Detailed Implementing Rules for the Law of the People's Republic of
China on Wholly Foreign-Owned Enterprises
(Approved by the State Council on October 28, 1990, promulgated by
the Ministry of Foreign Trade and Economy Cooperation on December
12, 1990, and amended pursuant to the State Council's Decision
concerning the amendment to Detailed Implementing Rules for the Law
of the People's Republic of China on Wholly Foreign-Owned
Enterprises on April 12, 2001)
Chapter 1 General Provisions
Article 1: These Detailed Implementing Rules are formulated pursuant
to Article 23 of the Law of the People's Republic of China on Wholly
Foreign-Owned Enterprises.
Article 2: Wholly foreign-owned enterprises shall be governed and
protected by the laws of China.
In their business activities in the People's Republic of China,
wholly foreign-owned enterprises must abide by the laws and
regulations of China and may not harm China's public interest.
Article 3: The establishment of wholly foreign-owned enterprises
must be beneficial to the development of China's national economy
and yield notable economic benefits. The state encourages to
foreign-owned enterprises to adopt advance technologies and
equipment, develop new products, save energy and raw materials,
upgrade and replace existing products; and encourages to establish
such foreign-owned enterprises as shall export all or most of their
products.
Article 4: The establishment of wholly foreign-owned enterprises in
prohibited or restrained industries shall be subject to the
regulations for guiding the direction of foreign investment and the
catalog for guiding foreign investment in industry of China.
Article 5: Applications for the establishment of wholly
foreign-owned enterprises shall not be approved in any of the
following circumstances:
1. China's sovereignty or public interest would be harmed;
2. China's state security would be jeopardized;
3. China's laws and regulations would be violated;
4. the requirements for the development of China's national economy
would not be satisfied; or
5. environmental pollution might be caused.
Article 6: Wholly foreign-owned enterprises shall enjoy autonomy,
and shall not be subject to interference, in their operation and
management activities when operating within their approved scope of
business.
Chapter 2 Establishment Procedures
Article 7: The examination and approval of applications for the
establishment of wholly foreign-owned enterprises shall be carried
out by the Ministry of Foreign Economic Relations and Trade; upon
examination and approval, an approval certificate shall be issued.
The State Council authorizes the People's Government of the
provinces, autonomous regions, municipalities directly under the
central government, municipalities with independent development
plans and Special Economic Zones to examine and approve
applications, and to issue approval certificates, for the
establishment of wholly foreign-owned enterprises in the following
situations:
1. the total amount of investment does not exceed the maximum amount
which the State Council has authorized the People's Government in
question to examine and approve; and
2. the state will not need to allocate raw materials, and the
nationwide comprehensive balance of energy, communications,
transportation, foreign trade export quotas, etc. will not be
affected.
Within 15 days after the People's Government of a province,
autonomous region, municipality directly under the central
government, municipality with independent development plans or
Special Economic Zone has approved the establishment of a wholly
foreign-owned enterprise within its authority as delegated by the
State Council, it shall report its approval to the Ministry of
Foreign Economic Relations and Trade for the record (the Ministry of
Foreign Economic Relations and Trade and the People's Governments of
the provinces, autonomous regions, municipalities directly under the
central government, municipalities with independent development
plans and Special Economic Zones are hereinafter collectively
referred to as "examination and approval authorities").
Article 8: For the approval of applications for the establishment of
wholly foreign-owned enterprises whose products would involve export
licenses, export quotas or import licenses or would be products the
import of which is restricted by the state, prior consent shall be
obtained from the department for foreign economic relations and
trade in accordance with the limits of administration authority.
Article 9: Prior to applying for the establishment of a wholly
foreign-owned enterprise, foreign investors shall submit a report
covering the following matters to the local People's Government at
or above county level of the place where they intend to establish
the enterprise. The contents of such report shall include: the
purpose of the wholly foreign-owned enterprise to be established;
the scope and scale of business; the products to be produced; the
technology and equipment to be used; the area of and requirements
for the land to be used; the conditions for and quantities of the
water, electricity, coal, coal gas or other energy sources required;
requirements for public facilities; etc.
Local People's Governments at or above county level shall reply to
the foreign investors in writing within 30 days after the date of
receipt of their reports.
