MEASURES CONCERNING THE SUBSTITUTION OF PRODUCTS MANUFACTURED BY CHINESE-FOREIGN EQUITY JOINT VENTURES AND CHINESE-FOREIGN CONTRACTUAL JOINTVENTURES FOR SIMILAR IMPORTED PRODUCTS

Measures Concerning the Substitution of Products Manufactured by Chinese-foreign Equity Joint Ventures and Chinese-foreign Contractual Jointventures for Similar Imported Products

Article 1 These Measures are formulated in accordance with the Provisions
of the State Council Concerning the Encouragement of Foreign Investment, to
encourage foreign businessmen to invest in setting up technologically-advanced
enterprises, and to help enterprises in achieving a balance between their
foreign exchange earnings and expenditures.

Article 2 These Measures shall apply to Chinese-foreign equity joint
ventures and Chinese-foreign contractual joint ventures of a production nature
(hereinafter referred to as joint ventures and contractual ventures) which can
provide advanced technologies China needs and are engaged in the development
of new products, thereby realizing the upgrading of products and the
replacement of old products with new ones.

Article 3 Enterprises with foreign investment that satisfy the following
conditions may apply to substitute their products for similar imported
products:

(1) technologically-advanced joint ventures and contractual ventures whose
products are indeed needed in China, and which have, at the initial stage of
production, experienced some temporary difficulties in balancing their foreign
exchange earnings and expenditures in the course of realizing the replacement
of imported products with home-made ones;

(2) the products manufactured by enterprises mentioned above belong to the
categories of products the central departments, the localities and other
departments need to import at present and in the next few years;

(3) products that are recommended as substitutes for similar imported
products shall meet the needs of domestic users in specifications, properties,
the delivery time, technical services and technical training, and undergo the
appraisal conducted by the national testing center for the quality of
products, thereby confirming that the aforesaid products measure up to the
quality standard of similar imported goods; in principle, the prices of the
recommended products shall not be higher than those of the international
market at the time.

Article 4 Enterprises that recommend their products as substitutes for
similar imported goods shall make an application in that connection at the
time when they submit their project proposals. When they submit their project
feasibility study reports, they must state clearly in the reports the
proportion between domestic sales and export sales of the products
manufactured by the joint ventures and contractual ventures and the rate of
progress for the replacement of imported products with home-made ones;
moreover, they shall prove by an ample demonstration or appraise the
feasibility of substituting their products for similar imported ones
(including a statement concerning the annual quantity of their products to be
used to substitute for imported products and annual amount of foreign
exchange to be earned therefrom).

Article 5 Pursuant to the principle of administration at different
levels, the applications for the approval of using the products manufactured
by the joint ventures and contractual ventures to substitute for similar
imported goods shall be examined and approved respectively by the central
competent authorities and the local competent authorities (or departments).
If items above the norm examined and approved by the central competent
authorities need to be recommended as substitutes for similar imported
products, the matter shall be examined and approved by the State Planning
Commission; and the items below the norm examined and approved by the local
competent authorities (or departments) need to be recommended as substitutes
for similar imported products, the matter shall be examined and approved by
the local planning commissions or departments on their own.

Article 6 Import substitution to be effected in the items above the norm
to be examined and approved by the State Economic Planning Commission:

(1) of the goods which have been included in the Central Government's
medium-and long-term import plans approved by the State, except those on which
long-term import agreements have been concluded with foreign countries,
substitution for imports shall be approved in advance within the Central
Government's import plans if it is still possible that some of the goods to be
imported can be substituted with domestically-manufactured products when the
feasibility study reports are examined and approved;

(2) substitution for goods which have not been included in the Central
Government's medium-and long-term import plans shall, in principle, not be
approved in advance. However, the enterprises may apply to the State Planning
Commission for using their products as substitutes for similar imported
products if such goods have been included in the Central Government's annual
import plans and are available for substitution with home-made similar
products. Once the applications are approved, the Ministry of Foreign Economic
Relations and Trade shall handle the procedures for substituting home-made
product for similar imported products for the current year;

(3) with respect to those commodities which have not been included in the
Central Government's long-term, medium-term and annual import plans, if they
are to be imported by the local governments in the current year, the
enterprises may make an application to the local planning commission; upon
approval, the local department of foreign economic relations and trade shall
handle the procedures for using their products as substitutes for similar
imported products.

