Article1
In accordance with the “Law of the People’s Republic of China on Equity Joint Ventures Using Chinese Foreign Investment”, the “Law of the People’s Republic of China on Contractual Joint Ventures Using Chinese Foreign Investment” and other relative Chinese laws, rules and regulations, the Provisions is hereby formulated in order to further expand opening to the outside, promote the reform and development of commercial enterprises, accelerate the construction of domestic market and make the pilot use of foreign investment in commercial field healthy and orderly.
Article 2
The Provisions applies to commercial Chinese-foreign equity joint venture companies and commercial Chinese-foreign contractual joint venture companies (hereinafter referred to as Commercial Joint Venture Companies) jointly established by foreign companies/enterprises and Chinese companies/ enterprises in China. Exclusively foreign-owned commercial enterprises are prohibited to be established in China for the moment.
Article 3
The Commercial Joint Venture Company must accord with the commercial development plan of the city where it is located and be able to introduce advanced world marketing art and management experience, promote modernization of domestic enterprises, bring along export of homemade products and create perfect economic and social benefits.
Article 4
The regions where the Commercial Joint Venture Companies can be set up shall be stipulated by the State Department. At present, it is limited to provincial capitals, capitals of autonomous regions, municipalities directly under the Central Government, cities directly under State planning and special economic regions (hereinafter referred to as the Pilot Regions).
Article 5
The investor of Commercial Joint Venture Company shall have the following qualifications:
1. The foreign partners or main partner of the foreign partners (hereinafter referred to as the Foreign Partners) shall be an enterprise that has powerful economic strength, advanced business management experiences and marketing art, wide international sales network, perfect reputation and performance. And it shall be able to bring along the export of Chinese products through the planned Commercial Joint Venture Company.
For the Foreign Partner who applies for establishing Commercial Joint Venture Company engaged in retail, its average annual sales income within three years before application shall be more than US$2 billion, and its assets one year before application shall be over US$200 million.
For the Foreign Partner who applies for establishing Commercial Joint Venture Company engaged in wholesale, its average annual sales income within three years before application shall be more than US$2.5 billion, and its assets one year before application shall be over US$300 million.
2. The Chinese partners or main partner of the Chinese partners (hereinafter referred to as the Chinese Partners) should be a circulation enterprise that has powerful economic strength and business capacity. Its assets one year before application should be more than RMB 50 million (for enterprise in the middle and west part of China, its assets shall be RMB 30 million). In case the Chinese Partner is a commercial enterprise, its average annual sales income within three years before application shall be RMB 300 million (for enterprise in middle and west part of China, its sales income shall be over RMB 200 million). Incase the Chinese Partner is a foreign trade enterprise, its average annual value of self-managed import and export within three years before the application shall be over US$50 million, of which, the export value shall not be less than US$30 million.
Article 6
The enterprise that applies for establishing Commercial Joint Venture Company shall has following qualifications:
1. Conforming to relative Chinese laws, rules and regulations;
2. Conforming to commercial development plan of the city where the enterprise is located;
3. The Commercial Joint Venture Company undertaking retail shall have a registered capital of no less than RMB 50 million; as for the enterprise in middle and west China, its registered capital shall not be less than RMB 30 million. The Commercial Joint Venture Company undertaking wholesale shall have a registered capital of no less than RMB 80 million; as for the enterprise in middle and west China, its registered capital shall not less than RMB 60 million;
4. As for chain Commercial Joint Venture Company with over three branch stores (except convenient stores, specialized stores and monopoly stores), the contribution proportion of the Chinese Partner of shall be no less than 51%. As for the chain Commercial Joint Venture Company, who enjoys quite good operation; whose Foreign Partner has purchased a large quantity of products in China and who should be able further to expand the export of home products through the Foreign Partner’s international sales network, the Foreign Partner is permitted to hold majority of shares after approval of the State Department;
As for the Commercial Joint Venture Company with three (or less) sub stores or convenient chain-stores, specialized chain-stores and monopoly chain-stores, the contribution proportion of the Chinese Partner shall not be less than 35%;
As for the Commercial Joint Venture Company undertaking wholesale (including retail enterprise that concurrently manages wholesale), the contribution proportion of the Chinese Partner shall not be less than 51%;
5. The Commercial Joint Venture Company can only set up chain branch stores that are directly invested and managed by the Chinese Partner and Foreign Partner jointly. Other chain stores like free chain and franchise chain are prohibited at the moment;
6. The operation duration shall not exceed 30 years. As for the Commercial Joint Venture Company in middle and west China, its duration shall not exceed 40 years.
Article 7
As for the Foreign Partner that has signed trademark & brand name license contract and technical transfer contract, the total of relevant charges drawn by the Foreign Partner shall not exceed 30% of the sales income (excluding VAD) of the Commercial Joint Venture Company of that year. The drawing period shall not be more than 10 years.
Article 8
Procedures for setting up Commercial Joint Venture Company shall be handled as follows:
– The Chinese Partner submits feasibility study report (as project proposal) and relative documents to local economic and trade commission (Economy Commission and Planning Commission). The local economic and trade commission, jointly with department in charge of internal trade, shall submit all the documents to the state Economic & Trade Committee in according to stipulated process. After having taken counsels with the Ministry of Foreign Trade and Economic Cooperation (MOFTEC), the State Economic & Trade Committee shall examine and approve the project.
