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 (THE TRIAL IMPLEMENTATION)

(Issued on July 1, 1984 by the Shanghai
Municipal People's Government)

 

SUBJECT: EQUITY JOINT VENTURES

ISSUING-DEPT: SHANGHAI MUNICIPALITY

ISSUE-DATE: 07/01/1984

IMPLEMENT-DATE: 07/01/1984

LENGTH: 2284 words

TEXT:

These Regulations on discussion and examination and approval procedures concerning the establishment of Sino-foreign joint equity ventures (hereinafter referred to as joint ventures) and the acceptance of self-operated enterprises invested in and established by foreign business (hereinafter referred to as foreign investment enterprises) are temporarily formulated in order to further implement the spirit of the Notice of the Central Committee of the Communist Party of China and the State Council Concerning the "Summary of the Forum of a Number of Coastal Cities" and accelerate the development of economic construction, in accordance with the actual circumstances in Shanghai Municipality.

[Article 1] The Shanghai Municipal Planning Commission (hereinafter referred to as the MPC) together with other relevant departments will, in accordance with the development objectives of the overall municipal plan and medium and long term plans, formulate a Programme for Shanghai Municipality for the Utilisation of Foreign Capital for Industries with Development Priority and Other Important Projects to be used as the basis of discussions with foreigners regarding the establishment of joint ventures or foreign investment enterprises.

[Article 2] Matters concerning discussions and examination and approval with regard to the establishment of joint ventures and foreign investment enterprises in Shanghai will be handled by the relevant departments, as classified by the Shanghai Municipal Commission for Foreign Economic Relations and Trade (hereinafter referred to as MCFERT).  The various relevant departments shall carry out their work function, clearly identify their tasks as being separate from that of the MCFERT and co-operate with each other to simplify procedures and enhance their efficiency.

A system of joint administrative meetings to discuss the utilisation of foreign investment in Shanghai Municipality will be set up to carry out supervision, examination, co-ordination and arbitration.  The administrative meetings will be chaired by a Vice Mayor nominated by the Municipal People's Government and persons in charge of the relevant departments will attend the meetings.  The administrative office will be established within the MCFERT.

[Article 3] Business discussions concerning the establishment of joint ventures in general may be divided into two stages, preliminary and substantive discussions.

All district and county people's governments, departments and units may, in accordance with the above-mentioned programme formulated by the MCFERT in conjunction with other relevant departments, initiate or accept preliminary discussions with foreign investors with regard to the establishment of a joint venture and at the same time initiate an investigation into the credit-worthiness of the foreign investor.

If both the Chinese and foreign parties, based upon these preliminary discussions and through comparison and selection, see the possibility of the establishment of a joint venture, a preliminary feasibility study and a project proposal for the establishment of the joint venture will be prepared by the Chinese party.

After the project proposal has been approved, both Chinese and foreign parties may engage in substantive discussions on production and operation objectives, the scale of the enterprise, the total investment, the equity proportion of both parties, technology transfer, equipment prices, rights and obligations of both parties and other conditions; and at the same time technical and financial feasibility study reports concerning the site, factory buildings, communications and transportation, energy and raw material supplies, domestic and export sales ratios, foreign exchange balance, financing measures, loan repayments and other matters shall be prepared.  If both parties believe that the project is technically and economically viable and have reached basic agreement over terms and conditions, they may initial a draft contract for the establishment of a joint venture and prepare draft articles of association for the contract enterprise.

After th feasibility study report and the initialled contract and draft articles of association have been examined and approved, the two parties may then sign a formal contract, establish a Board of

Directors, adopt the articles of association and submit the relevant documents to the examining and approving body for a certificate of approval for the establishment of the joint venture.  The Shanghai Municipal Administration for Industry and Commerce, based upon the certificate of approval for the establishment of a joint venture, the contract and articles of association will carry out registration procedures and issue a business licence.

The date of the establishment of the joint venture will be the date of issuance of the business licence.

Regardless of whether the discussions were preliminary or substantive, within two days of each discussion the units involved shall complete a "Discussion Details" form and submit it to the department in charge, and a copy 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.

[Article 4] Extent of the right to examine and approve the establishment of a joint venture:

(1) Where the total investment of either a manufacturing or non-manufacturing type joint venture is not in excess of $ US5 million, where the construction of a new factory building 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 the MCFERT. the feasibility study report. the contract, The articles of association and other relevant documents may be examined and approved by the authorised bureau in charge, and will then be submitted to the MCFERT for a certificate of approval and the details filed with the MPC and other relevant departments.  Where the total investment of enterprises of a similar nature which are to be established by districts or counties is not in excess of $ US2 million, the enterprise's feasibility study report, contract, articles of association and other relevant documents may be examined and approved by the authorised district or county people's government, and then submitted to the MCFERT for a certificate of approval and the details filed with the MPC and other relevant departments.

