.

Where the assignor of land use right and buildings is a SEZ party, the assignee shall be other enterprises of the same SEZ.

Violations of the above stipulations shall mean invalidation of the assignment concerned.

[Article 39] The proceeds of the mortgage by a foreign investor in (party to) a CC on its rights and interests shall not exceed its principal amount minus the amount already recovered and any such mortgage shall be subject to the approval of CC's board of directors.

SECTION 5 DISPOSITION OF ASSETS

[Article 40] When a foreign investor is declared bankrupt outside China and who is a party to a JVC or a wholly owned foreign company established in a SEZ, he or his authorized agent(s) may give opinions on the disposition of his assets in the SEZ.

[Article 41] Where the above-stipulated right is to be exercised by an authorized agent(s) on behalf of the foreign investor the matter must be referred to and a decision arrived at by the local municipal people's government.

[Article 42] Upon the application by an authorized agent as to the disposition of his client's assets located in a SEZ, the following documents shall be submitted to the local municipal people's government:

a.0 Certificate of the foreign investor's identity and certificate of authorization;

b.0 Documents concerning the declaration of bankruptcy;

c.0 Contract signed by the foreign investor, the articles of association, certificate of the investment made in the SEZ and other relevant documents;

d.0 Resolutions by the board of directors.

The local municipal people's government shall not take up the case unless all the above documents are furnished.

[Article 43] Upon the approval by the local municipal people's government of the application filed by the agent(s) authorized by the foreign investor concerned, the board of directors of the company holding his assets shall verify the total value of the said assets.

[Article 44] Disposition by the authorized agent(s) of his client's assets shall take the form of shares transfer or assignment of rights and interests which shall be executed without adversely affecting the normal activities of production and operations of the company.

[Article 45] All the proceeds of assignment and transfer of the foreign investor's assets shall be subject to disposition by the authorized agent(s) after deducting the following expenses:

a.0 Cost of verification;

b.0 Taxes payable;

c.0 Other domestic debts.

CHAPTER III SINO-FOREIGN JOINT STOCK LIMITED COMPANY

SECTION 1 ESTABLISHMENT PROCEDURES

[Article 46] The Regulations requires any application for the establishment of Sino-foreign joint stock company (hereinunder referred to as JSLC for short) must have at least five initiators.0 It also requires that more than half of the initiators must be representatives from the Special Economic Zone (SEZ) party to the to-be-set-up JSLC.

The initiators shall sign an establishment contract and prepare the prospectus and articles of association of the JSLC.

[Article 47] The initiators shall furnish to the local municipal people's government (hereinunder referred to as municipal government) the following documents:

a.0 A written application;

b.0 Credit standing certificates of the initiators;

c.0 The feasibility study report (of the JSLC);

d.0 The establishment contract signed by the initiators;

e.0 The prospectus; and

f.0 The articles of association of the JSLC.

[Article 48] The establishment contract of a JSLC shall include the following items:

a.0 Name and address of the initiator(s) which (here refers to an entity) carries the status of a legal person and the name, nationality, title and address of the legal representative for that initiator(s);

b.0 The name, nationality, title and address of individual initiator(s);

c.0 The objectives and the management scope of the JSLC;

d.0 The scope, target and measures of the share issue;

e.0 Total amount of shares to be issued and the face value of each share;

f.0 The time limit to make the share capital contribution and the form to be taken of for the subscription by each initiator in the first share issue of that JSLC and their respective amounts;

g.0 The sharing of expenses among the initiators for the inauguration of the JSLC;

h.0 The joint liability beared by each initiator concerning the establishment;

i.0 Benefits for the initiators in the period of inauguration;

j.0 Other matters concerning the inauguration;

k.0 The signatures and seals of each initiator; and

l.0 The date and the location where the establishment contract is signed.

[Article 49] The prospectus shall include the following items:

a.0 The name, address, business scope and scale of the JSLC;

b.0 The total amount of shares to be issued and the face value of each share;

c.0 Type(s) of shares;

d.0 The numbers of shares to be issued in each currency if the shares issued are under more than one currency;

e.0 How dividends and bonus are to be distributed;

f.0 How shares are to be issued and assigned (transferred);

g.0 The numbers of shares subscribed by each initiator;

h.0 Name and address of the initiator(s) which (here refers to an entity) carries the status of a legal person and the name, nationality, title and address of the legal representative for that initiator(s);

i.0 The name, nationality, title and address of individual initiator(s);

j.0 Notification procedures;

k.0 Other matters;

l.0 Signatures and seals of each initiator; and

m.0 The date.

