DETAILED RULES AND REGULATIONS FOR
THE IMPLEMENTATION OF THE LAW OF THE PEOPLE'S REPUBLIC
OF CHINA ON SINO-FOREIGN CONTRACTUAL COOPERATIVE ENTERPRISES
(Effective September
4, 1 995 )
(Unofficial Translation)
Chapter I General Provisions
Article 1 These Detailed
Rules and Regulations are formulated in accordance
with the Law of the People's Republic of China on
Sino-Foreign Contractual Cooperative Enterprises.
Article 2 Sino-foreign
Contractual Cooperative Enterprises (hereinafter referred
to as CCE) established within the territory of the
People's Republic of China shall comply with the development
policies and industrial policies of the State and
follow the State's regulations on direction guide
to foreign investments.
Article 3 CCE shall have
the lawful right to do business and manage its operations
independently within the scope pursuant to the approved
CCE agreement, contract and the articles of association
and shall not be interfered by other organizations
and individuals.
Article 4 CCE includes
the CCE with the status of a legal person according
to law or without the status of a legal person. CCE
without the status of a legal person shall comply
with the provisions in Chapter IX of these Detailed
Rules.
Article 5 The department
in charge of the CCE shall be the department in Charge
of the Chinese Partner. When CCE has two or more Chinese
partners, the examing and approving authorities may
consult with the relevant departments to ascertain
the department in charge of that CCE, unless otherwise
stipulated in law and administrative regulations.
The department in charge
of the CCE shall coordinate the affairs of the CCE
and provide assistance to the CCE in accordance with
law.
Chapter II Establishment
of CCE
Article 6 The establishment
of CCE is subject to examination and approval by the
Ministry of Foreign Trade and Economic Cooperation
(MOFTEC)or the departments and the local People's
government authorized by the State Council.
The establishment of
CCE under the following situations shall be examined
and approved by the departments or the local People's
government authorized by the State Council:
(1) Total investment
within the approval limit, which the departments or
the local People's government authorized by the State
Council may approve, as stipulated by the State Council;
(2) Self-funding and
without the need of balancing of the infrastructure
and production conditions by the State ;
(3) The export of products
is not subject to export licenses and export quotas
to be issued by the relevant department in charge
of the State, or even though expert licenses and export
quotas are required, approval has been obtained from
the State's relevant department in charge before submission
of project proposal;
(4) Other circumstances
for the departments or the local People's government
authorized by the State Council to examine and approve
as stipulated by the law and administrative regulations.
Article 7 The Chinese
partner shall submit following documents to the examining
and approving authorities for the establishment of
CCE :
(1) Project proposal
for the establishment of the CCE and the document
of examination and agreement from the department in
charge;
(2) The feasibility study
report jointly drawn up by the cooperative parties
and the document of examination and agreement from
the department in charge;
(3) Agreement, contract
and articles of association of the CCE signed by legal
representatives or authorized representatives of the
cooperative parties;
(4) The business licenses
or certificates of incorporation and registration
of the cooperative parties, certificate of creditability
and valid certificates of legal representatives; valid
documents certifying his identity, resume and creditability
when the foreign partner is a natural person;
(5) List of chairman,
vice chairman, directors, or the head, deputy head,
members of the joint management committee of the CCE
determined after consultation between the cooperative
parties;
(6) Other documents requested
by the examining and approving authorities.
All the above documents,
except for documents under item (4) to be provided
by the foreign partner, shall be submitted in Chinese.
Documents(2),(3)and (5) can be submitted concurrently
in a foreign language being agreed upon by the cooperative
parties.
The examing and approving
authorities shall decide whether to approve or not
within 45 days upon receipt of all the required documents.
Should any incompleteness or inappropriateness be
found in any of the submitted documents, the examing
and approving authorities have the right to demand
submission of missing information or an amendment
by the cooperative parties within a prescribed time
limit.
Article 8 If a CCE is
approved by MOFTEC or a department authorized by the
State Council, the approval certificate shall be issued
by the MOFTEC.
If the establishment
of a CCE is approved by the local People's government
authorized by the State Council, the approval documents
shall be issued by the relevant local People's government
and shall, within 30 days of the approval date, be
submitted to the MOFTEC for records. The approved
CCE shall perform the registration procedures with
and obtain Business License from the authorities for
the administration of industry and commerce.
