Regulations of Shanghai Municipality on Examination and Approval of Foreign-Invested Enterprises

(Adopted on August 23, 1996 at the 29th Session of the Standing Committee of the Tenth Municipal People's Congress of Shanghai)

Chapter I General Provisions

Article 1 For the purpose of opening further to the outside world, of promoting international economic and technical cooperation and of facilitating the establishment of foreign-invested enterprises in Shanghai by Chinese and foreign investors , the present Regulations are formulated in accordance with the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures, the law of the People's Republic of China on Chinese-Foreign Contractual Cooperative Joint Ventures and the law of the People's Republic of China on Foreign Wholly-Owned Enterprises and other relevant laws and regulations and with due consideration being given to the specific conditions in Shanghai Municipality.

Article 2 The foreign-invested enterprises mentioned in the present Regulations refer to Chinese-foreign equity joint ventures, Chinese-foreign contractual cooperative joint ventures and foreign wholly-owned
enterprises. The present Regulations are applicable to the establishment of foreign-invested enterprises in Shanghai and to the revision of contracts and articles of association after establishment.

Article 3 Foreign investors are encouraged to establish foreign-invested enterprises of the following types in Shanghai:

(1) Those that bring in advanced technology and equipment or scientific management;

(2) Those that are capable of upgrading present products and tapping international markets;

(3) Those that help promote the modernization of Shanghai. Application for the establishment of foreign-invested enterprises shall not be approved under any of the following circumstances:

(a) If state security is threatened and the well-being of the public jeopardized;

(b) If the environment or human physical health is threatened;

(c) If existing laws and regulations are contravened.

Article 4 The Shanghai Municipal People's Government ( hereinafter abbreviated as "the Municipal People's Government") shall decide and make public targeted fields for guiding foreign investment in accordance with the provisions relating to targeted fields for guiding foreign investment and the guide catalogues of industries for foreign investment published by the State and with due consideration being given to the specific conditions in Shanghai Municipality .

Chinese and foreign investors shall decide on their investment projects in accordance with the targeted fields for guiding foreign investment and the guide catalogues of industries for foreign investment published by the Municipal People's Government.

Article 5 The Shanghai Municipal Foreign Investment Commission (hereinafter abbreviated as SFIC) shall be in charge of the examination and approval of foreign-invested enterprises in Shanghai. The SFIC, the Pudong New Area Administration, the Waigaoqiao Free Trade Zone Administrative Committee, the county people's governments and other relevant authorized departments of the Municipal People's Government (hereinafter referred to one and all as examination and approval authorities) shall exercise their power to examine and approve the establishment of foreign-invested enterprises in accordance with what authority has respectively been delegated to each of them by the State or the Municipality. Any project that according to law and regulations is subject to examination and approval by relevant authorized departments of the State Council must as a first step undergo a preliminary examination by the SFIC in conjunction with the Shanghai Municipal Planning Commission or the Shanghai Municipal Economic Commission before submission to relevant higher authorities.

Chapter II The Establishment of Foreign-Invested Enterprises

Section 1 Chinese-Foreign Equity Joint Ventures

Article 6 After the Chinese and foreign investors concerned have confirmed their intention to form a Chinese-foreign equity joint venture, they shall make a preliminary feasibility study of the proposed project, with the Chinese Party seeing to the preparation of a project proposal and the requisite appendices and to the submission of them to a relevant examination and approval authorities for approval. Copies of the project proposal and the requisite appendices shall be made and submitted to other relevant departments at the same time. The relevant departments shall, within ten days after the date of receipt of the project proposal and the requisite appendices ,give an official opinion on the basis of their preliminary examination and submit it to the examination and approval authorities concerned.

Article 7 The examination and approval authorities concerned shall, within twenty days after the date of receipt of the project proposal and the requisite appendices, make a decision on whether or not to
grant approval and send copies of its decision to the relevant departments. Examination and approval authorities other than the SFIC shall send a copy of their decision to the SFIC at the same time that it sends copies to the relevant departments.

Article 8 An approved project proposal , as the basis for making the feasibility report, shall have a period of validity of one year. If for some special reasons the period of validity needs to be extended , the Chinese party shall submit an application for extension to the original examination and approval authorities not less than thirty days before the expiry. When approval is granted, the period of validity may be extended, but the extension must not exceed six months.

Article 9 After obtaining approval for the project proposal, the Chinese and foreign investors concerned shall go through the procedures of making an application for preliminary examination and approval of the name of the equity joint venture with the administrative department in charge of industry and commerce.