[Article 50] The articles of association of a JSLC shall include the following items:

a.0 Name and address of the JSLC;

b.0 The objective, management scope and scale of the JSLC;

c.0 The total amount of shares to be issued, their classifications (if the JSLC chooses to issue more than one type of shares) and the face value of each share;

d.0 The amount of share capital to be raised in the first share issue and how many types of shares will be issued and the time limit (for the initiators) to make the share capital contribution;

e.0 The subscription obligation of the initiators in the first share issue;

f.0 The obligations of each initiator concerning the sharing of expenses for the inauguration of JSLC and the procedures to pay back the expenses to each initiator;

g.0 The types and the number of shares to be opened for subscription to individuals;

h.0 The procedures of dividends and bonus distribution;

i.0 The financial institution which acts as the agent for the share issue and the bank to which the JSLC opens its account(s);

j.0 The rights and obligations of shareholders;

k.0 The functions and authority of the shareholder general meeting and the convening procedures for such meetings;

l.0 The establishment, the functions and the authority of the management, operation and decision-making unit(s) and recruitment procedures for senior managerial staff of the JSLC;

m.0 The principles of the financial, accounting and auditing systems of the JSLC;

n.0 Notification procedures;

o.0 Dissolution and liquidation;

p.0 Consequences and liability of violating the articles of association;

q.0 Amendment procedures (for the articles of association);

r.0 Other matters concerning the establishment of the JSLC; and

s.0 Seals of all initiators.

[Article 51] A JSLC is considered formally established upon registration with the local bureau of industry and commerce which examines and approves the registration application according to laws and regulations concerned.

[Article 52] The first share issue shall account for at least 25% of the total number of shares to be issued.0 The initiators shall subscribe to no less than 25% of shares offered in the first share issue.0 The rest of the shares (those not subscribed by the initiators in the first share issue) shall be opened for subscription to individuals.

Initiators shall bear joint liability for those shares which have not been subscribed by individuals in the first share issue.

[Article 53] Initiators shall, within 30 days after the completion of the first share issue, convene a company inauguration meeting and shall issue written notification to all shareholders about the meeting 15 days prior to the date of the meeting.

[Article 54] Powers of the company inauguration meeting:

a.0 Hearing and examining the work report concerning the inauguration of the JSLC from the initiators;

b.0 Amendment and adoption of the articles of association; and

c.0 Election of members of the board of directors;

Matters relating to the voting rights of shareholders attending the company inauguration meeting shall be determined in the light of the provisions in Section 59, 60, 61 of the present Regulations.

SECTION 2 ORGANIZATION OF JSLC

[Article 55] The highest authority of a JSLC is the shareholder general (annual) meeting.0 A shareholder general meeting can be a regular meeting or a special meeting.

The board of directors of a JSLC shall be the management, decision-making and execution body of the JSLC.

The board of directors shall be the body of the JSLC to convene the shareholder general meeting unless the present Regulations otherwise requires.

[Article 56] Regular shareholder general meeting shall be held once a year, normally in the first quarter of a year.

The board of directors shall notify all shareholders by written notice about the shareholder general meeting 15 days prior to the date of the meeting.

The board of directors may, unless the present Regulations otherwise requires, convene special shareholder general meeting if any one of the following cases occurs;

a.0 It is considered necessary by the board of directors; and/or

b.0 One-fourth of the shareholders (in terms of the number of shares they own) propose to have such a meeting.

Written notification shall be issued to all shareholders 15 days prior to the date of the special shareholder general meeting.

[Article 58] Powers of the shareholder general meeting:

a.0 Hearing and examining the work report from the board of directors;

b.0 Hearing and examining the company production and operation plans, financial budget report and account settlement report;

c.0 To examine and approve the proposals from the board of directors concerning the proportion of company earnings that shall be drawn and put into such capital accounts as saving fund, employees bonus and benefit fund and expansion fund as well as plans on the distribution of dividends and bonus and in cases, how to compensate for losses of the company;

d.0 The election or removal of any board members in that capacity and the renumeration to be offered to the board members;

e.0 To decide on such key issues as additional capitalization bonds issue, merging, assignment (transfer), dissolution and liquidation of the JSLC;

f.0 To make amendments on the articles of association;

g.0 The appointment and removal of, and the renumeration to be offered to, in cases the JSLC is undergoing restructure or voluntary liquidation, the person in charge of the restructure or the liquidator; and

h.0 To decide other essential matters concerning the JSLC.

[Article 59] One vote per share for any resolutions in any shareholder general meeting.

A shareholder may for the purpose of any shareholder general meeting appoint a proxy to represent him/her at the meeting and to vote thereat on his/her behalf.0 Every appointment of a proxy shall be in written notification by the shareholder by whom it is made and shall be submitted to the person in charge of such matters.

[Article 60] For any ordinary resolutions voted in any shareholder general meeting to be considered valid, shareholders attending the meeting shall own more than 50% of the total number of shares of the JSLC and such resolutions shall be supported by more than 50% of the votes of the shareholders attending the meeting.

[Article 61] For any extra-ordinary resolutions voted in any shareholder general meeting to be considered valid, shareholders attending the meeting shall own more than two-third of the total number of shares of the JSLC and such resolutions shall be supported by more than 50% of the votes of the shareholders attending the meeting.

The following matters shall be subject to extra-ordinary resolution by shareholders:

a.0 Items e and f in Section 58;

b.0 Appointment of a chairman to the board of directors but who is not a shareholder of the company; or

c.0 Other matters that require extra-ordinary resolution as prescribed in the articles of association of the JSLC.

[Article 62] In case that the number of shares owned by shareholders attending the meeting is less than that required by the present Regulations, the meeting shall be deferred for 15 days and notification to attend the deferred meeting shall be convened to all shareholders who are absent in the former meeting.

In case the amount of shares owned by all shareholders at a deferred meeting is still less than that required by the present Regulations, the requirement concerning the share amount shall not apply and the meeting can proceed.

