IMPLEMENTING MEASURES FOR THE REGULATIONS OF
SHANGHAI MUNICIPULITY ON DISCUSSION AND EXAMINATION
AND APPROVAL PROCEDURES CONCERNING THE ESTABLISHMENT
OF SINO-FOREIGN JOINT EQUITY VENTURES AND THE ACCEPTANCE
OF SELF-OPERATED ENTERPRISES INVESTED BY FOREIGNERS
(FOR TRIAL IMPLEMENTATION)

(Issued on October 18, 1984 By the Shanghai Municipal
People's Government.)

SUBJECT: EQUITY JOINT VENTURES

ISSUING-DEPT: SHANGHAI MUNICIPALITY

ISSUE-DATE: 10/08/1984

IMPLEMENT-DATE: 10/08/1984

LENGTH: 3757 words

TEXT:

These Implementing Measures are formulated to facilitate the successful implementation of the Regulations of Shanghai Municipality on Discussion and Examination and Approval Procedures concerning the Establishment of Sino-foreign Joint Equity Ventures and the Acceptance of Self-operated Enterprises Invested in and Established by Foreign Business (Trial Implementation).

I.0 SINO-FOREIGN JOINT EQUITY VENTURES

(1) Preparation, submission and approval of a project proposal

Based upon the Shanghai Municipal Program for the Utilization of Foreign Capital for Industries with Development Priority and Other Important Projects and the Annual Plan for the Utilization of Foreign Capital or the proposal for co-operation presented by the foreign investor, the bureau (district or county) in charge may organise the relevant units to contact the foreign investor for initial discussion on the establishment of a Sino-foreign joint equity venture and at the same time initiate an investigation into the credit-worthiness of the foreign investor. Where there are difficulties in carrying out the above work, the relevant units for foreign economic relations and trade may be engaged to provide consultancy services. No legally binding documents are to be signed with foreigners at this stage. After both the Chinese and foreign parties have agreed upon relatively uniform intentions of co-operation, this being achieved through investigation into credit-worthiness, analysis and comparison, optimal selection and initial discussion, the units concerned are to conduct a preliminary feasibility study. A project proposal based upon this study will then be prepared and submitted to the bureau (district or county) in charge. After approval, the project proposal is to be submitted to the Shanghai Municipal Commission for Foreign Economics Relations and Trade (hereinafter referred to as the MCFERT) in triplicate and at the same time duplicate copies are to be sent to the Municipal Planning Commission (MPC) and other relevant Municipal commissions and offices in charge.

After the project proposal has been received the MCFERT should immediately study it, in conjunction with the MPC and the relevant Municipal commissions and offices in charge, and issue an official response within a month.

Regardless of whether the discussions were preliminary or substantive, within two days of each discussion the units involved in the discussion shall complete a "Discussion Details" form and submit it to the bureau (district or county) in charge and duplicate copies shall be sent to the MCFERT, which will gather all the information and report once a week to the Municipal People's Government and circulate the information among other relevant departments.

(2) Preparation and submission of feasibility study report, contract and articles of association

Substantive negotiations may commence once the project proposal has been approved. Sufficient preparations must be undertaken before negotiations are begun with the foreign party. The Chinese party shall prepare in advance their proposed version of all legal documents such as agreements, contracts and articles of association and strive to use these as the basis for the negotiations. The negotiation program and the proposal documents produced by the Chinese party shall comply with the contents of the approved project proposal. If, in the course of negotiations, the intention of both parties regarding co-operation exceeds the limit of the contents and scope of the approved project proposal, a report shall promptly be lodged with the bureau (district or county) in charge and the MCFERT. Where the changes in the content and scope are relatively significant, a report on the proposed amendments to the project proposal must be submitted to the units to which the original proposal was submitted and the number of copies shall correspond with the number originally submitted.

