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CIRCULAR OF THE GENERAL OFFICE OF THE STATE COUNCIL CONCERNING THE STATE OF SORTING OUT AND CONSOLIDATION OF NON-EXPERIMENTAL FOREIGN BUSINESS INVESTED COMMERCIAL ENTERPRISES

    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 of Industry and Commerce formed, in pursuance of the spirit of the <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>>(Kuo Ban Fa No.[1997]26), a sorting out
and consolidation group and starting from August 1997, conducted sorting out
and consolidation of foreign business invested commercial enterprises the
establishemnt 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 foreign business invested commercial
enterprises 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
of 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 examained and approved after the issuance of the <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>>(Kuo Ban Fa
Plain Code Telegram No.[1997]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 of 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 of 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 foreign business invested commercial enterprises 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 foreign business
invested commercial enterprises on their own after the issuance of the
<> 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 non-
experimental foreign business invested commercial enterprises 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 outsdie 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.