[Article 63] Each JSLC shall have a minutes book to keep a record of all its shareholder meeting minutes, which shall include such items as time, place, number of shareholders attending the meeting and matters discussed and decided at each meeting.

Convener of the meeting shall affix his/her signature to the minutes of that meeting after which has been written out by the person in charge.0 All minutes of the shareholder meeting shall be kept by an appointed person and shall not be destroyed within a specific period of time.

[Article 64] The board of directors of a JSLC shall have one chairman and several deputy charimen.

Members of the board of directors shall be elected at the shareholder general meeting or appointed through consultaion.

The chairman and deputy chairmen of a JSLC shall be elected among the board members or appointed through consultation.

[Article 65] Powers of the board of the directors:

a.0 To convene the shareholder general meeting;

b.0 To carry out the resolutions agreed upon at the shareholder general meeting;

c.0 To decide all matters relating to the employment of the general manager, deputy general managers, chief engineer, chief accountant, auditors and other senior managerial personnel of the JSLC;

d.0 To decide on the wages of staff and workers and to formulate the reward and punishment scheme of the JSLC;

e.0 To prepare the production and management programs, financial budget and account settlement report, dividends and bonus distribution plans as well as proposals relating to additional capitalization, merging and assignment (transfer) of the JSLC;

f.0 To manage important external affairs of the JSLC; and

g.0 Other powers as stipulated in the articles of association of the JSLC or authorized by shareholders in the shareholder general meeting.

[Article 66] The legal representative of a JSLC is the chairman who can exercise the following powers:

a.0 The chairman shall preside over the sharehoder general meeting;

b.0 The chairman shall convene and preside over the board of directors meeting;

c.0 The chairman can exercise the functions and powers of the board of directors when the board is not in session;

The deputy chairmen shall assist the chairman in his/her work.

Should the chairman unable to perform his/her duties, he/she may entrust a deputy chairman or a member of the board to perform his/her duties on his/her behalf.

[Article 67] The establishment of the business management office of the JSLC shall be prepared and carried out according to the provisions in Section 19, 20 and 21 of the present Regulations.

[Article 68] In case of graft or dereliction of duties on the part of directors, general manager or deputy general managers, they may be recalled or dismissed and they shall be held legally responsible for any losses suffered by the JSLC as a result of graft or dereliction on their duties.

SECTION 3 SHARES

[Article 69] A person who owns a share certificate is a shareholder of the JSLC.0 A shareholder shall enjoy his/her rights and assume his/her obligations as prescribed in the articles of association of the JSLC.

A shareholder's liability to that JSLC shall be limited to the amount of shares he/she owns.

[Article 70] The paid-up capital collected for the shares issued by the JSLC in the first share issue shall be the registered capital of the JSLC.

[Article 71] All shares issued by a JSLC shall be of equal value.

The face value of each share may be expressed in terms of Renminbi or other currencies.

All shares shall be registered shares and they shall be either common shares or preference shares.

A share certificate may take the form of single-share or compound-share which represents two (or more than two) single shares of the JSLC.

[Article 72] The company may issue preference shares under any one of the following conditions:

a.0 Issue of common shares may have difficulties;

b.0 The JSLC has financial problems and has to raise funds to solve the problems; or

c.0 The JSLC is short of funds to finance introduction of advanced technology for its operation.

[Article 73] A preference shareholder may enjoy the following rights:

a.0 Dividends paid to preference shareholders may be higher than that paid to common shareholders; and

b.0 Priority in dividends distribution and residual assets allocation of the JSLC.

The rights enjoyed by preference shareholders shall be specified in the articles of association of that JSLC.

[Article 74] A JSLC shall have the right to redeem its preference shares in due course.0 The time and conditions for the redemption shall be specified in the articles of association of that JSLC.

[Article 75] Share subscription procedures:

a.0 Any person who intends to subscribe for shares shall fill in a subscription registration form;

b.0 Any person who intends to subscribe for shares shall submit (in person or by mail) the completed subscription form and the correct amount of the share subscription payment to the JSLC concerned or a financial institution which is authorized to handle the share issue on behalf of the JSLC;

c.0 Share certificates shall be delivered or mailed out by the JSLC; and

d.0 The JSLC shall handle the registration procedures for its shareholders.

[Article 76] A JSLC shall, within 60 days after the approval certificate regarding the share issue has been granted by the municipal government, prepare share certificates, subscription registration forms, shareholder registration forms and sharetransfer registration forms.

[Article 77] A share certificate shall indicate the following items:

a.0 Share number;

b.0 Name of the JSLC;

c.0 Name (or destination) and address of the shareholder;

d.0 Type and amount of shares it represents and its par value and its currency;

e.0 The company seal and signature of the chairman; and

f.0 Date of issue.

[Article 78] The subscription registration form shall indicate the following items:

a.0 Name of the JSLC;

b.0 Name and address of the person who applies for the subscription;

c.0 The type(s) and the amount of shares he/she subscribed and the total value and currency of the shares;

d.0 The form of payment for the share subscription and the date the payment is paid, and

e.0 The signature and seal of the subscriber or his/her authorized agent.

[Article 79] The shareholder registration record shall indicate the following items:

a.0 Name and address of the shareholer;

b.0 Type(s), amount of shares, par value and currency of the share owned by the shareholder;

c.0 Share certificate number(s) and the date the shares are collected by the shareholder; and

d.0 Record concerning the transfer of shares.