Article 10: A foreign investor which wishes to establish a wholly
foreign-owned enterprise shall apply and submit the following
documents to the examination and approval authorities through the
local People's Government at or above county level of the place
where it intends to establish the enterprise:
1. an application for the establishment of a wholly foreign-owned
enterprise;
2. a feasibility study;
3. the articles of association of the wholly foreign-owned
enterprise;
4. the name of the legal representative (or a list of the names of
the members of the board of directors) of the wholly foreign-owned
enterprise;
5. the legal certificates and a certificate of creditworthiness of
the foreign investor;
6. the written reply from the local People's Government at or above
county level of the intended place of establishment of the wholly
foreign-owned enterprise;
7. a list of the supplies requiring to be imported; and
8. other documents to be submitted.
The documents mentioned under items (1) and (3) of the preceding
paragraph must be written in Chinese. Those mentioned under items
(2), (4) and (5) may be written in a foreign language, but, if
written in a foreign language, shall be accompanied by Chinese
translations.
Where two or more foreign investors jointly apply for the
establishment of a wholly foreign-owned enterprise, a duplicate of
the contract between them shall be submitted to the examination and
approval authorities for the record.
Article 11: Examination and approval authorities shall decide
whether to approve or to disapprove an application for the
establishment of a wholly foreign-owned enterprise within 90 days
from the date of receipt of all the documents pertaining to such
application. If the examination and approval authorities find that
not all of the aforementioned documents have been submitted or that
they are not in order, it may demand that the missing document(s) be
submitted or that the submitted documents be amended within a
specified period of time.
Article 12: Upon approval by the examination and approval
authorities of an application for the establishment of a wholly
foreign-owned enterprise, the foreign investor shall, within 30 days
from the date of receipt of the approval document, apply to the
administration of industry and commerce authorities for registration
and obtain a business license. The date of issuance of the business
license of the wholly foreign-owned enterprise shall be the date of
establishment of the enterprise.
The approval certificate for a wholly foreign-owned enterprise shall
expire automatically if the foreign investor has failed to apply to
the administration of industry and commerce authorities for
registration within a full 30 days from the date of issuance of the
approval certificate.
A wholly foreign-owned enterprise shall carry out tax registration
with the tax authorities within 30 days after the date of its
establishment.
Article 13: Foreign investors may entrust Chinese service
organizations for foreign investment enterprises or other economic
organizations with handling on their behalf the matters set forth in
Article 9, the first paragraph of Article 10 and Article 11,
provided that they enter into a contract of entrustment.
Article 14: Written applications for the establishment of a wholly
foreign-owned enterprise shall include the following:
1. the name, address and place of registration of the foreign
investor and the name, nationality and position of its legal
representative;
2. the name and address of the wholly foreign-owned enterprise to be
established;
3. the scope of business, types of product and scale of production;
4. the total amount of investment, registered capital and sources of
funds of, and the method and time limit of contribution of capital
to, the wholly foreign-owned enterprise to be established;
5. the form of organization, structure and legal representative of
the wholly foreign-owned enterprise to be established;
6. the main equipment to be used and the age of such equipment; and
the level and source of the production technology and production
process to be used;
7. the targeted buyers and areas of sale of the products and the
sales channels and methods;
8. the arrangements for the receipt and expenditure of foreign
exchange;
9. the establishment and staffing of the relevant structure, and
arrangements for the employment, training, wages, welfare benefits,
insurance, labor protection, etc. of staff and workers;
10. the possible degree of environmental pollution and the measures
to solve such problem;
11. the selection and area of the land to be used;
12. the funds, energy and raw materials for capital construction,
production and operation, and the methods for obtaining the same;
13. the schedule of implementation of the project; and
14. the term of operation of the wholly foreign-owned enterprise to
be established.
Article 15: The articles of association of a wholly foreign-owned
enterprise shall cover the following matters:
1. the name and address;
2. the purpose and scope of business;
3. the total amount of investment, registered capital and time limit
for contribution of capital;
4. the form of organization;
5. the internal organizations and their powers and rules of
procedure; and the duties and limits of authority of such personnel
as the legal representative, the general manager, the chief engineer
and the chief accountant;
6. the principles and systems for financial affairs, accounting and
auditing;
7. labor management;
8. the term of operation, termination and liquidation; and
9. the procedure for amendment of the articles of association.
