Legislative affairs office of State Council:
While implementing Several Provisions Concerning the Investments Made by the Various Parties to Chinese-foreign Equity Joint Ventures (hereinafter referred to as Investment Provisions), Supplementary Provisions to Several Provisions Concerning the Investment Made by the Various Parties to Chinese-fo
reign Equity Joint Ventures (hereinafter referred to as Supplementary Provisions to Investment) and Procedures for Liquidation of Foreign-Funded Enterprises (hereinafter referred to as Liquidation Procedures), Ministry of Commerce and responsible commercial sectors of all levels found out some legal
items should be future clarified, mainly including:
1. Investment Provisions, Item 2: Funds provided by Various Parties of Chinese-foreign Equity Joint Ventures in accordance with relative contract shall be all the cash owned by the Parties themselves.
In practice, some parties may, in their own names, raise money for the enterprises by means of loans to provide funds. Some relative departments consider the money raised not belong to “cash owned by the Parties themselves”.
In our opinion, any cash possessed and dominated, no matter by what means it is obtained, shall be considered as “cash owned by the Parties themselves”.
In case disunity happens during administrative execution, please clarify how to comprehend “cash owned by the Parties themselves” in the Provision.
2. Investment Provisions, Item 7: Either Party of Chinese-foreign Equity Joint Ventures, not providing funds in time or in full amount, shall be considered as violating the accord. The party that honors the accord shall urge the violating party to provide funds in time or in full amount within one m
onth. Otherwise, the party that honors the accord shall apply to press relative punishment on the violating party.
In practice, case that one party unilaterally claim that the other party’s failure to providing funds in time or in full amount often happens, and apply to press relative punishment on the other party (violating party) as the party that honors the accord.
In our opinion, relative Examine and Approval Institutions have no rights to judge, by right of one party’s unilateral claim, which party shall be the ” the party that honors the accord” or “the party that violates the accord”.
In our opinion, relative Examine and Approval Institutions have to make the decisions in accordance with the effective Decision of relative Arbitration Institutions or Courts.
3. Supplementary Provisions to Investment, Item 1: Foreign investors that establish foreign funded enterprises by means of purchase asset or stock of domestic enterprises shall pay, in full account, the purchase money within 3 month since promulgation date of Business License. Enterprise decision au
thority shall not be obtained until the purchase money is fully paid.
Which specific rights are included in Enterprise decision authority shall be clarified.
4. Liquidation Procedures, Item 6: Liquidation duration of enterprises shall be no longer than 180 days since the starting date of Liquidation till Liquidation Report is submitted to Examine and Approval Institutions. In special situations, enterprises shall apply for an extension 15 days before the
expiration of Liquidation duration. The extension shall be no longer than 90 days.
In practice, case that Liquidation Report is only submitted 180 days later, sometimes even far more than 270 days, to the Examine and Approval Institutions. In such cases, whether or not the Liquidation Report is legally effective.
In our opinion, the legal effectiveness of the Liquidation Report shall be admitted, in the premise that the rights and interests of creditor or investor are not violated.
5. Liquidation Procedures, Item 7: No new business activities shall be developed during the Liquidation of the enterprises.
In practice, the business activities of some enterprises, such as hotel, melting factory, chemical plant, are successive, and business suspension may cause damage to the enterprises, investors and creditor’s rights and interests.
In our opinion, under the principle of not reducing enterprise property, it is reasonable to continue regular business activities, which do not violate the rules of “no new business activities shall be developed”.
The problems often occurred in the implementation practice of Investment Provisions, Supplementary Provisions to Investment and Liquidation Procedures are listed as above. In accordance with the regulations of Article 31, Article 32, and Article 33 of Statutes on Administrative Law Constitution Proc
edure and State Council General Office Circular on Administrative Law Explanation Rights and Procedure Problems, Ministry of Commerce raised five specific questions as above-mentioned. Please research them and reply by letter.
Ministry of Commerce
April 29, 2004
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