Laws of the People's Republic of China

The State Council

Circular of the General Office of the State Council Concerning Sorting out and Consolidating Non-experimental Commercial Enterprises with Foreign Investment

GuoBanFa [1998] No.98

July 1,1998

To uphold the uniformity and seriousness of the policy of experiment of absorbing investment by foreign businesses in the commercial sector in China, ensure sound and orderly progress of the experiment, former State Planning Commission, former Ministry of Domestic Trade, the Ministry of Foreign Economic Relations and Trade and the State Administration for Industry and Commerce formed, in pursuance of the spirit of the "Circular of the General Office of the State Council Concerning the Questions Related to Sorting out and Consolidation of Non-experimental Foreign Business Invested Commercial Enterprises"(GuoBanFa [1997] No.26), a sorting out and consolidation group and starting from August 1997, conducted sorting out and consolidation of foreign business invested commercial enterprises the establishment of which were approved by all localities on their own beyond their mandate. Upon the approval of the State Council, the state of sorting out and consolidation is hereby notified as follows:

I.

Permission has been granted to 42 commercial enterprises with foreign investment to continue operations within the duration of joint operations after examination and verification of the percentage of contribution made by foreign businesses, the status of capital in place, duration of joint operations, business scope and status of operations in accordance with relevant state policy of absorbing foreign business investment in the commercial sector.

II.

199 foreign business invested commercial enterprises need to make rectifications after sorting out. Specific requirements for rectification are: the percentage of contribution and profit-sharing of the Chinese side in a foreign business invested commercial enterprise must be over 50%(over 40% in the midwest region), holdings of chain stores and warehouse marts must be controlled by the Chinese side, duration of joint operations shall not exceed 30 years(not exceeding 40 years in the Midwest region) and they shall not operate wholesale business; commercial enterprises of sole foreign business investment shall, in accordance with the above-mentioned standards, be transformed into Sino-foreign joint ventures or Sino-foreign cooperative commercial enterprises. Sorting out and consolidation groups formed in all localities should, by the end of 1998 and in pursuance of the requirements, complete rectification of the above-mentioned enterprises and submit reports to the State Development and Planning Commission, the Ministry of Foreign Economic Relations and Trade, the State Administration for Industry and Commerce and the State Administration of Domestic Trade for examination and verification.

III.

The aforesaid enterprises permitted to continue operations after sorting out and consolidation and the rectified enterprises found to be in line with the requirements after examination and verification shall have no right to operate import and export, shall not operate wholesale business, shall not expand the business scope and scale of construction any more, shall not open branches and extend the duration of joint operations and shall not benefit from the policy of tax reduction and tax exemption for import equipment and materials for own use.

IV.

With respect to the 36 foreign business invested commercial enterprises examined and approved after the issuance of the ((Urgent Circular of the General Office of the State Council Concerning the Immediate Stoppage of Examination and Approval of Foreign Business Invested Commercial Enterprises by Localities on their own))(GuoBanFaMingDian [1997] No.15), capital not injected in accordance with the time prescribed, that have failed to pass annual inspection or failed to take part in annual inspection, as well as those foreign business invested commercial enterprises that fall within the scope of sorting out and consolidation but have failed to submit a report shall be revoked the original approval certificates by departments of foreign economic relations and trade and departments for industry and commerce administration at the provincial level, and formalities of nullification of registration or revocation of business licenses completed.

V.

The State Development and Planning Commission, the Ministry of Foreign Economic Relations and Trade, the State Administration for Industry and Commerce and the State Administration of Domestic Trade shall jointly issue a document notifying all localities of detailed list of the aforesaid non-experimental commercial enterprises with foreign investment retained, rectified and nullified(revoked), and shall be responsible for the supervision of implementation.

VI.

Local people's governments that arbitrarily exceeded the mandate of examination and approval of foreign business invested commercial enterprises in contravention of the state policy of experiment in absorbing foreign business investment in the commercial sector and in particular the people's governments of the municipalities of Chongqing, Chengdu, Xian and Nanchang that still approved the establishment of non-experimental commercial enterprises with foreign investment on their own after the issuance of the ((Urgent Notice)) are meted out criticism in the circular. All localities should learn a lesson therefrom and do the work well of successful handling of rectification and correction and nullification (revocation) of nonexperimental commercial enterprises with foreign investment in accordance with the requirements of this Circular.

China will continue to implement the policy of actively, rationally and effectively make use of foreign investment in the light of the spirit of the 15th National Congress of the Chinese Communist Party and expand the opening up to the outside world in the commercial sector step by step on the basis of summing up the experiences in experiment. People's governments of all localities should carry out their work in pursuance of the state policy and the unified arrangement of the State Council and each shall not act in its own way, be strict in the execution of orders and prohibitions and jointly uphold the seriousness of the state policy so as to ensure that the work of absorption of foreign business investment proceeds in a sound and orderly way.