Article 10 After obtaining approval for the project proposal, the Chinese and foreign investors concerned shall arrange for the settlement, one by one, of such matters as fund raising, location, technologies to use, equipment, raw materials supply, foreign exchange balance, auxiliaries to urban infrastructure, etc.; shall make an analysis and estimate of marketing, site selection and planning, environmental protection, labor safety, economic returns, etc. ; and on such a basis shall work together for a feasibility report, a joint-venture contract and the articles of association and submit these for approval by the relevant examination and approval authority. If the Chinese and foreign investors concerned use fixed assets, current assets, intangible assets and other types of assets in the form of their monetary worth as investment, an assessment shall be made of those assets according to relevant regulations of the State. If Certain contents in the feasibility report, the contract and the articles of association require prior examination by some relevant authorities according to the provisions of laws and regulations, approval by the said relevant authorities must first be obtained.

Article 11 The examination and approval authority concerned shall, within thirty days after the date of receipt of the feasibility report, the contract and the articles of association, make a decision on whether or not to grant approval.

Article 12 After obtaining approval for the feasibility report, the contract and the articles of association, the Chinese party shall bring the requisite documents to the examination and approval authorities concerned for the issuance of a certificate of approval. The examination and approval authorities concerned shall issue the certificate of approval within three days after the date of receipt of the requisite documents.

Section 2?Chinese-Foreign Contractual Cooperative Joint Ventures

Article 13 The application and examination/approval for the establishment of a Chinese-foreign contractual cooperative joint venture by Chinese and foreign investors shall be carried out by reference to the stipulations of Articles 6 to 12 of the present Regulations.

Section 3 Foreign Wholly-Owned Enterprises

Article 14 The application and Examination/approval for the establishment of foreign wholly-owned enterprises by foreign investors shall be carried out by reference to the stipulations of Article 6 to 12 of the present Regulations. For the establishment of foreign wholly-owned enterprises, foreign investors shall, according to the relevant regulations of the State, authorize a proper qualified consulting agency to handle matters of application, submission for examination and approval, etc..

Chapter III Revision of Contracts and Articles of Association of Foreign-Invested Enterprises

Section 1 Chinese-Foreign Equity Joint Ventures

Article 15 In case one party to an equity joint venture intends to assign all or part of its investment to the other party or parties, a consensus must be reached and a resolution adopted at the meeting of the board of directors of the enterprise concerned before an application is submitted to the original examination and approval authorities for approval. If one party to an equity joint venture intends to assign all or part of its investment to a third party unconnected with the equity joint venture concerned, a consent in writing by the other party or parties concerned must be obtained and a consensus reached and resolution adopted at the meeting of the board of directors of the enterprise concerned before an application is submitted to the original examination and approval authorities for approval. After the application for assignment of investment is approved , the parties to the joint venture concerned shall make timely revisions in the contract and the articles of association of their enterprise. The revised contract and articles of association must then be submitted to the original examination and approval authorities for approval.

Article 16 In case an equity joint venture intends to increase its registered capital, a consensus must be reached and a resolution adopted at the meeting of the board of directors of the enterprise concerned before an application is submitted to the original examination and approval authorities for approval. If approval for the proposed increase in registered capital is beyond the limits of authority of the original examination and approval authorities, that authorities shall refer the case to a higher-level examination and approval authorities for approval. An equity joint venture under normal circumstances may not out back its registered capital during the contract period of operations. If there should indeed be justifiable reasons for a out-back , an application must be submitted to the original examination and approval authorities for approval in accordance with the relevant regulations of the State.

Article 17 If an equity joint venture intends to alter its scope of business, an application may be submitted to the original examination and approval authorities for approval on condition that the parties to the joint venture have paid in according to schedule the full sum of their respective committed share of the registered capital. If approval for the proposed alteration in scope of business is beyond the limits of authority of the original examination and approval authorities, that authority shall refer the case to a higher-level examination and approval authorities for approval.

Article 18 If the parties to an equity joint venture share a common wish for an extension of the duration of their joint venture, an application must be submitted to the original examination and approval authorities for approval not less than six months before the expiry of the term. If the parties to an equity joint venture share a common wish for the termination of their contract before its date of expiry, a consensus must be reached and a resolution adopted at the meeting of the board of directors of the enterprise concerned before an application is submitted to the original examination and approval authorities for approval. If in conformity with the relevant regulations of the State or with what has already been agreed upon in the existing contract a party or some parties to an equity joint venture call for the termination of the contract before its date of expiry, an application must be submitted to the original examination and approval authorities for approval. After the dissolution of an equity joint venture is approved , liquidation must be carried out according to the relevant laws and regulations.