Article 9 Application
to establish CCE shall not be granted approval under
any one of the following circumstances:
(1) Detriment to the
State's sovereignty or to the social public interests;
(2) Endanger the States
security;
(3) Create pollution
and damage to the environment;
(4) Violate the laws,
administrative regulations or the State's industrial
policies.
Article 1O The CCE agreement
stipulated in these Detailed Rules refers to the written
document regarding the principles and major items
for the establishment of the CCE as unanimously agreed
by the cooperative parties.
The CCE contract stipulated
in these Detailed Rules refers to the written document
regarding the mutual rights and responsibilities for
the establishment of the CCE as unanimously agreed
by the cooperative parties.
The CCE articles of association
stipulated in these Detailed Rules refers to the written
documents regarding CCE's organization principle,
operation and management method, etc., in accordance
with the CCE contract as unanimously agreed by the
cooperative parties.
When the contents of
the CCE agreement and the articles of association
are inconsistent with those of the contract, the CCE
contract shall prevail.
The cooperative parties
may enter into no CCE agreement.
Article 11 CCE agreement,
contract and articles of association shall come into
force on the date the approval document is issued
by the examining and approving authorities. During
the cooperation term, approval shall be obtained from
the examining and approving authorities when there
are significant changes in the CCE agreement, contract
and articles of association.
Article 12 The CCE contract
shall include the following contents :
(l) The names, the places
of registration, the address of the cooperative parties,
and the names, occupation and nationalities of the
legal representatives thereof (the name, nationality
and residential address when the foreign partner is
a natural person);
(2) The name, address,
business scope of the CCE;
(3) Total investment
and registered capital of the CCE, forms and time
limit for capital to the contributed or appropriate
conditions to be provided by the cooperative parties,
(4) Assignment of capital
or cooperative conditions by the cooperative parties
;
(5) Profit or products
distribution, risk or loss sharing between the cooperative
parties;
(6) The composition of
the board of directors or joint management committee
of the CCE and the allocation of the quota of directors
or joint management committee members. The responsibilities
and the method of the appointment and dismissal of
the general manager and other senior management personnel
;
(7) The major production
facilities and technologies used and their sources;
(8) The arrangement of
products sold written and outside the territory of
the People's Republic of China;
(9) The arrangement for
receipts and payments in foreign exchange of the CCE
;
(10) The duration, dissolution
and liquidation of the CCE;
(11) The other responsibilities
and liabilities for breach of contract of the cooperative
parties;
(12) Finance, accounting
and auditing principles;
(13) Settlement of disputes
between the cooperative parties;
(14) Procedures for amendment
to the CCE contract.
Article 13 Articles of
association of the CCE shall include the following
contents :
(1) The name and address
of the CCE;
(2) The business scope
and cooperation duration of the CCE;
(3) The names, the places
of registration and address of the cooperative parties,
and the names, occupation nationalities of the legal
representatives thereof (the name, nationality and
residential address when the foreign partner is a
natural person) ;
(4) Total investment
and registered capital of the CCE, forms and time
limit for capital to be contributed or cooperative
conditions to be provided by the cooperative parties
;
(5) Profit or products
distribution, risk or loss sharing between the cooperative
parties,
(6) The composition,
authorities and rules for resolutions of the board
of directors on the joint management committee of
the CCE, the term of office of the directors of the
board or joint management committee members, and the
responsibilities of the chairman and deputy chairman
or the head or deputy head of the joint management
committee;
(7) The setting up, authorities
and rules for handling business of the management
office, the responsibilities and the method of the
appointment and dismissal of the general manager,
and other senior management personnel;
(8) The rules of labor
management such as employees' recruitment, training,
labor contract, wages, social security, welfare, occupational
safety and hygiene, etc. ;
(9) Finance, accounting
and auditing systems of the CCE;
(10) Ways for dissolution
and liquidation of the CCE;
(11) Procedures for amendment
to the articles of association of the CCE.
Chapter III Form of Organization
and Registered Capital
Article 14 The CCE which
obtained the status of a legal person shall be a limited
liability company. Unless the CCE contract stipulates
otherwise, the cooperative parties shall be liable
to the CCE to the extend of the respective capital
to be contributed or the cooperative conditions to
be provided.