When substantive discussions between the Chinese and foreign parties commence, production and operations objectives, the scale of the enterprise, the total investment, the equity proportion of both parties, technology transfer, equipment prices, the rights and obligations of both parties and other conditions shall be settled by negotiation. Once both parties have reached basic agreement they may jointly prepare a feasibility study and at the same time resolve the issues concerning the site, factory building, energy and raw material supplies, product sales, transport and communications, foreign exchange balance and financing, and also obtain written comments and suggestions from such departments as the planning, environment protection, electricity and water supply departments. Should new construction, expansion or renovation of factory buildings be necessary, the feasibility study report shall include the planned task statement with regard to technical renovations or capital construction work. Once the feasibility study report has been approved the plans and work details will also be deemed to be approved and further preparation work of initial designs may be carried out.0 (When examining and approving feasibility study reports of this nature, the examining and approving organ shall study the report and make its decision in conjunction with the relevant department.) After the Chinese and foreign parties have jointly completed a feasibility study report and this has been examined and approved by the bureau (district or county) in charge, they may enter into discussions and initial an agreement, contract and articles of association of the joint venture (refer to Articles 14 and 16 of the Regulations for the Implementation of the Law of the People's Republic of China on Sino-foreign Joint Equity Ventures with regard to the content requirements of the contract and articles of association). The agreement, contract and articles of association must be submitted to the MCFERT or its authorized departments in accordance with the provisions detailing the right of examination and approval and will only become effective after they have been examined and approved.

() Application for a certificate of approval

When applying for a certificate of approval for a Sino-foreign joint equity enterprise, the bureau in charge shall submit the following official documents:

a. A letter of application for the establishment of a joint venture, with a certificate of legal status of all parties to the joint venture attached;

b. The approved project proposal of the joint venture;

c. The feasibility study report jointly prepared by all parties to the joint venture, with a letter of certification by the various relevant units attached;

d. The contract and articles of association signed by the representatives authorized by each party to the joint venture;

e. A list of persons who have been selected as the Chairman, Vice Chairman and Board Members of the enterprise's Board of Directors by the various parties to the joint venture (the list of selected Chinese persons must first be submitted to the department in charge of cadres);

f. Signed, written comments of the bureau (district or county) in charge on the establishment of the said joint venture.

The above documents in Chinese shall be submitted in quadruplicate. The contract and articles of association shall be copies of the official documents signed by the representatives authorized by the Chinese and foreign parties. If foreign language versions of the above documents have also been signed, copies of such documents shall be submitted at the same time. However Chinese documents shall be taken as the standard during submission for examination and approval. Where the provisions concerning the extent of the right of examination and approval stipulate that an application for a certificate of approval must be submitted to the Ministry of Foreign Economic Relations and Trade (hereinafter referred to as the MOFERT), ten copies of each document as required by the above provisions shall be submitted to the MCFERT. The MCFERT, within a month of receiving the above documents, will issue a certificate of approval on behalf of the MOFERT or will submit the documents to the MOFERT for direct issuance of a certificate of approval. Should the submitted documents not comply with regulations, comments are to be made and the application returned to the applicant within a month.

(4) Application for a business license

The Chinese party to a joint venture shall, in accordance with the Measures of the People's Republic of China on the Administration of the Registration of Sino-foreign Joint Equity Ventures<'1>, go through registration procedures by presenting the certificate of approval to the Shanghai Municipal Administration for Industry and Commerce within a month of receiving the said certificate of approval. The date of the establishment of the joint venture will be the date of issuance of the business license.

(5) Extent of the right to examine and approve the establishment of a joint venture

a. Where the total investment of either a manufacturing or non-manufacturing type project is not in excess of $ US5 million, where the construction, expansion or renovation of factory buildings is not required, and where the joint venture is able to arrange its own supply of energy resources, raw materials and product sales, as well as achieve a balance of foreign exchange income and expenditure, after the project proposal has been approved by MCFERT, the feasibility study report, the contract, the articles of association and other relevant documents will be examined and approved by the authorized bureau (district or count for projects in the respective area under $ US2 million) and at the same time details will be filed with the MCFERT and copies sent to the MPC and various relevant commissions and offices in charge. Certificates of approval will be issued by the MCFERT on behalf of the MOFERT.

b. Where the total investment of a manufacturing project is over $ US5 million but less than $ US30 million or is less than $ US5 million but capital construction is required, and where energy and raw material supplies, product sales and the project's foreign exchange balance requirements can be arranged in Shanghai, the feasibility study report and the initialled agreement, contract and articles of association, after being examined and written comments being made by the bureau (district or county for projects in the respective area over $ US2 million but less than $ US30 million) shall all be submitted to the MCFERT and copies sent to the MPC and the commissions and offices in charge.0 Examination and approval will be carried out by the MCFERT, in conjunction with the MPC and other relevant departments. Certificates of approval will be issued by the MCFERT on behalf of the MOFERT.