The shareholder registration record shall be kept at the principal place of business of the JSLC and a duplicate copy of which shall be submitted to the local municipal bureau of industry and commerce for the record.

[Article 80] The share transfer (including assignment, donation and inheritance) registration form shall indicate the following items:

a.0 Name of the JSLC;

b.0 Name and address of the assigner (donor, legator) and the assignee (donee, heir);

c.0 The amount, the par value and the currency of the share(s) transferred;

d.0 Share certificate number(s); and

e.0 The date of transfer and the signatures and seals of both parties to the transfer.

[Article 81] The JSLC shall from the date it issued its shareholder general meeting convening notification to shareholders to the date the general meeting closed, stop accepting any share transfer registration application and other registration application to make changes of ownership of shares.

[Article 82] Shares may be assigned, donated, inherited or used as collateral for back loan except for the time when the JSLC is undergoing liquidation.

No shareholders shall withdraw their shares of contribution by returning shares to the company.

[Article 83] Shares owned by the initiators shall not be assigned (transferred) within one year after the establishment of the JSLC.

The assignment of shares owned by the directors of the JSLC shall be subject to authorization by the board of directors.

[Article 84] Shares under joint subscription are considered jointly owned be those partners of the joint subscription party and they shall beat the joint liability to the contribution of capital for the subscription.

In the case of joint subscription, partners to the joint subscription party shall elect among themselves a person to be their representative.0 Whereas no such an election has been held the person whose name is listed first on the share certificate for the share they jointly owned will be their representative.

The assignment of jointly owned share(s) shall be subject to unanimous agreement reached upon by all shareholders to that share(s).

In case one of the shareholders to a jointly-owned share(s) intends to assign his/her share of ownership, other shareholders to that share(s) have the pre-emptive right to his/her assignment.

[Article 85] Shareholders may apply to the JSLC for reissue of shares in case that their shares are damaged or lost.0 In such cases, they shall make public declaration of invalidation of their lost/damaged shares in the Nanfang Daily and the Shenzhen Special Zone Daily, or the Zhuhai Special Zone Daily or the Shantou Special Zone Daily.

The company shall reissue shares and carry out the re-registration procedures after the reissue application by the shareholders has been verified.

[Article 86] After compensation for losses accrued in previous year(s) of operation and payment of income tax have been made, a JSLC can decide to use its current year profit in the following order;

a. 0To be used to pay back its matured liabilities;

b.0 To be allocated, in part or in whole, among such capital accounts as saving fund, employees bonus and benefit fund and expansion fund;

c.0 To be paid out to its shareholders as dividends and bonus.

A JSLC shall not distribute dividends and bonus if the company does not have a surplus in that year.0 However, exception of the policy will apply if the company's saving fund has amounted to an amount more than half of its registered capital and the decision (the distribution of dividends and bonus) has been voted and passed in a shareholder general meeting.0 In that case, the company can withdraw 50% of its saving fund to distribute as dividends and bonus to its shareholders.

[Article 87] A JSLC may raise new capital for the company by issuing new issues.0 However, the additional capitalization proposal must be voted under an extra-ordinary resolution in a shareholder general meeting.

A JSLC shall not issue new shares if it has not yet collected all its share capital for shares that it has already issued or it has suffered losses continuously for two years.0 However, JSLCs take longer to recoup the capital and have detailed and well-prepared operation plans and a high potential to generate profit are not under this policy.

[Article 88] A JSLC shall, when applying for issue of new shares, submit the following documents to the municipal government:

a.0 A written application for the issue of new shares;

b.0 Documental evidence showing the extra-ordinary resolution adopted in the shareholder general meeting; and

c.0 Articles of association of the JSLC with the necessary amendments furnished.

[Article 89] A JSLC shall go to the local municipal bureau of industry and commerce with the approval certificate issued by the municipal government regarding the issue of new shares and its amended articles of association to make the necessary changes on its registration within 30 days after completing its collection of share capital for the newly issued shares.

SECTION 4 BONDS

[Article 90] The issue of bonds by JSLC shall be decided by shareholders at the shareholder general meeting and subject to approval by the municipal government.

All bonds shall be registered bonds and the face value of bonds may be expressed in terms of Renminbi or other currencies.

[Article 91] The gross value of bonds issued by a JSLC shall not exceed an amount equal to the total value of its assets minus the total value of of its liabilities.

[Article 92] A JSLC shall not issue new bonds unless it has already collected all subscription payments for bonds it has already issued.0 If a JSLC chooses to issue new bonds to raise capital to pay for its matured liabilities, all capital thus raised shall be used for the said purpose.

[Article 93] A JSLC seeks bond issue shall prepare a bond issue prospectus which shall indicate the following items:

a.0 Name and address of the JSLC;

b.0 The total amount and the type(s) of bonds to be issued and the face value of each bond.

c.0 The currency the bonds is to be issued;

d.0 The interest rate offered, the maturity date and the methods of redemption of the bonds to be issued, as well as the methods of the payment of interest;

e.0 Purpose of the bond issue;

f.0 Name and the domicile address of the financial agent of the bond issue;

g.0 The amount of paid-up capital of the JSLC;

h.0 The residual amount of the company assets net of its liabilities;

i.0 Other matters concerning the bond issue.