The CCE shall be responsible
for its liabilities with all its assets.
Article 15 The total
investment of the CCE refers to the total sum of funds
required to be contributed, in accordance with the
production and operation scale stipulated in the CCE
contract and the articles of association.
Article 16 The registered
capital of the CCE refers to the sum of capital to
be contributed by the cooperative parties and registered
with the authorities for the administration of industry
and commerce for the establishment of the CCE.
Registered capital shall
be stated in Renminbi, and may be stated in a freely
convertible foreign currency as agreed by cooperative
parties.
The registered capital
of the CCE cannot be reduced during the term of the
cooperation. However, any reduction needed due to
changes in total investment and scale of production
operation, etc. , shall be subject to the approval
by the examing and approving authorities .
Chapter IV Investment,
Cooperative Conditions
Article 17 The cooperative
parties shall contribute capital into or provides
cooperative conditions to the CCE in accordance with
the stipulations of the relevant laws, administrative
regulations and the arrangement in the CCE contract.
Article 18 Capital to
be contributed or cooperative conditions to be provided
to the CCE by the cooperative parties can take the
form of cash, or property rights such as tangible
properties or industrial property rights, proprietary
technology, rights, land use rights, etc,
When the capital contribution
or cooperative conditions provided by the Chinese
partner is State-owned property, asset valuation shall
be performed in accordance with the provisions of
the relevant laws and administrative regulations.
The investment from the
foreign partner in the CCE that obtain the Chinese
legal person status by law generally shall not be
lower than 25% of the CCE's registered capital. The
detailed requirements for capital contributed or cooperative
conditions provided by cooperative parties in the
CCE without the status of legal person shall be regulated
by the MOFTEC.
Article 19 Cooperative
parties shall use their own properties or property
rights as capital contribution or cooperative conditions
and the said capital contribution or cooperative conditions
shall not be pledged under charge or any other form
of security.
Article 20 In accordance
with the production and operation needs of the CCE
and the provisions of the relevant laws and administrative
regulations, the cooperative parties shall stipulate
in the CCE's contract the time limit of capital contribution
or provision of cooperative conditions by the cooperative
parties to the CCE ,
If the cooperative parties
do not comply with the contribution of the capital
or provision of cooperative conditions as stipulated
in the CCE contract, the authorities for the administration
of industry and commerce shall set a time limit for
compliance. When the imperative parties do not comply
upon expiry of the time limit, the examing and approving
authorities shall rescind the approval certificate
of the CCE, the authorities for the administration
of industry and commerce
shall set a time limit
for compliance. When the cooperative parties do not
comply upon expiry of the time limit, the examing
and approving authorities shall rescind the approval
certificate of the CCE, the authorities for the administration
of industry and commerce shall revoke the CCE's business
license and announce to the public.
Article 21 The cooperative
party who does not contribute the capital or provide
the cooperative conditions according to the stipulations
the CCE contract, shall bear the liabilities for breach
of contract the other parties who contribute the capital
or provide the cooperative conditions according to
the provisions of the CCE contract.
Article 22 After the
capital has been contributed or the cooperative conditions
have been provided by the cooperative parties, a Chinese
certified public accountant shall verify and issue
a verification report and base on which the CCE shall
issue to the cooperative parties a certificate of
capital contribution. The certificate of capital contribution
shall include the following items:
(1) The name of the CCE
;
(2) The date of the establishment
of the CCE;
(3) The name of the cooperative
partners;
(4) The contents of the
capital contributed or the cooperative conditions
provided by the cooperative parties;
(5) The date when the
capital is contributed or cooperative conditions are
provided by the cooperative parties;
(6) The serial number
and date of issuance of the certificate of capital
contribution.
A copy of the verification
report shall be submitted to the examining and approving
authorities and the authorities for the administration
of industry and commerce.
Article 23 The assignment
of the whole or part of the interest in the CCE between
the cooperative parties or by one cooperative party
of the CCE to a third party shall obtain the written
consent of the other cooperative party(ies) and report
to the examining and approving authorities for approval.
The examining and approving
authorities shall decide whether to approve or disapprove
within 30 days upon receiving the relevant documents
of assignment.