c. Where the total investment of a manufacturing project is over $ US30 million the project proposal, feasibility study report and the initialled agreement, contract and draft articles of association and other documents shall be submitted by the bureau (district or county) in charge to the MCFERT and the MPC and copies will be sent to various commissions and offices in charge and then, after being commented upon, the documents shall be submitted to the State Planning Commission and the MOFERT for examination and approval, and at the same time to the relevant departments and commissions of the State Council. Certificates of approval will be issued by the MOFERT.

d. Where the total investment of a non-manufacturing type project which does not require State assistance to achieve an overall balance is over $ US5 million, its feasibility study report and initialled agreement, contract and draft articles of association and other relevant documents, after being commented upon by the bureau (district or county if the project in the respective area is over $ US2 million) in charge, shall all be submitted to the MCFERT and copies sent to the MPC and the commissions and offices in charge. Examination and approval will be carried out by the MCFERT, in conjunction with the MPC and other relevant departments. Certificates of approval will be issued by the MCFERT on behalf of the MOFERT.

The MCFERT or its authorized examining and approving unit, within a month of receiving the submitted documents, shall issue an official response or submit documents with written comments to a higher unit and send written notification to the applicant. In cases where an official response or written notification has not been issued upon the expiry of the one month limit, the documents will be deemed to be approved automatically and the relevant units may proceed with procedures for the next stage.

(6) The involvement of consultants, agents and witnesses in a project

After a project has been approved, the bureau (district or county) in charge shall nominate a person(s) to be in charge of the project and shall organize a work team in which persons familiar with production technology and financial business have been included order to commence work with the foreign party.0 If the unit in charge has difficulties in carrying out such work, it may engage a Municipal foreign economic relations and trade unit as a consultant or agent for the project.

After being commissioned by the unit in charge the consultancy/agency unit shall undertake the following work:

a. To introduce the commissioning unit to the policies, laws, decrees and regulations concerning the use of foreign capital, matters requiring attention during negotiations with foreigners and relevant provisions governing procedures for project discussion, examination and approval;

b. To arrange on behalf of the commissioning unit invitation and reception of foreign parties, translators competent in commercial language, accommodation, transport and places for the negotiation to be held;

c. To provide guidance to the unit in charge with regard to making plans for the negotiations and studying negotiations tactics and assisting the unit in charge to be well prepared with regard to all matters involved with the negotiations and the signing of agreements;

d. To provide guidance to the commissioning unit with regard to the preparation and submission of a feasibility study report and the drafting of the Chinese party's version of the agreement, contract and articles of association;

e. To take part in negotiations with the foreign party and assist the commissioning unit in the prompt examination of finance and law related matters which are raised during the negotiations. The unit in charge, however, remains the chief negotiator in negotiations with foreign parties. The consultancy/agency unit has the right to make suggestions but not decisions. Should different views over important principles exist, the matter shall be reported immediately to the MCFERT.

All consultancy/agency units shall train and be manned by lawyers and certified public accountants trained in the field of foreign economics. Details of persons who are qualified as lawyers and certified public accountants in the field of foreign economics must be filed with the MCFERT. Until such time as the above conditions are municipal Certified Public Accountants Office, the Shanghai Municipal able to be met, all consultancy/agency units shall engage the Shanghai Foreign Economic Relations Law Office, the Legal Consultancy Office of the China Council for the Promotion of International Trade, Shanghai Branch, or other units approved by the MCFERT to undertake economic and legal consultancy work.

In the case of all foreign investment projects with a total investment of over $ US5 million, or other important projects so designated by the MCFERT, regardless of whether or not the unit in charge will handle foreign related matters by themselves or commission a consultancy/agency unit to do so. The unit in charge or the consultancy/agency unit must engage the above-mentioned Accountants Office, Law Office, Legal Consultancy Office, or other units as approved by the MCFERT to undertake the project's consultancy work. The project consultant shall take part in negotiations with foreign parties, act efficiently as an economic and legal adviser for the commissioning unit, provide guidance to and participate in the preparation of the feasibility study report, provide guidance or draft the Chinese party's proposed version of the agreement, contract and articles of association and also take responsibility for the feasibility, legal rationality and legality of those documents. When submitting the above-mentioned documents, the project consultant must witness them and make separate signed, written documents. When submitting the above-mentioned documents, the project consultant must witness them and make separate signed, written comments on both economic and legal aspects, or otherwise the documents will not be examined and approved by the MCFERT.

