CERTAIN REGULATION ON THE SUBSCRIPTION OF CAPITAL BY THE PARTIES TO SINO-FOREIGN JOINT EQUITY ENTERPRISES

(Approved 30 December 1987 by the State Council and jointly promulgated 1 January 1988 by the Ministry of Foreign Economic Relations and Trade and the State Administration for Industry and Commerce.)

Article 1. These Regulations are formulated in accordance with the Law of the People's Republic of China on Sino-foreign Joint Equity Enterprises and other relevant statutory regulations in order to safeguard the legal rights and interests of the various parties to Sino-foreign joint equity enterprises (hereinafter referred to as joint equity enterprises) and to protect social economic order.

Article 2. The capital which the various parties to a joint equity enterprise undertake to subscribe to the enterprise in accordance with the provisions of the joint equity contract shall take the form of cash belonging to the joint equity parties, material objects,industrial propertyrights,proprietary technology, etc., belonging to the joint equity parties and in no way deployed as collateral.

In the case of investment in the form of capitalised value of material objects, industrial property rights or proprietary technology, the investor shallprovide valid certification of the rights of ownership and disposition.

Article 3. No party to a joint equity enterprise may use as its own, investment loans, leased equipment or other property obtained in the name of the joint equity enterprise or the property of a party other than the joint equity party, nor may the property or rights and interests of the joint equity enterprise or of another party to the joint equity enterprise be used as security on its capital investment.

Article 4. The respective parties to a joint equity enterprise shall stipulate in the joint venture contract the period of time for subscription ofcapitaland shall subscribe in full their contributions within the time stipulated in the contract. The certificate of capital contribution issued by the joint equity enterprise in accordance with the relevant provisions shall be submitted to the original examining and approving organ and to the Administration for Industry and Commerce for their records.

If the joint equity venture stipulates that capital is to be fully subscribed in one payment only, the respective joint venture parties shall settle their contributions in full within six months of the day of issue of the Business Licence.

If the joint venture contract stipulates that capital is to be paid up in instalments, the first payment by the respective joint venture parties shall be not less than 15% of the respective capital contribution of each party and shall be paid within three months of the day of issue the Business Licence.

Article 5. If the respective parties to a joint equity enterprise are unable to subscribe their capital within the period stipulated in Article 4, the joint equity enterprise shall be automatically dissolved and the joint equity enterprise approval certificate shall automatically cease to be valid. The joint equity enterprise shall undertake procedures for cancellation of registration with the Administration for Industry and Commerce and shall hand over its Business Licence for cancellation. If an enterprise fails to complete procedures forthe cancellation of registration and fails to hand over its Business Licence for cancellation, the Administration for Industry and Commerceshall revoke the business Licence and make a public announcement to this effect.

Article 6. If, having paid up the first instalment of capital, the joint venture parties exceed by three months any other of the instalment periods stipulated in the joint venture contract through failure to subscribe all or part of their capital, the Administration for Industry and Commerce, in consultation with the original examining and approving organ, shall issue a notice requiring the parties to pay the capital contributions in full within one month.

If the capital is not fully paid up within the notified period as stipulated in the preceding paragraph, the original examining and approving organ shall have the right to revoke the approval certificate of the joint equity enterprise. After the revocation of its approval certificate, a joint equity enterprise shall undertake procedures for cancellation of registration with the Administration for Industry and Commerce, shall hand over its Business Licence for cancellation and shall complete procedures for thecancellationof registration and finalise its rights and liabilities. If an enterprise fails to hand over its Business Licence for cancellation, the Administration for Industry and Commerce shall have the right to revoke the Business Licence and issue a public announcement to this effect.

Article 7. If one party to a joint venture fails to subscribe the amount due or to subscribe in full its capital in accordance with the due date stipulated in the joint venture contract, this shall constitute a breach of contract. The party honouring the contract shall urge the party in default to contribute its capital in full or the amount outstanding within one month. If at the end of this period the capital to be subscribed in full or in part has still not been subscribed the party in default shall forfeit all of its rights under the joint venture contract and shall automaticallywithdrawfrom the joint equity enterprise. The party honouring the contract shall apply to the original examining and approving organ within one month of the due date for approval to dissolve the joint equity enterprise or for approval to seek another joint equity partner to assume the rights and obligations of the party in default as stipulated in the contract. The party honouring the contract may, in accordance with the law, request compensation from the party in default for any economic losses caused through that party's failure to subscribe its capital in part or in full.

If a party in default, as described in the previous paragraph, has already paid up its capital in part in accordance with provisions of the joint venture contract, the joint equity enterprise shall carry out liquidation of this amount.

If the party honouring the contract fails to apply to the original examining and approving organ for approval to dissolve the joint equity enterprise or fails to apply for permission to seek another joint equity partner in accordance with the provisions of para. 1 of this Article, the examining and approving organ shall have the right to revoke the approval certificate issued to that enterprise. After the withdrawal of its approval certificate, a joint equity enterprise shall complete procedures for the cancellation of registration with the Administration for Industry and Commerce, shall hand over its Business Licence for cancellation and shall settle its rights and liabilities. If an enterprise fails to complete procedures for the cancellation of registration and fails to handoverits BusinessLicenceforcancellation,the Administration for Industry and Commerce shall have the right to revoke the Business Licence and issue a public announcement to this effect.

Article 8. In the case of a joint equity enterprise which was issued withaBusinessLicencebeforethedateof implementation of these Regulations, if the respective parties or one party to the joint equity enterprise fail (s) to subscribe their (its) capital within the period stipulated in the joint venture contract, payment of the amount of capital due in accordance with the provisions of the contract shall be made in full within two months of the date of implementation of these Regulations.

If the capital is still not paid in full within the period stipulated in the previous paragraph, the matter may be handled in accordance with the provisions of Article 5 through 7 of these Regulations.

Article 9. If, in the case of a joint equity enterprise which was issued with a Business Licence before the date of implementation of these Regulations, the times for payment of capital by the respective joint equity parties have not been stipulated in the joint venture contract, and contributions have not been paid up, the respective parties shall, within two months of the implementation of these Regulations, sign a supplementary agreement to thejointventurecontract covering the due dates for subscription of capital in accordance with these Regulations and, after submission to the original examining and approving organ for examination and approval, the details shall be filed with the Administration for Industry and Commerce.

If within two months as stated in the preceding paragraph the respective joint equity parties fail to sign a supplementary agreement covering the due dates for subscription of capital and also fail to subscribe their capital in full, with the result that the joint equity enterprise is unable to begin construction or start operations for a full six months from the date of issue of the Business Licence, the original examining and approving organ shall havethe right to revoke the approval certificate of the enterprise. After the withdrawal of its approval certificate, a joint equityenterprise shall complete procedures for the cancellation of registration with the Administration for Industry and Commerce, shall hand over its Business Licence for cancellation and shall settle its rights and liabilities.If an enterprise failstocompleteproceduresforthe cancellationof registrationand fails to hand over its Business Licence for cancellation, the Administration for Industry and Commerce shall have theright to revoke the Business Licence and issue a public announcement to this effect.

Article 10. The subscription of capital by the various parties to Sino-foreign co-operative enterprises shall be handled with reference to these Regulations.

Article 11. These Regulations shall take effect from 1 March 1988.