Chapter V Organization
Article 24 A CCE shall
set up its board of directors or the joint management
committee. The board of directors or the joint management
committee is the authority of the CCE which shall
decide all major issues concerning the CCE according
to the provision of the CCE articles of association.
Article 25 The board
of directors or the joint management committee shall
consist of not less than three members. The allocation
of the quota of directors shall be ascertained through
consultation by the cooperative parties with reference
to the respective capital contributed and cooperative
conditions provided.
Article 26 The members
of the board of directors or the joint management
committee shall be appointed or dismissed by the respective
cooperative parties. The method of appointment of
the chairman and the vice chairman of the board of
director's or the head and the deputy head of the
joint management committee shall be stipulated in
the CCE articles of association. If the position of
the chairman of the board of directors or the head
of the joint management committee is held by one party
then the vice chairman of the board of directors or
deputy head of the joint management committee shall
be held by the other party.
Article 27 The term of
office for the directors or the joint committee members
shall be stipulated in the CCE articles of association,
but not exceed three years. Their term of office may
be renewed with the continuous appointment by the
appointing parties upon expiry.
Article 28 The board
of director's or the joint management committee meeting
shall be convened at least once a year. The meeting
shall be called and presided over by the chairman
or the head. Should the chairman or the head be unable
to exercise his responsibilities due to special reason,
he shall designate the vice chairman, deputy head
or the other directors or committee members to call
and preside over the meeting. A board of directors
or joint management committee meeting may be convened
based on a proposal made by more than one-third of
the directors or committee members.
A meeting of the board
of directors on the joint management committee shall
require a quorum of over two-thirds of the directors
or committee members.
Should a director or
a committee member be unable to attend meeting of
the board of directors or the joint management committee,
he shall present a proxy in writing authorizing someone
else to represent him and vote for him. The resolution
of the meeting of the board or committee shall be
passed by more than half of all directors of the board
or committee members. Should a director or a committee
member without reasonable excuse fails to attend or
to authorize his representative to attend the meeting
of the board of directors or the joint management
committee, he will be considered present in the meeting
of the board of directors or the joint management
committee and abstained from the voting right. When
convening a board meeting or a committee meeting,
all directors or committee members shall be notified
10 days before the meeting. The directors or committee
members may pass written resolution by circulation.
Article 29 Decisions
on the following items shall be made only after being
unanimously agreed upon by the directors or committee
members present at the meeting of the board of directors
or joint management committee :
(1) Amendment of the
articles of association of the CCE;
(2) Increase or reduction
in the registered capital of the CCE;
(3) Dissolution of the
CCE;
(4) Mortgage of the assets
of the CCE;
(5) Merger, de-merger
and change of the organization form of the CCE ;
(6) Other items need
to be unanimously agreed upon by the meeting of the
board of directors or joint management committee as
agreed by the cooperative parties .
Article 30 The method
and the procedure of resolution of the meeting of
the board of directors or joint management committee
shall be stipulated by the CCE articles of association,
unless otherwise provided in these Detailed Rules.
Article 31 The chairman
or the head is the legal representative of the CCE.
When the chairman or the head is unable to exercise
his responsibilities due to special reasons, he shall
authorize the vice chairman, deputy head , or other
directors or committee members to represent the CCE
in the external dealings .
Article 32 A CCE shall
have a general manager who shall be responsible for
the daily operation and management of CCE and shall
be responsible to the board of directors or the joint
management committee.
The general manager of
the CCE shall be appointed or dismissed by the board
of directors or the joint management committee.
Article 33 The general
manager and the other senior management personnel
may be Chinese citizens or foreign citizens. Upon
appointment by the board of directors on the joint
management committee, a director or a committee member
may concurrently hold the office of the general manager
or other senior management of the CCE.
Article 34 In case of
incapacity, graft or serious dereliction of duty on
the part of the general manager or other senior management
personnel, the board of directors or joint management
committee may dismiss him by resolution. The general
manager or other senior management personnel shall
be liable by law to the losses caused to the CCE.
Article 35 Appointment
of third party to operate and manage after the establishment
of the CCE shall be subject to the unanimous agreement
of the board of directors or the joint management
committee and a management contract shall be signed
with the appointee.
The CCE shall submit
the resolution of the board of directors or joint
management committee, the management contract together
with the credit reference documents of the appointee
to the examining and approving authorities for approval.
