Ministry of Foreign Trade and Economic Cooperation

(Promulgated by the Ministry of Foreign Trade and Economic Cooperation on October 5, 1993)

To strengthen the control of approvals to FFEs, the following principles for approval and essentials for examination to contracts and articles of association of FFEs, as well as the contents of the approval have been enacted:

1. Basic principles for examining and approving contracts and articles of association:

(1) To see to whether the contracts or articles of association concerned should comply with the laws and regulations of the People's Republic of China as well as government rules;

(2) To see to whether the contracts or articles or association concerned meet the requirements for the contents of the feasibility study report on the project and for the document of approval;

(3) To see to whether the contracts or articles of association concerned follow the principle of equality and mutual benefit.

2. Essentials for examining the contracts and articles of association:

(1) Legitimacy of the contracts and articles of association, including whether time and place in which the contracts or articles of association concerned were signed are properly addressed and whether the signatories are legal representatives or are authorized by the legal representatives;

(2) Whether there are any necessary contents missing in the contracts and articles of association concerned and whether the documents which have to be submitted are complete;

(3) Whether there are any articles in the contracts and articles of association involving matters concerning the government and/or restrictions on a third party (namely a non-contractual party);

(4) For projects on which the State restricts the use of foreign funds, projects that require the import of machinery and electronic equipment restricted by the State, and projects for products that involve export permit control, whether procedures of reporting and approval have been completed properly according to State stipulations;

(5) Whether there is a clear defination on the scope of business and whether the wordings have been properly and strictly addressed;

(6) The proportions of investment shared by various sides, the proportion of total investment to the registered capital, the form and time limit of investment;

(7) Whether the terms of technical transfer conform to the State's Control Regulations for Technical Import Contracts and the provisions in the feasibility study report;

(8) Whether the purchase of equipment and raw and processed materials, the proportions of products to be sold domestically and abroad, ways of selling, pricing principle, and liabilities have been clearly and sufficiently defined and specified;

(9) Whether the methods for balancing foreign exchange are feasible;

(10) Wages and welfare for Chinese and foreign workers and staff members;

(11) Make-up of the board of directors, the extent of its authority, the procedure for calling meetings of the board of directors, the establishment of operation and management organization;

(12) The settlement of disputes and the punishment for breach of contract;

(13) How the assets would be disposed upon the termination, dissolutions and clearing of the FFEs;

(14) Whether the contracts and articles of association and supplements concerned are in full standardization and meet the requirements of China's laws.

3. Contents that should be included in the document of approval for the contracts and articles of association

The document of approval for the contracts and articles of association should not be too simple and general in content but include the following terms at the least:

(1) Names of the FFEs and all the partners;
(2) The scopes of business and production scales;
(3) Total investments, registered capitals, proportions of investment shared by all parties, and forms of investment, and the principles of profit distribution should also be included if there it is a joint equity venture;
(4) Terms of operation;
(5) Confirmations to the lists of equipment to be imported;
(6) Other issues should be emphasized by approval organs.

The above contents should be carefully and accurately addressed in the approval documents.

4. Others

(1) Chinese is the standard language for the documents that need to be examined and approved by the examining and approval organs. All parties that sign the contracts should be responsible for the consistency of meanings of the Chinese and foreign versions.

(2) Technical transfer agreements and contracts for entrusting operation and management or for contracting operation should be submitted for examinations and approvals by examining and approval organs as supplementary contracts of the joint equity or coop venture contract or independently. Business loan agreements and contracts for purchasing equipment without technical transfer and for the leasing of factory buildings, the use of land, and the leasing of land, may not be submitted to the examining and approval organs for FFEs for examination and approval.

(3) If there should be any problems of principle discovered in the contracts and articles of association of FFEs, the contracts and articles of associations should be properly corrected by the parties concerned to the FFEs before they should be submitted again