[Article 94] To apply for bond issue, the JSLC shall submit to the municipal government the following documents:

a.0 A written application for the bond issue;

b.0 Documental evidence showing the shareholder meeting resolution of the bond issue; and

c.0 Prospectus of the bond issue.

The municipal government shall give an official reply in writing within 30 days upon receipt of all the documents stipulated above.

[Article 95] A JSLC shall, upon approval by the municipal government, prepare the bond certificates, bond subscription registration forms, creditor registration books and bond assignment registration forms.

Items that shall be indicated in the bond certificate, creditor registration book and bond assignment registration form shall be dealt with in compliance with the provisions in Section 77, 79, 80 of the peresent Regulations.

[Article 96] All subscribers shall subscribe bonds according to specific provisions and time schedule of the bond issue, and shall comply with Section 75 of the present Regulations in respect of procedural matters.

[Article 97] The rights and obligations of joint bondholders shall be determined on the basis of the provisions in Section 84 of the present Regulations.

[Article 98] The assignment, donation, inheritance and the mortgage of bonds shall be dealt with according to the provisions in Section 80, b., Section 82. a. and Section 84. c. of the present Regulations.

[Article 99] The reissue of damaged or lost bonds shall be dealt with according to the provisions in Section 85 of the present Regulations.

[Article 100] Bondholders may choose to exchange their bonds for shares when the JSLC issues new shares.0 However, such exchanges are subject to permission by the company and the bondholders may have to forgo the bond interest to be payable to them.

SECTION 5 FINANCIAL ACCOUNTING

[Article 101] The board of directors of a JSLC shall prepare and compile the following financial statements for the period in question 30 days prior to the date of a regular shareholder general meeting:

a.0 Annual account settlement report and the annual budget;

b.0 Balance sheet of the JSLC;

c.0 Profit and loss statement;

d.0 Inventory report;

e.0 Programs regarding the withdrawal of capital from such capital accounts as saving fund, employees bonus and benefit fund and expansion fund;

f.0 Plans on the distribution of dividends and bonus and in cases, plans concerning how to compensate for the losses of the JSLC.

The annual account settlement report, balance sheet and profit and loss statement of the JSLC shall be verified by an accountant registered in the People's Republic of China and he/she shall submit a verification report to accompany with the verified financial statements.

[Article 102] The board of directors of the JSLC shall, before a regular shareholder general meeting, place those financial statements in the principal place of business (headquarter) of the company and open for inspection and examination by shareholders and shall submit the statements to the regular shareholder general meeting for adoption.

[Article 103] The JSLC shall submit its statistics report and accounting statements in the light of the provisions in Section 32, 33 of the present Regulations.

[Article 104] Auditors of the JSLC shall be responsible for the auditing and examination of the income and expenditure and accounting statements of the company, and shall furnish their vertification reports to the boards of directors of the JSLC.

[Article 105] The saving fund of a JSLC can be used, in addition for the compensation of losses of the company, for the additional capitalization of the company subject to an extraordinary resolution by shareholders in a general meeting.0 The issue of new shares as a result of the capitalization shall be carried out among the existing shareholders in proportion to the number of shares they each own.

CHAPTER IV RESTRUCTURE OF THE COMPANY

[Article 106] Restructuring means the consolidation process planned for and carried out in a company involving foreign investment in the Special Economic Zone in order to save the company from bankruptcy due to financil difficulties and to lead the company back to the normal course of business and production activities.

Any restructure of a company involving foreign investment shall be subject to approval by the superior department in charge of the company in question.

[Article 107] The application for restructure must comply with one of the following conditions:

(1) The SZFC employs hi-tech and uses advanced equipment;

(2) The products are in great demand in the society;

(3) The amount of investment is large and takes a long period of time to be recouped;

(4) The bankruptcy may have serious and unfavourable effect in the society.

[Article 108] The restructure may be proposed by a shareholder meeting, or by the creditor(s).

[Article 109] The restructure application shall indicate the following items:

(1) The current financial situation of company;

(2) The reasons and plans of the restructure

(3) Signature (s) and seal (s) of the applicant(s).

The restructuring application shall be submitted with copies of the balance profit and loss statement, etc.

[Article 110] The superior department in charge shall give an official reply days upon receipt of the restructuring application.

[Article 111] The shareholder meeting or the board of directors shall, withi after the restructuring approval has been granted, appoint or hire three to five persons to form a restructuring team, and at the same time appoint one team leader and one deputy team leader of the restructuring team.

Members of the restructuring team can be shareholders, directors or any prof people.

[Article 112] The superior department in charge and the creditor(s) shall as or two representative(s) respectively as overseers of the company.

In case where exists more than two creditors, their restructure overseer(s) shall be appointed through consultation by the creditors' meeting, If it fails to reach an agreement the creditor who holds the largest amount of credi right shall have the right to appoint the overseer.0 The creditor meeting shall restructuring team.

[Article 113] The powers of the restructuring team:

(1) To exercise, in an acting capacity, the functions and powers of the board of directors;

(2) To take over all accounting books, certificates and documents related to financial activities of the company;

(3) To take over the production and management right of the company;

(4) To take over and exercise the right of management and disposition of the property of the company;

(5) To sign external contracts on behalf of the company;

(6) To draft and to implement the restructuring plans;

(7) To convene shareholder meeting, board of directors meeting and the creditor meeting.