The examining and approval authorities shall decide
whether to approve or disapprove within 30 days upon
receiving the relevant documents.
Chapter VI Purchasing
Materials and Selling Products
Article 36 The CCE shall
formulate its production and operating plan in accordance
with the approved business scope and scale of production.
Government departments shall not force the CCE to
carry out the production and operating plans imposed
by government departments.
Article 37 The CCE has
the right to decide whether to purchase in China or
from abroad the required machinery, equipment, raw
materials, fuel, parts, spare parts, components, means
of transport and items for office use, etc. ( hereinafter
referred to as 'materials' ) .
Article 38 The State
encourages the CCE in selling its products to the
international market. The CCE can sell its products
to the international market by itself, or entrust
a selling agent outside China or a Chinese foreign
trade company to sell the products on a commission
or distribution basis. The price of the products sold
shall be determined by the CCE in accordance with
law.
Article 39 The machinery,
equipment, parts and other materials imported as foreign
partner's investment and the machinery, equipment,
parts and other materials imported by the CCE using
the funds within the total investment for production
and operation need shall be exempt from customs duty
and import turnover taxes. Reselling or selling the
above mentioned duty-free materials upon approval
within the People's Republic of China shall be subject
to tax or the tax previously exempted shall be repaid.
Article 40 The CCE shall
not export products at a price obviously less than
the reasonable price of the same type of products
in the international market. The CCE shall not import
materials at a price higher than the price of the
same type of products in the international market.
Article 41 The CCE shall
sell its product according to its approved selling
arrangements stipulated in the CCE contract.
Article 42 If the CCE
import and export commodities which are subject to
import/export licenses or quotas, it shall follow
the application procedures in accordance with the
provisions of the relevant regulations of the State.
Chapter VII Income Appropriation
and Investment Repatriation
Article 43 The Sino-foreign
cooperative partners may adopt profits distribution,
product distribution or other measures as mutually
agreed to distribute income.
In case of adopting the
product distribution or other measures for the income
distribution, the taxable income shall be computed
in accordance with the relevant provisions of the
tax laws.
Article 44 In case the
Sino-foreign cooperative partners stipulate in the
CCE contract that all the fixed assets of the CCE
be reverted to the Chinese cooperative partner free
of charge upon the expiration of the agreed term,
the foreign cooperative partner may apply for early
repatriation of its investment within the cooperative
period by the following ways:
(1) Based on the principle
of distribution in accordance with the ratio of capital
contribution or cooperative conditions provision,
to increase the foreign cooperative partner's income
distribution proportion as stipulated in the CCE contract
,
(2) Upon the examination
and approval of the finance and tax authorities in
accordance with the relevant tax provisions of the
State, the foreign cooperative partner may repatriate
the investment before payment of income tax;
(3) Other investment
repatriation measures approved by the finance and
taxation authorities and the examing and approving
authorities.
When the foreign partner
repatriates its investment within the cooperation
period, pursuant to the preceding provisions, the
Sino and foreign partners shall be liable to the debts
of the CCE according to the provisions the relevant
laws and the stipulations of the CCE contract.
Article 45 The application
by the foreign cooperative partner to request repatriation
of investment pursuant to the stipulations of the
Article 44(2) and ( 3) of these Detailed Rules shall
describe in detail the total amount of the investment
repatriated, the timing and the measures adopted.
Alter examination and approval by the finance and
tax authorities, it shall be submitted to the examing
and approving authorities for approval.
Prior to making up the
losses of the CCE, capital cannot be repatriated by
the foreign cooperative partner.
Article 46 The CCE shall
according to the regulations of the State engage a
certified public accountant in the People's Republic
of China to exam and verify the books of account.
The cooperative parties may mutually or unilaterally
appoint a certified public accountant in the People's
Republic of China to examine the books of account
and the related costs shall be borne by the party
appointing the auditor.
Chapter VIII Duration
and Dissolution
Article 47 The duration
of the CCE shall be determined through consultation
by the Chinese and foreign partner and specified in
the CCE contract.
Upon expiry of the term
of cooperation, if the cooperative parties agree to
extend the term of cooperation, an application shall
be submitted to the examing and approving authorities
180 days before the expiry of the term stating the
operation results of the original CCE contract and
the reason for extending the term of cooperation.