Should the commissioning unit and the witnessing unit have different views over some matters, the commissioning unit has the right to make decisions while the witnessing unit may record its own suggestions on the documents to be submitted.0 The final decision will be made by the MCFERT.

Where the total investment is less than $ US5 million and the bureau (district or county) in charge is authorized to carry out the examination and approval of the project, the bureau (district or county) in charge will decide whether to engage the Accountant Office or the Law Office as mentioned above.

II.0 SINO-FOREIGN CO-OPERATIVE VENTURES

Until the promulgation and implementation of new regulations, the procedures for examination and approval of Sino-foreign joint co-operative enterprises to be established in Shanghai Municipality may be handled with reference to the procedures for discussion, examination and approval of Sino-foreign joint equity ventures.

III. SELF-OPERATED ENTERPRISES ESTABLISHED BY FOREIGN INVESTORS

(1) Commissioning of the application for commencement of operations and submission of the project proposal

When establishing self-operated enterprises (hereinafter referred to as foreign investment enterprises) within Shanghai Municipality, foreign investors may commission foreign economic relations and trade units in Shanghai to handle applications for the commencement of operations on their behalf.

The commissioned unit shall be responsible for introducing the foreign investors to matters such as the Tax Law, industrial and commercial registration, supply and sales distribution channels, foreign exchange control and other relevant Chinese laws, decrees, rules and regulations concerning the establishment of foreign investment enterprises, and also introducing the foreign party to the relevant Municipal departments in charge with whom they may wish to carry out discussions.

After a foreign investor has decided to establish a foreign investment enterprises in Shanghai, the foreign investor will provide the commissioned unit with a written power of attorney.0 Having consulted with the departments in charge of industries with regard to the initial implementation of detailed matters such as land use, labor force arrangements, supplies, insurance, transportation and environment protection, the commissioned unit will submit the project proposal to the MCFERT in triplicate and send a copy to the MPC and the relevant commissions and offices.

After the project proposal has been received, the MCFERT will study it in conjunction with the MPC and the relevant commissions and offices and issue an official response within a month which will then be passed onto the foreign investor by the commissioned unit.

(2) Submission of documents concerned with an enterprise's application to commence operations

After the MCFERT's approval and comments have been received through the commissioned unit, the foreign investor, with the assistance of the commissioned unit, will prepare and submit ten copies of each of the following documents to the MCFERT:

a. A letter of application for the establishment of a foreign investment enterprise, with the foreign investor's certificate of legal person or personal identification card attached;

b. The feasibility study report of the project to be established by the foreign investment enterprise;

c. The enterprise's articles of association;

d. All relevant agreements initialled with relevant Chinese parties;

e. A list of persons selected as the Chairman, Vice Chairman and Directors of the Board, the General Manager, Deputy General Manager, Chief Engineer, Chief Accountant and other senior executives; and

f. The power of attorney issued to the commissioned unit by the foreign investor.

The above-mentioned documents shall be submitted in Chinese. Should foreign language versions also be available they shall be submitted at the same time. However the Chinese documents shall be taken as standard during submission for examination and approval.

When submitting the above six categories of documents, the commissioned unit shall, in addition, attach the written comments of the commissioned unit and the departments in charge of industries with regard to the establishment of the enterprise.

After the above documents have been received, the MCFERT will study them in conjunction with the MPC and the relevant commissions and offices and a decision of approval or non-approval will be made within a month.0 A certificate of approval will be issued immediately to those projects approved. Where a certificate of approval of a project has to be issued by the MOFERT, the project shall be submitted to the MOFERT by the MCFERT.

(3) Handling of industrial and commercial registration

Within a month of receiving a certificate of approval, the foreign investor shall present the certificate of approval and go through registration procedures and obtain a business license from the Municipal Administration for Industry and Commerce. The foreign investor may also commission the original commissioned unit to go through the registration procedures on its behalf.

The date on which a business license has been issued to the foreign investment enterprises is the date of the establishment of the foreign investment enterprises.

IV. These Provisional Regulations also apply to investment projects involving Hong Kong, Macao, Taiwan and overseas Chinese investors.