Article 16: The articles of association of a wholly foreign-owned
enterprise, and any amendments thereto, shall become effective upon
approval by the examination and approval authorities.
Article 17: If a wholly foreign-owned enterprise is divided or
merges or if a major change in its capital occurs due to any other
reason, approval must be obtained from the examination and approval
authorities, and a Chinese registered accountant shall be engaged to
verify the event and to issue a capital verification certificate.
Upon approval by the examination and approval authorities, the
change shall be registered with the administration of industry and
commerce authorities.
Chapter 3 Form of Organization and Registered Capital
Article 18: The form of organization of wholly foreign-owned
enterprises shall be a limited liability company. Upon approval,
they may also have other forms of liability.
In wholly foreign-owned enterprises that are limited liability
companies, the liability of the foreign investors vis-¨¤-vis the
enterprises shall be limited to the amounts of capital contributed
by them.
In wholly foreign-owned enterprises with other forms of liability,
the liability of the foreign investors in respect of the enterprises
shall be as specified in the laws and regulations of China.
Article 19: The term "total amount of investment of a wholly
foreign-owned enterprise" means the total amount of funds required
to set up a wholly foreign-owned enterprise, i.e. the sum of the
capital construction funds and the working capital required to be
invested in order to realize its scale of production.
Article 20: The term "registered capital of a wholly foreign-owned
enterprise" means the total amount of capital for the establishment
of a wholly foreign-owned enterprise as registered with the
administration of industry and commerce authorities, i.e. the total
amount of capital subscribed by the foreign investor.
The amount of the registered capital of a wholly foreign-owned
enterprise shall correspond to its scale of business. The ratio
between the registered capital and the total amount of investment
shall conform to the relevant regulations of China.
Article 21: Wholly foreign-owned enterprises may not reduce their
registered capital during their term of operation. But if the
registered capital must be reduced due to the change of total
investment and business scale, approval in advance by the examining
and approving authorities is required.
Article 22: The increase or assignment of the registered capital of
a wholly foreign-owned enterprise must be approved by the
examination and approval authorities. Upon approval, such change
shall be registered with the administration of industry and commerce
authorities.
Article 23: The mortgage or assignment by a wholly foreign-owned
enterprise to a foreign party of its property or interest must be
approved by the examination and approval authorities and reported to
the administration of industry and commerce authorities for the
record.
Article 24: The legal representative of a wholly foreign-owned
enterprise shall be the responsible person who, pursuant to the
enterprise's articles of association, has the power to represent the
enterprise.
If the legal representative is unable to exercise his powers, he
shall appoint an agent, in writing, to exercise his powers on his
behalf.
Chapter 4 Methods and Time Limits for Contribution of Capital
Article 25: Foreign investors may make their capital contributions
in freely convertible foreign currencies, and also by valuating and
contributing machinery, equipment, industrial property, proprietary
technology, etc.
Upon approval by the examination and approval authorities, foreign
investors may also use as capital contribution Renminbi profits
derived by them from other foreign investment enterprises
established in the People's Republic of China.
Article 26: Machinery and equipment valuated and used as capital
contribution by a foreign investor must be the equipment required
indeed by the foreign-owned enterprise.
The amounts at which such machinery and equipment are valuated may
not exceed the current normal prices on the international market for
the same kind of machinery and equipment.
With respect to valuated machinery and equipment to be contributed,
a detailed list of valuated contributions shall be made. Such list
shall include the descriptions, types, quantities, valuation, etc.
of the machinery and equipment. The list shall be annexed to, and
submitted to the examination and approval authorities along with,
the application for establishment of the wholly foreign-owned
enterprise.
Article 27:The title of industrial property and proprietary
technology valuated and used as capital contribution by a foreign
investor must be owned by the foreign investor.
The valuation of such industrial property and proprietary technology
shall be consistent with common international principles of
valuation, and the amount at which they are valuated shall not
exceed 20 percent of the registered capital of the wholly
foreign-owned enterprise.
