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PROVISIONS OF THE STATE COUNCIL CONCERNING THE ISSUE OF BALANCE OF INCOME AND EXPENDITURE IN FOREIGN EXCHANGE OF CHINESE-FOREIGN EQUITY JOINT VENTURES

    Article 1  These Provisions are formulated for the purpose of encouraging
foreign investors to set up Chinese-foreign equity joint ventures in China
and promoting the achievement of balance of income and expenditure in foreign
exchange of these ventures so as to facilitate their production and business
operations and make it available for foreign partners to remit abroad their
legitimate profits obtained in China.

    Article 2  Chinese-foreign equity joint ventures should try to increase
export of their products and generate more foreign exchange and strive to
achieve balance of income and expenditure in foreign exchange.

    Article 3  If the income and expenditure in foreign exchange of a
Chinese-foreign equity joint venture which has been set up with approval and
in accordance with the law need to be regulated, the regulation shall be
administered and effected by the authorities at different levels in accordance
with their respective authority for examination and approval. With respect
to a Chinese-foreign equity joint venture which has been set up with the
approval of competent state authorities, the regulation of its income and
expenditure in foreign exchange shall be effected by the competent state
authorities from the foreign exchange revenues of the Chinese-foreign equity
joint ventures throughout the country, or it may also be effected jointly by
the competent state authorities and the local people's governments in
accordance with the percentage agreed upon through consultation between
them. With respect to a Chinese-foreign equity joint venture which has been
launched with the approval of the local people's government or of the
department concerned of the State Council of the People's Republic of China
which has been authorized by the State Council of the People's Republic of
China or entrusted by competent state authorities to grant the approval,
the regulation of its revenue and expenditure in foreign exchange shall be
effected by the local people's government or the department concerned from
the foreign exchange revenues of the Chinese-foreign equity joint ventures
which have been launched with their approval.

    Article 4  Sophisticated products manufactured with advanced technology
or key technology provided by foreign joint venturers or quality products
highly competitive on the international market may be granted preferential
treatment in respect of the percentage and the time limit allowed for placing
them on the domestic market, provided that they are urgently needed
domestically and are proved to be up to standard upon appraisal by competent
authorities and that the granting of such treatment has been approved in
accordance with the power for examination and approval and the procedures
of examination and approval prescribed by the state. The placing of such
products on the domestic market shall be specified in the contract signed
between the manufacturers and the party that needs the products.

    The plan for the balance of revenue and expenditure in foreign exchange
in the joint ventures involved in the preceding paragraph of this Article
shall be formulated by the approving authorities in accordance with the
provisions in the second paragraph of Article 3 of these Provisions. The plan
for the balance of revenue and expenditure in foreign exchange thus
formulated by the approving authorities shall, in accordance with the
respective administrative order, be submitted to the Ministry of Foreign
Economic Relations and Trade or the local department of foreign economic
relations and trade for examination and comments and then be submitted to the
State Planning Commission or the local planning commission for approval,
upon which it shall be included into the long-term plan or annual plan for
the use of foreign exchange and put into practice.

    Article 5  Products manufactured by Chinese-foreign equity joint ventures
which for a long time have had to be imported or are urgently needed may, in
accordance with the quality and specifications required of the products and
the status of their importation and upon approval by the competent
authorities of the State Council of the People's Republic of China or by the
local competent authorities, be used as import substitutes. Such substitution
shall be specified in the Chinese-foreign equity joint venture contract signed
between the two parties thereto or in the contract signed between the
manufacturers and the party that needs the products.

    Departments of foreign economic relations and trade shall give active
support to the domestic units that are users of the products and encourage
them to sign purchase and sale contracts with the Chinese-foreign equity
joint ventures referred to in the preceding paragraph in accordance with the
prices prevailing in the international market. The plans for the use of
foreign exchange for these units shall be formulated in accordance with
the provisions in the second paragraph of Article 3 of these Provisions.
The plans thus formulated shall, in accordance with the respective
administrative order, be submitted to the Ministry of Foreign Economic
Relations and Trade or the local departments of foreign economic relations
and trade for examination and comments and then be submitted to the State
Planning Commission or the local planning commissions for approval, upon
which they shall be included in the long-term plans or annual plans for the
use of foreign exchange and put into practice.

    Article 6  In their efforts to seek a balance of revenue and expenditure
in foreign exchange, Chinese-foreign equity joint ventures may, upon approval
by departments of foreign economic relations and trade, make use of the
foreign joint venturers' marketing relations to promote the export of
demestic products and achieve comprehensive compensation. But with respect
to the products which are under the State's centralized management, or for
which export quotas are set, or for which an export licence is to be applied
for and obtained, they shall be exported only with the special permission
of the Ministry of Foreign Economic Relations and Trade. In default of such
special permission no Chinese-foreign equity joint ventures may engage in the
export business of these products.

    Article 7  If a Chinese-foreign equity joint venture fails to fulfil the
tasks of export and bringing in foreign exchange earnings it has undertaken
in accordance with the stipulations of the contract, thus causing an
imbalance of revenue and expenditure in foreign exchange, the authorities
concerned shall not be held responsible for the regulation thereof.

    Article 8  The products sold by Chinese-foreign equity joint ventures to
enterprises which are located in areas other than the Special Economic Zones
and the Economic and Technological Development Areas of the Open Coastal
Cities and which are capable of making payment in foreign exchange shall,
upon approval by the state departments for control of foreign exchange, be
permitted to be priced and settled in foreign exchange.

    Article 9  With respect to a foreign joint venturer who has set up two or
more Chinese-foreign equity joint ventures inside China (including those in
different localities and different sectors), the legitimate share of foreign
exchange the venturer is entitled to receive, in case of surplus in one
venture but deficit in another, may, upon approval by the state department
for control of foreign exchange, be regulated between the ventures the
venturer has set up.

    The regulation referred to in the preceding paragraph shall be subject to
the consent of all the parties to the joint ventures.

    Article 10  Foreign joint venturers in Chinese-foreign equity joint
ventures who fail to achieve a balance of revenue and expenditure in foreign
exchange may, upon approval by the departments of foreign economic relations
and trade and departments for control of foreign exchange, re-invest the
share of profit in Renminbi that they have received from the ventures in
domestic enterprises that are capable of bringing in or increasing foreign
exchange earnings in accordance with the provisions in Article 7 of the Law
of the People's Republic of China on Chinese-foreign Equity Joint Ventures
and may, in addition to enjoying the preferential treatment of getting part
of their paid incomes taxes refunded, obtain foreign exchange from the newly
increased foreign exchange revenues of the enterprises which have accepted
their investments and remit abroad their legitimate profit.

    Article 11  These Provisions shall apply to the Chinese-foreign equity
ventures established inside China and to the joint ventures and contractual
joint ventures set up on China's mainland by companies, enterprises and other
economic organizations in the regions of Hong Kong, Macao and Taiwan. They
shall also apply to the joint ventures and contractual joint ventures set up
with investments by overseas Chinese.

    Financial and insurance enterprises established inside China by foreign
joint venturers and enterprises of the same kind set up on China's mainland
by joint ventures from the regions of Hong Kong, Macao and Taiwan shall not
be governed by these Provisions.

    Article 12  Where provisions existing, before the promulgation of these
Provisions, concerning the question of the balance of revenue and expenditure
in foreign exchange are in conflict with these Provisions, the latter shall
prevail.

    Article 13  The Ministry of Foreign Economic Relations and Trade shall
be responsible for the interpretation of these Provisions.

    Article 14  These Provisions shall go into effect on February 1, 1986.