At the same time, the agreement between the cooperation
parties on the rights and obligations during the extended
term of cooperation shall also be submitted. The examing
and approving authorities shall decide whether approve
or disapprove within 30 days upon receiving the application.
Upon approval of the extension of its terms of cooperation,
the CCE shall bring along the approved documents to
the authorities for the administration of industry
and commerce to perform alternation of registration
procedures. The extended period shall commence from
the first day after the original term of cooperation
of the CCE expires. If the foreign partner repatriates
its investment according to the provisions of the
CCE contract and the repatriation of investment has
been completed, the term of cooperation of the CCE
cannot be extended. However, if the foreign partner
increases its investment and upon agreement through
consultation between the cooperative parties, the
CCE can apply to the examining and approving authorities
to extend the term of cooperation pursuant to the
provisions of the second paragraph of this Article.
Article 48 The CCE shall
be dissolved in any one of the following situations
:
(1) Expiry of the term
of cooperation;
(2) Inability to continue
operations due to CCE suffering heavy losses or serious
damages resulted from force majeure;
(3) Inability to continue
operations of the CCE due to the failure of one or
more of the cooperative parties to fulfil the obligations
prescribed by the CCE contract and articles of association
;
(4) Occurrence of the
other reasons for dissolution prescribed by the CCE
contract and articles of association,
(5) The CCE violates
the laws and administrative regulations and is ordered
to close down by law.
In the occurrence of
the situations described in items (2) and (4) of this
article, the board of directors or the joint management
committee of the CCE shall make a decision and report
to the examining and approving authorities for approval.
In the situation described in item (3) of this article,
the one or more cooperative party( ies) which failed
to fulfil the obligations prescribed by the CCE contract
and articles of association shall be liable to the
losses caused to other parties which fulfil the prescribed
obligations. The party( ies) which fulfil the obligations
prescribed by the CCE contract has or have the right
to apply to the examining and approving authorities
for dissolving the CCE.
Article 49 The matters
of liquidating the CCE shall be handled in accordance
with the provisions of the relevant laws and administrative
regulations of the State and the CCE contract and
articles of association.
Chapter IX Special Provisions
Regarding CCE Without Legal Person Status
Article 50 The CCE without
legal person status and its cooperative parties shall
be liable to civil responsibilities pursuant to the
relevant provisions of the civil laws of China.
Article 51 The CCE without
legal person status shall register its cooperative
partners respective capital contributed or cooperative
conditions provided with the authorities for the administration
of industry and commerce.
Article 52 The capital
contributed or cooperative conditions provided of
the cooperative parties of the CCE without legal person
status belong to the respective cooperative parties
or subject to the agreement of the cooperative parties,
can be jointly owned, or partly owned separately and
partly owned jointly. The properties accumulated through
operations of the CCE shall be jointly owned by all
cooperative parties.
The capital contributed
or imperative conditions provided by the cooperative
parties of a CCE without legal person status shall
be consolidatedly managed and operated by the CCE.
Any one party shall not dispose of the assets without
the other cooperative party's consent.
Article 53 The CCE without
legal person status shall set up a joint management
organization. The joint management organization shall
comprise of representatives appointed by the imperative
parties, and represents all cooperative parties to
jointly manage the CCE.
The joint management
organization decides on all important issues of the
CCE .
Article 54 The CCE without
legal person status shall establish consolidated books
of account within the locality of the CCE. The cooperative
parties shall also establish their own books of account.
Chapter X Supplementary
Provisions
Article 55 The laws of
People's Republic of China shall apply to the conclusion,
validity, interpretation, execution and the settlement
of disputes of the CCE contract.
Article 56 For matters
that are not regulated in these Detailed Rules, including
CCE's financial affairs, accounting, auditing, foreign
exchange, taxation, labor management, trade union,
etc., the provisions of the relevant laws and administrative
regulations shall apply.
Article 57 CCE's established
by companies, enterprises, other economic organizations
or individuals from the regions of Hong Kong, Macao
and Taiwan or by Chinese citizens residing abroad
shall be handled with reference to these Detailed
Rules.
Article 58 These Detailed
Rules shall take effect from the date of promulgation.