Detailed information shall be prepared with respect to the valuated
industrial property and proprietary technology to be contributed.
Such information shall include copies of certificates pertaining to
ownership and details of their validity, information on the
technical performance and practical value, the basis and standards
of valuation, etc. The said information shall be annexed to, and
submitted to the examination and approval authorities along with,
the application for establishment of the wholly foreign-owned
enterprise.
Article 28: When valuated machinery and equipment contributed as
capital have arrived at the Chinese port, the wholly foreign-owned
enterprise shall request a Chinese commodity inspection organization
to inspect the same. Such commodity inspection organization shall
issue an inspection report.
In the event of discrepancies between the kinds, quality and
quantities of valuated and contributed machinery and equipment and
the kinds, quality and quantities of the machinery and equipment
specified on the list of valuated contributions submitted by the
foreign investor to the examination and approval authorities, the
examination and approval authorities shall have the power to demand
the foreign investor to rectify such discrepancies within a
specified period of time.
Article 29: The examination and approval authorities shall have the
power to conduct an inspection after valuated industrial property
and proprietary technology contributed as capital have been put in
use. In the event of discrepancies between such industrial property
and proprietary technology and the information originally supplied
by the foreign investor, the examination and approval authorities
shall have the power to demand the foreign investor to rectify such
discrepancies within a specified period of time.
Article 30: The time limit within which foreign investors are to
contribute their capital shall be stated in the applications for
establishment of a wholly foreign-owned enterprise and the
enterprise's articles of association. Foreign investors may
contribute their capital in instalments, provided that the final
instalment is contributed within three years from the date of
issuance of the business license. The first of such instalments may
not account for less than 15 percent of the amount of capital to be
contributed by the foreign investor and shall be contributed in full
within 90 days from the date of issuance of the business license of
the wholly foreign-owned enterprise.
If a foreign investor fails to contribute the first instalment of
its capital contribution within the time limit set forth in the
preceding paragraph, its approval certificate shall automatically
expire upon the expiry of such time limit. In such event, the wholly
foreign-owned enterprise shall cancel its registration with, and
turn over its business license for cancellation to, the
administration of industry and commerce authorities. If the wholly
foreign-owned enterprise fails to cancel its registration and to
turn over its business license for cancellation, the administration
of industry and commerce authorities shall revoke its business
license and make a public announcement.
Article 31: Foreign investors shall contribute according to schedule
all instalments following the first instalment of their capital
contributions. If and when a capital contribution is 30 days overdue
without legitimate reason, the matter shall be handled pursuant to
the second paragraph of Article 31 hereof.
If a foreign investor requests an extension of the time limit for
its capital contribution for legitimate reasons, such extension
shall be agreed to by the examination and approval authorities and
reported to the administration of industry and commerce authorities
for the record.
Article 32: After a foreign investor has contributed all instalments
of its capital contribution, the wholly foreign-owned enterprise
shall engage a Chinese registered accountant to verify the
contribution and to issue an investment verification report, which
shall be submitted to the examination and approval authorities and
the administration of industry and commerce authorities for the
record.
Chapter 5 Use of Land and Fees Therefor
Article 33: The land to be used by wholly foreign-owned enterprises
shall be arranged for by the local People's Governments at or above
county level of the locations of the enterprises upon examination in
the light of local circumstances.
Article 34: Within 30 days from the date of issuance of their
business licenses, wholly foreign-owned enterprises shall carry out
land use procedures with and obtain a land certificate from the land
administration department of the local People's Governments at or
above county level of the places where they are located, on the
strength of their approval certificates and business licenses.
Article 35: The land certificates shall be the legal certificates on
the strength of which wholly foreign-owned enterprises may use land.
Without approval, wholly foreign-owned enterprises may not assign
their land use rights during their terms of operation.
Article 36: When collecting their land certificates, wholly
foreign-owned enterprises shall pay land use fees to the land
administration departments of the places where they are located.
Article 37: Wholly foreign-owned enterprises using developed land
shall pay land development fees.
The land development fees mentioned in the preceding paragraph shall
include the requisitioning, demolition, removal and resettlement
expenses and the construction expenses incurred when linking the
wholly foreign-owned enterprise to the existing infrastructure. Land
developers may charge the land development fees as a lump sum or in
annual instalments.