When the restructuring team exercise the powers as stipulated in items (4), (5) and (6) of the preceding paragraph, they shall first obtain permission for overseers.0 In case the overseers failed to reach an agreement among themselves, the superior department in charge of the SZFC in question shall make the final decision.

[Article 114] The restructuring proposal shall include the following items:

(1) The current situation of the company;

(2) Changes of creditors' or shareholders' right before the restructure takes place;

(3) The disposition of property;

(4) Collecting the outstanding credits and repaying debts;

(5) Methods concerning how to raise capital;

(6) Changes of the scale of production and operation or service;

(7) Amending the articles of association;

(8) Adjusting the organization and increasing or reducing staff or workers;

(9) Any other essential matters.

[Article 115] The restructuring plan shall be submitted to the shareholder meeting or the board of directors meeting for examination and adoption.0 It shall then be submitted to the superior department in charge for the record.

The restructure shall be completed within 180 days after the restructuring plan is being adopted.

[Article 116] After the restructuring plan has been completed, the restructuring team shall convene a shareholder meeting or a board of directors meeting to report on the restructuring process, and the overseers shall furnish a supervision report concerning the restructuring process.

The restructuring team shall, after their restructuring report has been exam by meetings mentioned in the preceding paragraph, hand over to the board of directors all accounting books certificates and documents concerning the busin activites which they have taken over during the restructuring period.0 The restructuring team shall also furnish a written report concerning the completion of the resture of the company to the superior department in charge.

[Article 117] After the restructure has been completed, the board of directo resume their powers and functions.0 The restructurers and the overseers will be dismissed automatically.

[Article 118] Restructurers and overseers of the restructure shall be held legally responsible for any economic losses suffered by the company as a result of their violation of laws and regulations or serious dereliction of the restructuring prosess of the company.

CHAPTER V OPERATION DURATION, VARIATION AND MERGING OF COMPANIES

[Article 119] The operation duration of a Chinese-foreign equity joint vent Chinese-foreign contractural joint venture company and foreign wholly-owned company shall be specified in the articles of association of the company.

Under general circumstances, the operation duration of a joint venture company or a foreign wholly-owned company is 5-30 years.0 However, the operation duration of a joint venture company or a foreign wholly-owned company may be over 30 years if the company involves a large amount of investment, employs hi-tech, takes a long period of time to recoup the investment or has a low rate of return of investment.

An equity joint venture company, contractural joint venture company or a for company is considered formally set up on the date its business license is issued by the municipal industry and commerce bureau.

[Article 120] Upon expiration of the operation duration, the equity joint venture company, the contractural joint venture company or the foreign wholly-owned company may extension of the operation duration.

To apply for extension of the operation duration, the company concerned shal to the municipal people's government 180 days prior to the date of expiration of the original operation duration.0 The municipal people's government shall decide to approve or not to approve within 30 days upon receipt of the extension application.

[Article 121] A company involving foreign investment in a SEZ shall, within 30 days after the approval for its variation has been granted, go through the following formalities:

(1) To make the changes on the registration with the bureau for industry and commerce of the municipality, tax authority and the relevant administration organizations;

(2) To make public declaration of the variation in the Nanfang Daily and the Shenzhen Special Zone Daily, or the Zhuhai Special Zone Daily or the Shantou Sphcial Zone Daily; and

(3) To issue written notification about the variation to all creditors, debtors and clients who have business relations with the company.

[Article 122] The merging of companies involving foreign invetment in a SEZ can be carried out in either one of the following two forms:

(1) Amalgamation: the combining of more than two companies to form a new company and the original company dissolves;

(2) Acceding merge: one (or more than one) company accedes to another company the absorbed company will be dissolved and the other will continue to operate.

[Article 123] The merging shall be carried out in the following order:

(1) An extra-ordinary resolution on merging shall be adopted by a shareholder board of directors meeting of either sides;

(2) A merging agreement shall be signed;

(3) The merging shall be reported to the municipal people's government for approval.

[Article 124] The merging contract shall indicate the following items:

(1) Names and addresses of the companies to by merged;

(2) The form of merging and name and address of the new company to be formed after the merging;

(3) The current assets and liabilities status of all parties to the merging;

(4) Methods concerning how to dispose the assets of all parties to the merging;

(5) Methods concerning how to handle the credits and debts of all parties to the merging; and

(6) The rights and obligations of all parties to the merging after the merging.

In case no specific arrangements has been made with regard to the stipulation in (5) of the preceding paragraph, all credits and debts of the original companies-shall be transferred to the newly set up company or the company which continues to exist.

[Article 125] Parties involved in the merging shall furnish the following documents to the municipal people's government:

(1) A written merging application;

(2) The merging agreement;

(3) The extra-ordinary resolutions adopted by shareholders meeting or board meeting of either parties to the merging; and

(4) The articles of association of the company to be formed after the merging.

[Article 126] After completion of the merging operation, the parties concern through the formalities as stipulated in Article 121 of this Regulations, such as registration, alteration or dissolving registration, etc.