(2) Where the total investment of a manufacturing project is over $ US5 million (over $ US2 million for a joint venture to be established by a district or county) but less than $ US30 million, where its products are urgently needed by the State, and the project's capital construction, energy and raw material supplies, and product sales can be arranged in Shanghai, and where the joint venture can achieve an overall balance of foreign exchange income and expenditure, the project proposal, the feasibility study report and the initialled contract and draft articles of association, after being examined and commented upon by the relevant bureau in charge, shall all be submitted to the MCFERT and copies sent to the MPC and other relevant departments, all of which will carry out examination and approval of the said documents in order to issue a certificate of approval and the details will be filed with the State Planning Commission and other relevant ministries and commissions of the State Council.

(3) Where a manufacturing project exceeds the scope outlined above, the project proposal, the feasibility study report and the initialled contract and draft articles of association, after being examined and commented upon by the MCFERT, the MPC and other relevant departments in writing, shall all be submitted to the Ministry of Foreign Economic Relations and Trade for approval and issuance of a certificate of approval, and at the same time to the State Planning Commission and other relevant ministries and commissions of the State Council.

(4) Non-manufacturing type projects with a total investment of more than $ US5 million which do not require State assistance to achieve an overall balance will all be handled in accordance with the procedures for approval stipulated in para. (2) of this Article.

[Article 5] Where a project is subject to examination and approval by the MCFERT or the Ministry of Foreign Economic Relations and Trade and requires the issuing of a certificate of approval, the bureau in charge shall submit the following official documents:

(1) 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;

(2) The approved project proposal of the joint venture;

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

(4) The contract and the articles of association signed by the representatives authorised by each party to the joint venture;

(5) A list of persons who have been selected as Board Directors, together with the Chairman and Vice Chairman of the Board of Directors of the joint venture;

(6) Signed, written comments of the bureau in charge or the MCFERT after their examination.

The MCFERT, within a month of receiving the above documents, shall issue an official response or submit the documents with written comments to the Ministry of Foreign Economic Relations and Trade, and also send written notification to the applicant.  With regard to all projects which are within the extent of the MCFERT's right of approval, if an official response 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.

[Article 6] Foreign investors wish to establish foreign investment enterprises in Shanghai, may commission investment trust companies, development companies or other relevant units in Shanghai to go through the application procedures on their behalf.  It is the responsibility of the commissioned unit to introduce the relevant State and the Municipal laws, decrees and important regulations and procedures to the foreign investor and introduce the foreign investor to the relevant department in charge in Shanghai to carry out discussions.  If both parties share relatively similar views, the foreign investor may provide the commissioned unit with a power of attorney.  The commissioned unit shall assist the department in charge to put forward a project proposal.  After the project proposal has been approved the commissioned unit will assist the department in charge to carry out substantive discussions with the foreign investor with regard to land use, the construction of factory buildings, labour arrangements, supply and distribution channels, production co-operation and other specific matter.  On the basis of these discussions, foreign investors will formally decide the investment plans and present application forms for the establishment of a foreign investment enterprise which will be submitted, with written comments, to the higher authorities by the department in charge and the commissioned unit.  Foreign investors, within a month of receiving a certificate of approval for the establishment of a foreign investment enterprise, shall carry out registration procedures with the Municipal Administration for Industry and Commerce in order to obtain a business licence.

The extent of the right to examine and approve the establishment of a foreign investment enterprise is the same as that stipulated in Article 4 of these provisional Regulations.

[Article 7] With regard to the establishment of joint ventures or the acceptance of foreign investment enterprises for establishment, the department in charge shall direct the principal unit involved to set up a team of skilled negotiators and select a project manager to organise and take responsibility for negotiations with the foreign investors, as well as for necessary investigation and study abroad, cadre training and other relevant matters.  After the project has been approved the project manager will be in charge of the preparatory work; and after the start-up of production or commencement of operations of the enterprise, he/she will undertake the position of manager or deputy manager or liaison officer for the foreign investment enterprise, being responsible for the implementation of or supervision over the implementation of the relevant provisions of the contract and articles of association.

[Article 8] In preparing the project proposal, the feasibility study report, and the contract and draft articles of association, the principal unit involved shall engage a Chinese or foreign consultancy service body to be involved in research and provide advice on such matters as technology, economics, taxation and law.

[Article 9] Discussions and examination and approval procedures for Sino-foreign joint co-operative projects, and joint equity and co-operative enterprises and self-operated enterprises to be established in Shanghai by Hong Kong, Macao and overseas Chinese investors may be handled in accordance with these provisional Regulations.

[Article 10] The right to interpret these provisional Regulations resides with the Shanghai MCFERT.

[Article 11] These provisional Regulations shall come into force on the date of promulgation.