Article 38: Wholly foreign-owned enterprises using undeveloped land
may develop the land themselves or entrust relevant Chinese units
with such development. The construction of infrastructural
facilities shall be centrally arranged by the local People's
Governments at or above county level of the places where the wholly
foreign-owned enterprises are located.
Article 39: The scales for the land use fees and land development
fees charged to wholly foreign-owned enterprises shall be set in
accordance with the relevant regulations of China.
Article 40: The term of the use of land by a wholly foreign-owned
enterprise shall be the same as its approved term of operation.
Article 41: In addition to obtaining land use rights in accordance
with this Chapter, wholly foreign-owned enterprises may obtain such
rights pursuant to other laws and regulations of China.
Chapter 6. Purchases and Sales
Article 42: Wholly foreign-owned enterprises shall have the right to
decide on their own on the purchase of machinery, equipment, raw
materials, fuel, spare parts, accessories, components, devices,
means of transportation, office articles, etc. for their own use
(hereinafter referred to as "supplies").
When purchasing supplies in China, wholly foreign-owned enterprises
shall be granted terms equal to those granted to Chinese
enterprises, given that conditions are equal.
Article 43: Wholly foreign-owned enterprises may sell their products
in China. The state encourages wholly foreign-owned enterprises to
export their products.
Article 44: Wholly foreign-owned enterprises shall have the right to
export their own products, and they may also entrust Chinese foreign
trade companies or companies outside the People's Republic of China
with selling their products on their behalf.
Wholly foreign-owned enterprises shall have the right to sell their
own products in China, and they may also entrust Chinese commercial
organizations with selling their products on their behalf.
Article 45: For those of the machinery and equipment contributed as
capital by foreign investors for which China requires an import
license, the wholly foreign-owned enterprises shall, either directly
or through an appointed agency, apply for import licenses to and
obtain the same from the licensing authorities, on the strength of
the enterprises¡¯ approved lists of imported equipment and supplies.
With respect to the supplies imported by wholly foreign-owned
enterprises within their approved scopes of business which are
required for use in their own production and for which China
requires an import license, the enterprises shall draw up annual
import plans and, once every six months, apply for import licenses
to and obtain the same from the licensing authorities.
For those of the products exported by wholly foreign-owned
enterprises for which China requires an export license, the
enterprises shall draw up annual export plans and, once every six
months, apply for export licenses to and obtain the same from the
licensing authorities.
Article 46: The prices of the supplies and technical services
imported by wholly foreign-owned enterprises may not exceed the
arm's length prices of the same supplies and services on the
international market at that time. The prices of products exported
by wholly foreign-owned enterprises shall be set by wholly
foreign-owned enterprises themselves by reference to the prices on
the international market at that time, provided that they may not be
lower than reasonable export prices. The tax authorities shall have
the power to investigate pursuant to the tax laws the legal
liability of wholly foreign-owned enterprises evading taxes by such
means as importing at high prices and exporting at low prices, etc.
Article 47: Wholly foreign-owned enterprises shall provide
statistical information and submit statistical statements in
accordance with the Statistics Law of the People's Republic of China
and China's regulations concerning the system for statistics on the
use of foreign investment.
Chapter 7 Taxation
Article 48: Wholly foreign-owned enterprises shall pay taxes in
accordance with the laws and regulations of China.
Article 49: The staff and workers of wholly foreign-owned
enterprises shall pay individual income tax in accordance with the
laws and regulations of China.
Article 50: Wholly foreign-owned enterprises shall be exempt from
duties and taxes in accordance with Chinese relevant taxation laws
on the following imported supplies:
1. machinery, equipment, spare parts and building materials, and the
materials required for the installation and reinforcement of
machinery, used by the foreign investors as capital contribution;
2. machinery, equipment, spare parts, means of transportation for
use in production and production management equipment imported by
wholly foreign-owned enterprises with funds from their total amounts
of investment and required for their own production;
3. raw materials, auxiliary materials, components, spare parts and
packaging materials imported by wholly foreign-owned enterprises for
the production of export products.