Article 7 Import substitution to be effected in the items below the norm
to be examined and approved by the local competent authorities (or
departments):

(1) of the commodities which have already been included in the long-term,
medium-term and annual import plans of the province, autonomous region, or
municipality directly under the Central Government, if there are some
available for being replaced by home-made products, they may, within the
period for executing the locality's import plan, be approved in advance by
the planning commission of the province, autonomous region, or municipality
directly under the Central Government with reference to the examining and
approving procedures adopted by the central competent authorities, and the
aforesaid planning commission shall also handle, within the aforesaid period,
the procedures for using the home-made products mentioned above as
substitutes for similar imported commodities;

(2) with respect to those commodities which have not been included in the
localities' long-term, medium-term and annual import plans, but they are to be
imported by the local area or by some other areas, a transregional operation
may be conducted for using home-made products as substitutes for similar
imported commodities. The enterprises may make an application directly to the
planning commission of the province, autonomous region, or municipality
directly under the Central Government that undertakes the import of the
aforesaid commodities; after they have obtained the approval, the department
of foreign economic relations and trade of the aforesaid province, autonomous
region, or municipality directly under the Central Government shall handle the
procedures for using their products as substitutes for similar imported
commodities;

(3) with respect to the commodities to be imported by some departments
with the foreign exchange in their possession, the enterprises may make an
application directly to these departments; after they have obtained the
consent of the departments, they shall go through the procedures for using
their own products as substitutes for similar commodities to be imported.

article 8 With respect to the aforesaid products which are to be used as
substitutes for similar imported commodities as examined and approved by the
planning commission of the central competent authorities or of the local
competent authorities (or by local departments), if these products belong to
the lot of products which are to be approved in advance within the long and
medium-term plans, they shall be further verified and confirmed in the annual
plan in accordance with the actual situation of the execution of the import
plan in the current year.

The products which have been approved as substitutes for similar imported
products shall, under equal conditions (with similar imported commodities), be
given priority of being selected for use by domestic users.

The competent departments for imports administration and the examining and
approving departments for imports at various levels shall guide and encourage
domestic users to give priority to the purchase of the products which are
manufactured by the joint ventures and contractual ventures and are in
conformity with the conditions of products used as substitutes for similar
imported products.

Article 9 When domestic users purchase products which have been approved
as substitutes for similar imported products, the payment for such products
shall be made wholly or partialy in foreign exchange to the joint ventures and
contractual ventures in accordance with the terms agreed upon by both parties
and subject to the approval of the State administrative department of foreign
exchange control.

Article 10 With respect to machinery and electrical products used as
substitutes for similar imported products, the State Economic Commission shall
formulate and publish a catalogue of products used as substitutes for similar
imported products and also the procedures for the administration of
substitution of home-made products for similar imported goods, thereby
directing the domestic users to give priority to the purchase of the products
included in the aforesaid catalogue.

The joint ventures and contractual ventures which manufacture the products
included in the aforesaid catalogue may participate in the open tender for
imported machinery and electrical equipment conducted by the China Bidding
Center for Machinery and Electrical Equipment (or by other bidding agencies
authorized by the State Economic Commission); the Center shall issue a
certificate to the enterprise which has won the tender, thereby realizing the
substitution of home-made products for similar imported goods.

Article 11 The joint ventures and contractual ventures shall, in
accordance with the provisions of Article 4 of the Measures of the Ministry of
Foreign Economic Ralations and Trade Concerning the Application by Enterprises
with Foreign Investment for the Export Licence, go through the procedures for
the importation of raw materials and component parts needed in the manufacture
of products used as substitutes for similar imported goods; when the aforesaid
products are supplied to domestic users, the transaction shall be handled in
accordance with the provisions of Article 5 of the Measures of the General
Customs Administration of the People's Republic of China Concerning the
Importation of Raw Materials and Component Parts Needed by Enterprises with
Foreign Investment to Execute Their Products Export Contracts.

Article 12 The joint ventures and contractual ventures which have
obtained the approval to use their products as substitutes for similar
imported goods must fulfil the following requirements:

(1) strictly fulfil the requirements for the export proportion stipulated
in the contract and the rate of progress for the replacement of imported
products with home-made ones;

(2) strive to maintain the advanced level of the technical performance and
quality of their products;

(3) deliver their products in accordance with the quantity and schedule
stipulated in the contract; in the event that the users suffer economic losses
caused by problems relating to the time of delivery, the quantity of products
delivered, and the quality of products, they shall bear the corresponding
economic liabilities;

Article 13 Once the products manufactured by the joint ventures and
contractual ventures have been approved as substitutes for similar imported
goods, they shall not be included again in the State plan for the distribution
of goods and materials produced domestically.

Article 14 The right to interpret these Measures shall reside in the
State Planning Commission.

Article 15 These Measures shall go into effect as of the date of
promulgation.

Appendix:

Category	FOREIGN ECONOMIC RELATIONS AND TECHNOLOGICAL COOPERATION	Organ of Promulgation	The State Council	Status of Effect	In Force
Date of Promulgation	1987-10-19	Effective Date	1987-10-19

Laws of the People's Republic of China

MEASURES CONCERNING THE SUBSTITUTION OF PRODUCTS MANUFACTURED BY CHINESE-FOREIGN EQUITY JOINT VENTURES AND CHINESE-FOREIGN CONTRACTUAL JOINTVENTURES FOR SIMILAR IMPORTED PRODUCTS