(Approved by the State Council on June 17, 1999, promulgated by Decree No. 12 of the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation on June 25, 1999)
Article 1 These Measure are formulated in accordance with such laws and regulations as the Law of the People's Republic of China's on Chinese and Foreign Equity Joint ventures and the Law of the People's Republic of China on Chinese and Foreign Cooperative Joint Ventures in order to deepen the opening-up policy, promote the revolution and development of commercial enterprises, propel the building of domestic market and ensure the healthy and orderly implementation of pilots that widen commercial field and employ foreign investment.
Article 2 These Measures apply to equity or cooperative commercial enterprises established by foreign and Chinese companies, enterprises within China (hereinafter referred to as jointly-operated commercial enterprises). The establishment of commercial enterprises wholly funded by foreigners is not allowed temporarily.
Article 3 The jointly-operated commercial enterprises must adapt to the commercial development plans of the cities where they are located, be able to introduce the advanced marketing and managing experience in the globe, stimulate the modernization of domestic commerce, propel the export of domestic products, and bring economic and social benefits.
Article 4 The areas in which jointly-operated commercial enterprises may be established shall be prescribed by the State Council, presently they are confined to provincial capitals, capitals of autonomous regions, municipalities directly under the Central Government, cities separately listed on the State plan and special economic zone (hereinafter referred to as pilot areas).
Article 5 The investors of jointly-operated commercial enterprises must conform to the following conditions:
(1) foreign operators or the major ones of foreign operators in the jointly-operated commercial enterprises (hereinafter referred to as foreign operators) shall be enterprises that possess comparatively strong economic power, advanced marketing skills and managing experiences, wide international marketing network, good reputation and remarkable operating achievement and the capability of propelling the export of China's products through the established jointly-operated commercial enterprises.
Foreign operators who apply to establish retail-oriented jointly operated commercial enterprises shall possess an average sale of more than 2 billion US Dollars three years before application and asset of more than 0.2 billion US Dollars one year before application.
Foreign operators who apply to establish wholesale-oriented jointly-operated commercial enterprises shall possess an average wholesale volume of more than 2.5 billion US Dollars 3 years before application and asset of more than 0.3 billion US Dollars one year before application.
(2) The Chinese operators or the major ones of Chinese operators (hereinafter referred to as Chinese operators) shall be current enterprises that possess comparatively strong economic power and operating capacity. Their asset shall be more than 50 million RMB (30 million RMB in the middle and western areas) one year before application. If Chinese operators are commercial enterprises, the average sale of the three years before application shall be more than 0.3 billion RMB (0.2 billion in the middle and western areas); if they are foreign trade enterprises, the average self-operated import and export volume three years before application shall be more than 50 million US Dollars (the export volume shall be no less than 30 million US Dollars).
Article 6 Jointly-operated commercial enterprises must conform to the following conditions:
(1) conform to the relevant Chinese laws, regulations and provisions;
(2) conform to commercial development plans of the cities where they are located;
(3) the registered asset of retail-oriented jointly-operated commercial enterprises shall not be less than 50 million RMB, that of those in middle and western areas shall not be less than 30 million RMB; the registered asset of wholesale-oriented commercial enterprises shall not be less than 80 million RMB, that of those in middle and western areas shall not be less than 60 million RMB.
(4) if the jointly-operated commercial enterprises have the operation of more than 3 chain stores (except the grocery store for people's convenience, professional stores and exclusive stores), Chinese operators shall offer a proportion of more than 51% of the total capital; if the jointly-operated commercial enterprises are in good operating condition, the foreign operators have purchased a large quantity of domestic products and there is a possibility to take the advantage of foreign operators' international marketing network to promote the export of domestic products, foreign operators can hold the share after the approval of the State Council.
Chinese operators shall provide no less than 35% of the total capital in the jointly-operated commercial enterprises with no more than three branch stores (including three) as well as in grocery store for people's convenience, professional stores and exclusive stores which are in chain operation.
In the wholesale oriented jointly-operated commercial enterprises (including retail enterprises engaged in wholesale business simultaneously), Chinese operators must offer a proportion of more than 51% of the total capital.
(5) the branch store of the jointly-operated commercial enterprises are confined to the concatenate form that foreign and Chinese operators both invest and operate directly. Other concatenate forms such as free chains or concessionary chains are prohibited temporarily.
(6) the operating period shall not exceed 10 years, 40 years for the middle and western areas.
Article 7 Under the condition that foreign operators contract with jointly-operated commercial enterprises concerning the use of trademark and trade name and technological transfer, the related expenses that foreign operators collect shall not exceed 0.3% of the enterprise's sale volume of the year and the limited period for collection is 10 years.
Article 8 Jointly-operated commercial enterprises shall be established according to the following procedure:
Chinese operators shall submit feasibility reports (fungible of project propositions) and relevant documents to economic and trade commissions (economic commissions, planning and economic commissions, the same in the following part) in the pilot areas, which in conjunction with the competent domestic trade departments shall report to the State Economic and Trade Commission according to the prescribed procedures. The State Economic and Trade Commission shall examine and approve the reports after consulting the Ministry of Foreign Trade and Economic Cooperation.