If, upon approval, the imported supplies mentioned in the preceding
paragraph are sold in the People's Republic of China rather than
being exported or are used for the production of products to be sold
in the People's Republic of China rather than for the production of
export products, duties and tax shall be paid in accordance with
China's tax laws.
Article 51: Export products produced by wholly foreign-owned
enterprises other than products the export of which is restricted by
China, shall be exempt from duties and taxes in accordance with
Chinese taxation laws.
Chapter 8 Exchange Control
Article 52: The foreign exchange matters of wholly foreign-owned
enterprises shall be handled in accordance with the relevant
exchange control regulations of China.
Article 53: On the strength of their business licenses issued by the
administration of industry and commerce authorities, wholly
foreign-owned enterprises may open accounts with banks in the
People's Republic of China allowed to engage in foreign exchange
business. The payments into and out of such accounts shall be
supervised by the banks with which they have been opened.
The foreign exchange revenue of wholly foreign-owned enterprises
shall be deposited in the foreign exchange accounts with their
banks. Foreign exchange expenditure shall be paid out of their
foreign exchange bank accounts.
Article 54: Wholly foreign-owned enterprises which wish to open
foreign exchange accounts with banks outside the People's Republic
of China for reasons of production and business needs must obtain
approval from China's exchange control authorities and regularly
report details of the foreign exchange receipts and payments and
submit the banks¡¯ statements in accordance with the regulations of
China's exchange control authorities.
Article 55: Upon payment of tax in accordance with China's tax laws,
the wages and other lawful foreign exchange income of the
expatriate, Hong Kong, Macao and Taiwan staff and workers of wholly
foreign-owned enterprises may be freely remitted out of the country.
Chapter 9 Financial Affairs and Accounting
Article 56: Wholly foreign-owned enterprises shall establish a
financial and accounting system in accordance with the laws and
regulations of China and the regulations of China's financial
authorities and shall submit such system to the financial and
taxation authorities of the place where they are located for the
record.
Article 57: The fiscal year of wholly foreign-owned enterprises
shall commence on January 1 of the Gregorian calendar and end on
December 31 of the same year.
Article 58: Wholly foreign-owned enterprises shall make allocations
to a reserve fund and a bonus and welfare fund for staff and workers
from their profits after paying income tax in accordance with
China's tax laws. The rate of allocations to the reserve fund may
not be lower than 10 percent of the after-tax profits; once the
cumulative amount of allocations equals 50 percent of the registered
capital, no further allocations need be made. The rate of
allocations to the bonus and welfare fund for staff and workers
shall be determined by the wholly foreign-owned enterprises
themselves.
Wholly foreign-owned enterprises may not distribute profits until
the losses from preceding fiscal years have been made up. Retained
profits from preceding fiscal years may be distributed together with
the distributable profits of the current fiscal year.
Article 59: Accounting vouchers, books and statements printed by
wholly foreign-owned enterprises themselves shall be written in
Chinese. Those written in a foreign language shall include notes in
Chinese.
Article 60: Wholly foreign-owned enterprises shall keep independent
accounts.
The annual accounting statements and liquidation accounting
statements of wholly foreign-owned enterprises shall be prepared in
accordance with the regulations of China's financial and taxation
authorities. If accounting statements are prepared in a foreign
currency, Renminbi accounting statements shall be prepared
simultaneously by translating such foreign currency amounts into
Renminbi.
Chinese registered accountants shall be engaged to verify the annual
accounting statements and liquidation accounting statements of
wholly foreign-owned enterprises and to issue a report thereon.
The annual accounting statements and liquidation accounting
statements of wholly foreign-owned enterprises described in the
second and third paragraphs, together with the reports issued by the
Chinese registered accountants, shall be submitted within the
prescribed time limits to the financial and taxation authorities
and, for the record, to the examination and approval authorities and
the administration of industry and commerce authorities.
Article 61: Foreign investors may engage at their own expense
Chinese or foreign accounting staff to inspect the accounting books
of their wholly foreign-owned enterprises.
Article 62: Wholly foreign-owned enterprises shall submit annual
balance sheets and profit and loss statements to the financial and
taxation authorities and, for the record, to the examination and
approval authorities and the administration of industry and commerce
authorities.