CHAPTER IV DISSOLUTION AND LIQUIDATION OF THE COMPANY

SECTION 1 DISSOLUTION

[Article 127] A company involving foreign investment in a Special Economic Zone may apply for dissolution to the local municipal people's government where any one of the following cases occurs:

(1) Expiration of the operation duration as stipulated in its contract or articles of association;

(2) Merging or assignment of all the property;

(3) The dissolution decision has been adopted under an extraordinary resolution by the board of directors or shareholder meeting;

(4) The company has not resumed its operation after its approved adjournmen period is over;

(5) The company is unable to continue its operation due to serious natural calamities, war or other force majeure factors as stipulated in the contract;

(6) Occurrence of any other reasons for disolution as stipulated in the contract or articles of association.

[Article 128] The municipal intermediate people's court (hereinafter referre may rule on the dissolution upon filing of the case by the party (ies) concerned when the company is involved in one of the folloiwng situations:

(1) The company is causing serious environment pollution and ecological damage and the company has either ignored the instruction issued by the environmental protection department to improve the situation or the company has failed to improve the situation;

(2) Either party to the company, equity joint venture or contractual joint venture has failed to honour what is stipulated in the contract or the articles of association and has seriously affected the company to pursure its normal operation; and

(3) Either party to the company, equity joint venture or contractual joint venture or contractual joint venture which has seriously violated the laws and has affected the company to pursure its normal operation; and

(4) The company goes bankruptcy.

SECTION 2 LIQUIDATION

[Article 129] Upon dissolution of a company involving foreign investment in a SEZ, the company shall go into liquidation unless the present Regulations otherwise stipulate.

A company whose dissolution is approved the municipal government shall carry out voluntary liquidation.0 A company whose dissolution is ruled by the court shall carry out the liquidation according to the ruling.0 The period of liquidation shall not exceed 180 days as from the date of approval or adjudication.

Liquidation on bankruptcy of the company involving foreign investment in a SEZ shall be conducted in accordance with relevant laws and regulations.

[Article 130] A company invovling foreign investment in a SEZ shall set up liquidation committee consisting of 3 persons within 10 days after approval by the municipal people's government or adjudication by the court has been issued.0 Liquidators for a company undergoing voluntary liquidation shall be appointed by the board of directors or the shareholder meeting.0 Liquidators for a company whose liguidation is ordered by the court shall be appointed by the court.

[Article 131] The board of directors, shareholder meeting or the court shall make an announcement of the liquidation in the Nanfang Daily and the Shenzhen Special Zone Daily, or the Zhuhai Speical Zone Daily or the Shantou Special Zone Daily within 15 days after the establishment of the liquidation committee, and notify creditors in writing so that they can make creditor claims within a certain period of time.

[Article 132] The liquidation announcement shall indicate the reasons for liquidators and the time limit for making creditor claims.

The liquidation committee shall report the liquidation resolution, liquidation adjudication and the liquidation announcement to the local municipal bureau of industry and commerce and tax authorities for the reocrd.

[Article 133] The liquidation committee shall exercise the following functions and powers:

(1) To convene creditor meeting, board of directors meeting or shareholder meeting when it deems necessary;

(2) To be in charge of the property of the company, to prepare the balance sheet and the general inventory report;

(3) To finalize any business dealings of the company;

(4) To draft the liquidation program;

(5) To carry out liquidation and to distribute the assets of the SZFC;

(6) To collect the outstanding credits and pay off its debts;

(7) To collect any maount due from parties to the equity joint venture and contractual joint venture or shareholders who should have paid but have not done so;

(8) To allocate the residual assets;

(9) To act on behalf of the company in any legal activities or non-legal activities.

[Article 134] The liquidation committee shall execute their functions and powers based on unanimity agreed upon through consultation.0 In case it cannot reach unanimous agreement through consultation, the board of directors or the shareholder meeting shall make the final decision, if the company is undergoing voluntary liquidation.0 As regards liquidation adjudicated by the court, the court shall make the final decision.

[Article 135] The board of directors shall, within 10 days after the estadlishment of the liquidation committee, furnish all the accounting books, general inventory report, shareholders' register, list of creditors and debtors and other information concerning the liquidation to the liquidation committee under the supervision of the person (s) appointed by the department in charge or by the court.

[Article 136] If the board of directors violates any one of the provisions in the preceding Article of these Regulations, upon application by the liquidation committee, the court shall deal with the case respectively according to the following provisions:

(1) To force the board to deliver all relevant documents, if such documents have not been delivered on time;

(2) To pass down penalty on any persons who are found directly liable for concealing, forging or destroying any documents related to the liquidation;

(3) Those who are found violating criminal laws will be dealt with accordingly on the basis of the criminal liability that they are held directly responsible for.

[Article 137] Notification shall be issued to creditors 15 days prior to the date of the creditor meeting convened by the liquidation committee.0 In case a creditor is unable to attend, he/she may appoint a proxy to attend the meeting with his/her authorization certificate.

The liquidation committee shall report on the liquidation program at the creditor meeting and listen to the opinions and requests from the creditors.

[Article 138] The liquidation committee shall submit its liquidation program to the board of directors, shareholders' general meeting or the court for examination and approval.0 The committee shall regularly notify the shareholders and creditors on the detalis of luqidation or operations.

