Reply of the Office of Legislative Affairs of the State Council to the Solicitation Letter of the Ministry of Commerce for Interpreting the Specific Application of Relevant Provisions of Some Administrative Regulations on the Capital Contribution by the Parties to Sino-foreign Equity Joint Enterprises and the Liquidation of Foreign-funded Enterprises

(Letter No.10 [2005] of the Office of Legislative Affaires of the State Council)



Ministry of Commerce:

The Solicitation Letter of the Ministry of Commerce for Interpreting the Specific Application of Relevant Provisions of Some Administrative Regulations on the Capital Contribution by the Parties to Sino-foreign Equity Joint Enterprises and the Liquidation of Foreign-funded Enterprises (Letter No.27 [2004] of the Ministry of Commerce) has been received. Upon deliberation, for your request for interpretation of Some Provisions on the Capital Contribution by the Parties to a Sino-Foreign Joint Equity Enterprise (hereinafter referred to as the Provisions on Capital Contribution), the Supplementary Provisions regarding Some Provisions on the Capital Contribution by the Parties to a Sino-Foreign Joint Equity Enterprise (hereinafter referred to as the Supplementary Provisions) and the Procedures of Liquidation of Foreign-funded Enterprises (hereinafter referred as the Procedures of Liquidation), we hereby reply as follows:

1. On whether the fund as raised by a joint equity party through such ways as loans in his own name shall fall into the category of the “cash belonging to the joint equity parties” as described in Article 2 of the Provisions on Capital Contribution, we think that any fund as raised by a joint equity party through such ways as loans in his own name shall be deemed as the “cash belonging to the joint equity parties”.

2. On how the original examination and approval organ may decide that a joint equity party has violated the provisions of Article 7 of the Provisions on Capital Contribution and therefore constituted a breach, we think that, where a joint equity party, in light of the provisions of Article 7 of the Provisions on Capital Contribution, files an application to the original examination and approval organ for approval to dissolve the joint equity enterprise or to seek another joint equity partner, the original examination and approval organ shall, according to the effective arbitrations of courts or relevant arbitration institutions, approve the dissolving of the joint equity enterprise or approve the joint equity enterprise party honoring the contract to seek another joint equity partner to assume the rights and obligations of the party in default as stipulated in the contract upon its judgment that the other party to the joint equity enterprise has constituted a breach as described in Article 7 of the Provisions on Capital Contribution.

3. On how many specific rights “the right to make decisions of the foreign-funded enterprise” as mentioned in the Supplementary Provisions shall include, we think that the “right to make decisions of the foreign-funded enterprise” as mentioned in the Supplementary Provisions shall include all the decision-making rights as a capital contributor of the enterprise shall have.

4. On the issue that the liquidation committee of an enterprise fails to submit the liquidation report within a specified period in violation of the provisions of Article 6 of the Procedures of Liquidation, we think that the liquidation committee as organized by a foreign–funded enterprise itself shall, in strict accordance with the provisions of Articles 6 and 32 of the Procedures of Liquidation, submit the liquidation report to the original examination and approval organ within the due time limit. Where the liquidation committee fails to submit the liquidation report within the specified period, the original examination and approval organ shall handle the matter according to paragraph 1of Article 47 of the Procedures of Liquidation.

5. On whether an enterprise may, in the liquidation duration, basing on the principle of no deduction of enterprise assets, continue to carry out its business operation, we think that this question is clearly provided for in Article 7 of the Procedures of Liquidation that no enterprise, in the liquidation duration, may carry out any new business operation.

                Office of Legislative Affairs of the State Council

                                       January 20,2005