Article 19 If a change in partnership in an equity joint venture entails another change such as that in registered capital or scope of business or duration or in more than one such item alone, an application must
first be submitted for a change in partnership. When this has been approved by the original examination and approval authorities, an application can then be submitted for other changes.

Article 20 Revisions of the contract and the articles of association of an equity joint venture other than those stipulated in Articles 15 to 19 of the present Regulations shall be handled according to the relevant laws and regulations.

Article 21 The examination and approval authorities concerned shall make a decision on whether or not to approve an application for making a revision or revisions as specified in Articles 15 to 19 within thirty days after the date of receipt of the application and other requisite appendices.

Section 2 Chinese-Foreign Contractual Cooperative Joint Ventures

Article 22 The revision of contracts and articles of association of Chinese-foreign contractual cooperative joint ventures shall be handled by reference to the stipulations of Articles 15 to 21 of the present Regulations.

Section 3 Foreign Wholly-Owned Enterprises

Article 23 The revision of articles of association of foreign wholly-owned enterprises shall be handled by reference to the stipulations of Articles 15 to 21 of the present Regulations.

Chapter IV Legal Liability

Article 24 If Chinese and foreign investors withhold the truth or resort to deception when they apply for the establishment of a foreign-invested enterprise, for making revisions in the contract and the articles of
association, or for termination of a contract before its date of expiry, the examination and approval authorities concerned may reject their application, decide against approval of the application or revoke the certificate of approval. Where consequences are entailed, the relevant department(s) in charge shall deal with them according to law.

Article 25 If in the course of executing its duties of examination and approval an examination and approval authorities and/or a relevant department in charge violate laws, regulations and the stipulations f the present Regulations, they shall hold legal liability for their violation(s) by law.

Article 26 If a staff member of an examination and approval authorities or of a relevant department in charge neglects his/her duties, engages in malpractice to serve friends, relatives or himself/herself, or solicits and accepts bribes, administrative disciplinary measures shall be taken against him/her. Anyone whose misdeed constitutes a crime shall be investigated and punished under the criminal law.

Article 27 If Chinese and foreign investors or foreign-invested enterprises consider unacceptable the decision f an examination and approval authorities or the specific administrative behavior of a relevant department in charge, they may apply for a reconsideration of their case or take administrative proceedings according to the stipulations of the Regulations on Administrative Reconsideration and the Law of the People's Republic of China on Administrative Proceedings.

Chapter V Supplementary Provisions

Article 28 Chinese and foreign investors who intend to establish in the Municipality enterprises of other investment forms shall go through examination and approval procedures according to the relevant stipulations of the State regulations and of the present Regulations.

Article 29 Chinese and foreign investors shall register with the administrative department in charge of industry and commerce and obtain a business license within thirty days after the date of receipt of the certificate of approval for the establishment of a foreign-invested enterprise. The date of signing and issuance of the business license is the official birth day of the enterprise. A foreign-invested enterprise shall go to departments in charge of taxation, customs, foreign exchange control, etc. to complete required procedures within thirty days after the date of receipt of the business license.

Article 30 The establishment of businesses in the Municipality by companies, enterprises and other economic entities or individuals in Hong Kong, Macao and Taiwan or by Chinese citizens who are permanent residents of foreign countries shall be dealt with by reference to the stipulations of the present Regulations.

Article 31 The SFIC shall formulate rules for implementation the basis of the present Regulations for submission to the Municipal People's Government for approval. When approval is gained, the said rules for implementation shall be enforced. The SFIC is responsible for interpreting the present Regulations in their practical applications.

Article 32 The present Regulations shall become effective on October 1, 1996 whereupon the Provisions of Shanghai Municipality on Application and Approval of Chinese-Foreign Equity Joint Ventures, Chinese-Foreign Contractual Cooperative Joint Ventures and Foreign Wholly-Owned Enterprises adopted on June 20, 1986 at the 22nd Session of the Standing Committee of the Eighth Municipal People's Congress of Shanghai is annulled.

(Translator's Note) Formerly translated as Provisions of Shanghai Municipality on Application and Approval of Chinese-Foreign Equity Joint Ventures, Chinese-Foreign Cooperative Ventures and Enterprises Operated Exclusively with Foreign Capital.