[Article 139] Liquidation committee shall include all credit claims of the creditors in its liquidation program upon verification by the committee.

Creditors who have not made their credit claims within the time limit prescribed in the liquidation announcement are allowed to file their claims before the distribution of the residual assets.0 However, the creditors can no longer claim their rights if the residual assets, in part or in whole, have already been distributed to other creditors.

[Article 140] In case the assets of a company involving foreign investment in SEZ is not enough to clear off its debts, compensation except for mortgage loan should be made in the following order:

(1) Liquidation expenses;

(2) Wages and salaries of the workers and staff and social insurance funds;

(3) Taxes payable to the State;

(4) Other debts.

In case the assets are not sufficient to repay debts belonging to any one of the above categories, debtors belonging to the same category shall share the amount allcated to that category proportionally.

[Article 141] Liquidation committee shall not allocate any assets of the company to any shareholders pending the completion of repayment of all debts of the company.

Any remaining assets after repayment of debts shall be allocated proportionally according to the ratio of distribution among the shareholder or shares, unless the contract or articles of association otherwise stipulates.

[Article 142] After the liquidation of a company in a SEZ, the liquidation committee shall furnish its liquidation report to the board of directors, the shareholder meeting and the municipal people's government in case of voluntary liquidation.0 The committee shall furnish its liquidation report to the court in case of liuqidation adjucated by the court.

The municipal people's government or the court shall examine the liquidation report and make their decision.

[Article 143] Liquidation committee shall go through its registration formalities of dissolution with the municipal bureau of industry and commerce within 14 days after approval by the municipal people's government or the court.

[Article 144] Remuneration shall be paid to liquidators by the company and the amount of which shall be determined through consultation by the liquidators with the board of directors' meeting, shareholder meeting or the court.

[Article 145] The board of directors, shareholder meeting or the court may otherwise assign liquidator (s) or replace liquidator (s) where any one of the following conditions occurs:

(1) The liuquidators are found involved in violation of laws;

(2) The assignment is requested by creditors for reasons deemed just;

(3) The decrease or loss of working ability of the liquidator;

(4) Other reasons.

[Article 146] Liquidators shall be held legally responsible for any dereliction of their duties, graft or deception or any other unlawful activities when they are executing their tasks.

[Article 147] The court may order suspension of voluntary liquidation and replace it with the adjudicative liquidation.

[Article 148] Company involving foreign investment in a SEZ may not go into voluntary liquidation if the company ceases its operation due to merging or expiration of its operation duration and the company has no outstanding debts or claims on it at the time.

[Article 149] Upon liquidation of a contractual joint venture company, in case its debts exceed its credits, parties to the company shall refund their respective distributed profits to the company according to the ratio of profit distribution as stipulated in the contract so that the debts shall be cleared off therewith.

[Article 150] A contractual joint venture company which does not opt for voluntary liquidation shall deliver all its accounting books, documents and assets assignment registry and other related documents upon dissolution to its special economic zone party.0 The SEZ party shall keep all these documents for three years.

[Article 151] The following documents concerning the liquidation shall be verified by an accountant registered in the People's Republic of China and he/she shall furnish a verification report:

(1) All accounting books handed over by the board of directors to the liquidation committee;

(2) Debts and credits as listed in the liquidation program;

(3) Accounting statements concerning the liquidation.

CHAPTER VII PENALTY PROVISIONS

[Article 152] Apart from the liability to be borne by the company, the legal representatives and the directly liable persons shall be imposed fines or prosecuted for criminal liability where crime is found committed in case where the company involving foreign investment is involved in any one of the following conditions:

(1) Illegal operation beyond the scope of business approved by and registered with the municipal bureau of industry and commerce;

(2) Concealment of facts or deception against the municipal bureau of industry and commerce or the tax authorities;

(3) Withdrawal of dunds or concealment of property in order to avoid paying its debts;

(4) Disposition of assets without authorization when the company is dissolved, or is suspended or declared bankrupts;

(5) Failing to apply for registration and to issue notification promptly upon changes made or termination of operation and thus resulted in heavy losses suffered by the parties involved;

(6) Engaging in other activities which are prohibited by law and may cause damage to the interests of the State or the public.

[Article 153] In case the parties thus penalized according to the present Regulations refuse to accept the penalty, they may, within 15 days upon receipt of the penalty notification, apply to the authority which is superior to the department which issues the penalty notification for reconsideration or appeal to the court.

CHAPTER VIII SUPPLEMENTARY PROVISIONS

[Article 154] Any documents submitted by a company involving foreign investment in a SEZ to the municipal people's government and its related departments shall be written in the Chinese language.0 The Chinese text of any documents shall be considered the authentic text in case the document is written in Chinese and another foreign language.

[Article 155] Any company involving foreign investment established in a SEZ before the implementation of the present Regulations shall go through all procedures in compliance with the provisions of the present Regulations within one year from the date of implementation of the present Regulations except those items which are permitted by the contract or articles of association and are approved by the municipal people's government.

[Article 156] The present Regulations shall be applicable to any equity joint venture company, contractual joint venture company and joint stock company established in the SEZs or invested by economic organizations or individuals of compatriots from Hongkong, Macao, Taiwan and overseas Chinese.

[Article 157] The present Regulations shall come into force on January 1, 1987.