After the feasibility reports (fungible of project propositions) have been approved, the foreign trade and economy departments in the pilot areas shall submit the contracts and articles of associations to the Ministry of Foreign Trade and Economic Cooperation according to the prescribed procedures, which shall examine and approve the contracts and articles of associations.
Jointly-operated commercial enterprises which have been approved shall, within one month since the date of receiving the approval certificate, register with the State Administration of Industry and Commerce on the strength of the Approval Certificate for Foreign-funded Enterprises issued by the State Administration of Industry and Commerce.
Article 9 To establish jointly-operated commercial enterprises, the following documents shall be submitted:
I.the declaring document on the study of feasibility
(1)the feasibility report compiled by all operators (fungible of project proposition);
(2)bank's certification on property and credit, certificate of registration (photocopy), legal representative certificate (photocopy) of all operators;
(3)all operators' annual asset and liability table, profit and loss table of the recent three years audited by accounting agency;
(4)(if Chinese operator makes investment with State-owned property) the confirmation document of State-owned property managing departments on the assessing report concerning Chinese operator's investing State-owned property;
(5) the species of merchandises that the planned jointly-operated commercial enterprises will operate;
(6) other related documents.
II.the declaring documents concerning contract and articles of association
1.the declaring documents on the study of feasibility and the approving documents thereof;
2.contracts and articles of association of the planned jointly-operated commercial enterprises signed by accredited representatives of all operative parties;
3.list of import and export merchandises;
4.the members of the board of directors of the planned jointly-operated commercial enterprises and the accreditation of directors from all parties;
5.the notice of the approval of enterprise's appellation provided by the State Administration of Industry and Commerce;
6.other related documents.
The documents mentioned above refer to formal documents except those marked with "photocopy". Non-legal representatives shall show the accreditation provided by legal representatives in order to sign the documents.
Article 10 If State-owned circulation enterprises invest to establish jointly-operated commercial enterprises, the assessing setups accredited by State-owned property management departments shall make scientific and righteous assessment on the tangible and intangible property invested in the light of the Measures on the Management of Assessment of State-owned Property. The assessment result serves as the foundation for evaluating State-owned property after the confirmation of State-owned property management departments at or above province level.
Article 11 If the established jointly-operated commercial enterprises expect to involve wholesale business, establish branch stores or replace the cooperative party, the Ministry of Foreign Trade and Economic Cooperation shall conduct examination and approval after consulting the State Economic and Trade Commission; other changes of the established jointly-operated commercial enterprises shall be examined and approved by the original examining and approving organ according to the current provisions concerning foreign investment. Jointly operated commercial enterprises shall submit the following documents:
(1) application report;
(2) the report on enterprise's operating situation;
(3) the report on the property evaluation;
(4) the report and certification on the enterprise's export situation;
(5) related decisions of the board of directors;
(6) agreement on the revision of contract and provision;
(7) other related documents.
The enterprise shall register with the State Administration of Industry and Commerce and undergo the procedures of revision within one month since the date when the revised contract and articles of association are approved.
Article 12 The operation scopes of jointly-operated commercial enterprises are:
1. the operation scopes of retail-oriented jointly-operated commercial enterprises are:
(1) commercial retail operation (including sell on a commission basis or sell by mail);
(2) organize the export business of domestic products;
(3) export and import business of its own merchandises;
(4) the related matching services.
2.the operation scopes of wholesale-oriented jointly-operated commercial enterprises are:
wholesale of domestic and self-operated import merchandises within China, organizing the export of domestic products.
Article 13 Retail-engaged jointly-operated commercial enterprises can also operate wholesale business.
Article 14 Jointly-operated commercial enterprises are prohibited form engaging in acting business of export and import .
Article 15 Jointly-operated commercial enterprises, operating merchandises on which the State has special provisions as well as those export and import merchandises with quota and license involved, shall undergo examining and approving procedure according to related provisions of the State.
The annual import volume of the jointly operated commercial enterprise shall not exceed 30% of its annual selling volume.
Article 16 Jointly-operated commercial enterprises shall conform to laws and regulations of the People's Republic of China and subject themselves to the jurisdiction of China's laws and regulations. Their normal operating activities and lawful rights and interests are protected by China's laws and regulations.
If the activities of jointly operated commercial enterprises violate laws or regulations of China, the enterprises shall be punished in accordance with the relevant laws and regulations of China.
Article 17 These Measure shall be strictly followed in the establishment of jointly-operated commercial enterprises at all localities. The Sate Economic and Trade Commission, the Ministry of Foreign Trade and Economic Cooperation, the State Administration of Industry and Commerce shall investigate and deal with those acts violating these Measure. All local economic and trade commissions, foreign trade and economic department and related departments shall investigate the pilots timely, summarize experience earnestly and solve the problems appropriately.
Article 18 The State Economic and Trade Commission, the Ministry Foreign Trade and Economic Cooperation, the State Administration of Industry and Commerce or their authorized organs shall conduct supervision and administration on the foreign-funded jointly-operated commercial enterprises in accordance with law.
Article 19 The establishment of jointly-operated commercial enterprises in the mainland of China by investors from Hong Kong Special Administrative Region, Macao and Taiwan shall be deal with in accordance with these Measures.
Article 20 The State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation are responsible for the interpretation of these Measure.
Article 21 These Measure take effect as of the date of promulgation.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.