Article 63: Wholly foreign-owned enterprises shall maintain their
accounting books in the place where they are located. Such
accounting books shall be subject to supervision by the financial
and taxation authorities.If a wholly foreign-owned enterprise
violates the provisions of the preceding paragraph, the financial
and taxation authorities may impose a fine on it and the
administration of industry and commerce authorities may order it to
suspend business or revoke its business license.
Chapter 10 Staff and Workers
Article 64: Wholly foreign-owned enterprises shall enter into labor
contracts with the staff and workers they employ in the People's
Republic of China, in accordance with the laws and regulations of
China. Such contracts shall specifically cover such matters as
employment, dismissal, remuneration, welfare, labor protection,
labor insurance, etc.
Wholly foreign-owned enterprises may not employ children as
laborers.
Article 65: Wholly foreign-owned enterprises shall be responsible
for the business and technical training of their staff and workers
and establish an assessment system, in order that the production and
management skills of their staff and workers are sufficient to meet
the enterprises¡¯ production and development requirements.
Chapter 11 Labor Union
Article 66: The staff and workers of wholly foreign-owned
enterprises shall have the right to establish basic-level labor
unions and carry on labor union activities in accordance with the
Law of the People's Republic of China on Labor Unions.
Article 67: The labor union of a wholly foreign-owned enterprise
shall represent the rights and interests of the staff and workers.
It shall have the right to enter into a labor contract with the
enterprise on behalf of the staff and workers and to supervise the
implementation thereof.
Article 68: The basic tasks of the labor union of a wholly
foreign-owned enterprise shall be to protect the lawful rights and
interests of the staff and workers in accordance with the laws and
regulations of China, to assist the enterprise in arranging and
using the bonus and welfare fund for staff and workers in a rational
way; to organize the staff and workers to engage in political,
scientific, technological and vocational study; to organize cultural
and athletic activities; and to teach the staff and workers to
observe labor discipline and make efforts to accomplish the various
economic tasks of the enterprise.
When a wholly foreign-owned enterprise studies and decides on
matters such as rewards, punishment, the wage system, welfare
benefits, labor protection, labor insurance, etc., of staff and
workers, a representative of its labor union shall have the right to
attend the meeting. Wholly foreign-owned enterprises shall listen to
the opinions of their labor unions and obtain their cooperation.
Article 69: Wholly foreign-owned enterprises shall actively support
the work of their labor unions and, in accordance with the Law of
the People's Republic of China on Labor Unions, provide them with
the necessary premises and equipment for office work and meetings
and for use in organizing collective welfare, cultural and athletic
activities for staff and workers. Wholly foreign-owned enterprises
shall each month allocate labor union funds at the rate of 2 percent
of the total take-home pay of their staff and workers. Such funds
shall be used by their labor unions in accordance with the measures
for the use of labor union funds formulated by the All-China
Federation of Trade Unions.
Chapter 12. Term, Termination and Liquidation
Article 70: The term of operation of wholly foreign-owned
enterprises shall be set forth by the foreign investors in their
applications for the establishment of a wholly foreign-owned
enterprise, on the basis of the specific circumstances of the
industries and enterprises in question, and shall be approved by the
examination and approval authorities.
Article 71: The term of operation of wholly foreign-owned
enterprises shall be reckoned from the date of issuance of their
business licenses.
If the term of operation of a wholly foreign-owned enterprise needs
to be extended upon expiry, a written application for extension of
the term of operation shall be submitted to the examination and
approval authorities 180 days prior to expiry. The examination and
approval authorities shall decide whether to approve or reject the
application within 30 days from the date of receipt thereof.
Wholly foreign-owned enterprises which have obtained approval to
extend their term of operation shall register the change with the
administration of industry and commerce authorities within 30 days
from the date of receipt of the approval document for such
extension.
Article 72: A wholly foreign-owned enterprise shall be terminated in
any of the following circumstances:
1. its term of operation has expired;
2. it suffers heavy losses due to mismanagement and the foreign
investor decides to dissolve it;
3. it suffers heavy losses due to an event of force majeure such as
a natural disaster, war, etc.;
4. it becomes bankrupt;
5. it is lawfully closed because it has violated the laws and
regulations of China, thereby harming the public interest; or
6. another reason for dissolution as specified in the wholly
foreign-owned enterprise's articles of association has arisen.