– Against the approval of the feasibility study report (as project proposal), the local Foreign Economic Relations & Trade Department shall submit the joint venture contract and articles of association to MOFTEC according to stipulated process. MOFTEC shall be responsible for examination and approval of the contract and articles of association.
– After approval of establishment, the Commercial Joint Venture Company shall, within one month since the day that it is issued the Certificate of Approval, handle formalities for registration at the state industrial and commercial administration with the “Certificate of Approval for Foreign-Investment Enterprise” issued by MOFTEC.
Article 9
Following documents shall be submitted for establishment of Commercial Joint Venture Company
1. Application documents of feasibility Study
a. Feasibility study report (as project proposal) jointly prepared by each party to the joint venture;
b. Credit Certification of bank, Registration Certificate (copy) and Certificate of legal representative (copy);
c. Each party’s annual statement of assets & liabilities and statement of gains & losses within the latest three years audited by accounting firms;
d. Assessment report on state-owned assets issued by administration of state-owned assets in case the Chinese Partner invests with state-owned assets;
e. Commodity lines managed by the Commercial Joint Venture Company;
f. Other relevant documents.
2. Application documents of contract and article of association
a. Application document s of feasibility study and its certificate of approval;
b. Joint venture contract and articles of association signed by authorized representative of each party;
c. Import and export commodities lists;
d. List of board of directors of the Commercial Joint Venture Company and letters of appointment for director by each party;
e. Notice of preliminary ratification on company name issued by the State Administration for Industry and Commerce;
f. Other relevant documents.
Except the documents specified as copies, all the above-mentioned documents shall be formal and original files. In case the documents are not signed by legal representative, the letters of authorization shall be presented.
Article 10
As for the Commercial Joint Venture Company with investment contributed by state-owned circulation enterprise, the evaluation agency authorized by administration of state-owned assets shall carry out scientific and just assessment on tangible and intangible assets contributed by state-owned circulation enterprise in accordance with the “Provisions of Assessment on State-owned Assets”. The result of the assessment shall become basis for evaluation of the state-owned assets invested after it is approved by the administration of state-owned assets above provincial level.
Article 11
In case the established Commercial Joint Venture Company applies for managing wholesale concurrently, setting up branch stores or altering partners, MOFTEC shall be responsible for examination and approval after having taken counsels with the State Economic & Trade Committee. Any other alteration of the established Commercial Joint Venture shall be submitted to the original examination and approval authority for approval in accordance with current relative stipulations on foreign-investment enterprises. The Commercial Joint Venture Company shall present the following documents:
1. Application Report;
2. Report on State of Operation of the Company;
3. Report on Verification of Capital of the Company;
4. Report on State of Export and documentation of the Company;
5. Relative resolution of the board of directors;
6. Agreement on amending contract and articles of association;
7. Other relative documents.
The Commercial Joint Venture Company shall go through registration formalities for alteration at the state industrial and commercial administration within one month since approval of the amended contract and articles of association.
Article 12
Business scope of the Commercial Joint Venture Company
1. Business scope of the Commercial Joint Venture Company engaged in retail:
a. Retail business (including sale by proxy and consignment sale);
b. Organizing export of home products;
c. Self-management of import and export;
d. Management of relative services.
2. Business scope of the Commercial Joint Venture Company engaged in wholesale:
Wholesale of home commodities and import commodities with self-management; organizing export of home products.
Article 13
The Commercial Joint Venture Company engaged in retail may concurrently undertake whole against approval.
Article 14
The Commercial Joint Venture Company is prohibited to undertake agency business of export and import.
Article 15
In case the Commercial Joint Venture Company manages commodities with special regulations by the state or import & export commodities requiring quota and license, the Company shall go through approval formalities according to relative stipulations of the state.
The annual value of import commodities of the Commercial Joint Venture Company shall not be more than 30% of its sales income of commodities of that year.
Article 16
The Commercial Joint Venture Company shall be governed by Chinese laws, rules and regulations. Its legitimate operation and legal rights shall be protected by Chinese laws, rules and regulations.
In case the Commercial Joint Venture Company violates Chinese laws, rules and regulations, it shall be dealt with according to Chinese laws, rules and regulations.
Article 17
The governments of the Pilot Regions shall strictly establish the Commercial Joint Venture Companies according to the Provisions. Any activities violating the Provisions shall be dealt with by the State Economic & Trade Committee, MOFTEC and the State Administration for Industry and Commerce. Local Economic & Trade Commissions and Foreign Economic Relations & Trade Departments shall trace and learn from the Pilot Commercial Joint Venture Companies in time jointly with relative departments. Any questions emerging in pilots shall be reasonably resolved.
Article 18
The State Economic & Trade Committee, MOFTEC, the State Administration for Industry and Commerce or its authorized agencies shall supervise and administrate the Commercial Joint Venture Companies according to laws.
Article 19
Investors from Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan, who plan to set up Commercial Joint Venture Companies in China Mainland, shall refer to the Provisions.
Article 20
The Provision shall be construed by the State Economic & Trade Committee and MOFTEC.
Article 21
The Provisions shall come into force on day of issuance.
June 28, 1999