In any of the circumstances mentioned under items (2), (3) and (4)
of the preceding paragraph, the wholly foreign-owned enterprise
shall voluntarily submit a written application for termination to
the examination and approval authorities for approval. The date of
the examination and approval authorities¡¯ approval shall be the
date of the enterprise's termination.
Article 73: A wholly foreign-owned enterprise which has been
terminated pursuant to items (1), (2), (3) or (6) of Article 75
shall make a public announcement and notify its creditors within 15
days from the date of termination. In addition, it shall, within 15
days from the date of issuance of the public announcement of
termination, submit a proposal to the examination and approval
authorities concerning the procedure and principles of liquidation
and the candidates for the liquidation committee, and implement the
same upon examination and approval by the examination and approval
authorities.
Article 74: A liquidation committee shall be composed of the legal
representative of the wholly foreign-owned enterprise,
representatives of its creditors and representatives of the relevant
competent authorities. In addition, accountants, lawyers, etc.
registered in China shall be invited to serve on the committee.
The liquidation expenses shall be paid out of the property currently
held by the foreign-owned enterprise on a priority basis.
Article 75: A liquidation committee shall exercise the following
powers:
1. convene creditors¡¯ meetings;
2. take over the management of and sort out the enterprise's
property, and prepare a balance sheet and a property list;
3. valuate the property and state the basis for the calculation of
the values assigned;
4. prepare the liquidation plan;
5. redeem the enterprise's claims and satisfy its debts;
6. recover any amounts to be contributed by the shareholders which
have not yet been contributed;
7. distribute the balance of the property; and
8. represent the wholly foreign-owned enterprise when it sues or is
being sued.
Article 76: Prior to completion of the liquidation of a wholly
foreign-owned enterprise, the foreign investor may not remit or
carry the enterprise's funds out of the People's Republic of China
and may not dispose of the enterprise's property on its own
authority.
Upon completion of the liquidation of a wholly foreign-owned
enterprise, if the sum of the net amount of its assets and the
balance of its property exceeds its registered capital, the portion
in excess shall be regarded as profit, and income tax shall be paid
on such portion in accordance with China's tax laws.
Article 77: Upon completion of the liquidation of a wholly
foreign-owned enterprise, procedures for the cancellation of
registration shall be carried out with, and its business license
shall be returned for cancellation to, the administration of
industry and commerce authorities.
Article 78: When wholly foreign-owned enterprises liquidate and
dispose of their property, Chinese enterprises or other
organizations shall have a preemptive right to purchase the same,
provided that conditions are equal.
Article 79: A wholly foreign-owned enterprise which is terminated
pursuant to item (4) of Article 75 shall be liquidated by reference
to the relevant laws and regulations of China.
A wholly foreign-owned enterprise which is terminated pursuant to
item (5) of Article 75 shall be liquidated in accordance with the
relevant regulations of China.
Chapter 13 Supplementary Provisions
Article 80: All items of insurance of wholly foreign-owned
enterprises shall be taken out from insurance companies in the
People's Republic of China.
Article 81: Economic contracts between wholly foreign-owned
enterprises and other companies, enterprises or other economic
organizations and persons shall be governed by the Contract Law of
the People's Republic of China.
Economic contracts between wholly foreign-owned enterprises and
foreign companies, enterprises or individuals shall be governed by
the Foreign Economic Contract Law of the People's Republic of China.
Article 82: Matters concerning wholly-owned enterprises established
in Mainland China by companies, enterprises, or other economic
organizations and individuals from Hong Kong, Macao and Taiwan or by
Chinese citizens resident abroad shall be handled by reference to
these Detailed Implementing Rules.
Article 83: Expatriate, Hong Kong, Macao and Taiwan staff and
workers of wholly foreign-owned enterprises may carry in reasonable
quantities of means of transport and daily necessities for their own
use. Such staff and workers shall carry out customs formalities for
such goods in accordance with the regulations of China.
Article 84: These Detailed Rules shall be implemented as from the
date of promulgation.
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