CHINA LAW DIGEST NEWSLETTER
Vol. 1, No.5 - June 13, 2002
TOPICS THIS ISSUE:
- Implementation Rules on the Administration of Foreign Invested Enterprises on Unrestricted Import Permit
- Rules on the Administration of the Registration of Foreign Manufacturing Enterprises on Export of Food to China
- Special Rules on the Prospectus Content and Form of Foreign Invested Stock Companies
- Rules on Establishment of Foreign Participated Funds Management Company
- Rules on Establishment of Foreign Participated Securities Company
Implementation Rules on the Administration of Foreign Invested Enterprises on Unrestricted Import Permit
Issue Date: February 8, 2002
Issuing Authority: Ministry of Foreign Trade and Economic Cooperation, General Customs Administration
Effective Date: February 8, 2002
Summary:
Further to the promulgation of the Rules on the Administration of Unrestricted Import Permit on Products, the Rules were issued specifically to govern foreign invested enterprises ("FIEs") importing unrestricted products into China.
A FIE does not need to obtain the Unrestricted Import Permit if it imports products for capitalization or self-use. The products for capitalization or self-use refer to those machines, components or other materials that the FIE imports as its capital contribution or total investment. FIEs engaging in processing trade are also exempted from obtaining the Unrestricted Import Permit when importing unrestricted products. As usual, the FIEs may import the above mentioned products if the list of equipment and list of materials have been duly approved and stamped by the relevant authorities or if the processing documents have been duly approved by the authorities.
When FIEs import unrestricted products for the manufacturing of products to be distributed within China, it requires the Unrestricted Import Permit from local competent authorities before customs clearance. Each permit is (i) valid for up to 6 months in the same year and (ii) is applicable for up to 6 imports. Upon expiry of the permit within the same year, the unutilized portion of the permit may be extended once.
Rules on the Administration of the Registration of Foreign Manufacturing Enterprises on Export of Food to China
Issue Date: March 14, 2002
Issuing Authority: Ministry of Foreign Trade and Economic Cooperation, General Customs Administration
Effective Date: March 14, 2002
Summary:
The Rules replaced the trial rules issued on December 30, 1999. It regulates the registration of foreign companies manufacturing, processing or storing food products to be exported to China. All foreign manufacturers exporting food products (included in the Import Food Catalogue Requiring Company Registration) to China shall register with the State Authentication and Certification Supervision Bureau. Foreign food manufacturers are not allowed to export food to China if they are not duly registered with the said bureau. The food referred to in the Rules includes all edible or drinkable products or materials for human consumption.
Foreign manufacturer applicants shall provide the necessary documents to the authorities to prove that the life stock or plant used in the exported food are from non-pestilential areas. If the products from any registered foreign companies should fail the quality inspection test at the customs, such products will be returned, quarantined or destroyed accordingly and in some cases, the registration status of the foreign company will be revoked.
Special Rules on the Prospectus Content and Form of Foreign Invested Stock Companies
Issue Date: March 19, 2002
Issuing Authority: China Securities Regulatory Commission (CSRC)
Effective Date: March 19, 2002
Summary:
The Rules set out the information that foreign invested stock companies (FISCs) need to disclose in addition to the general information disclosure requirements required by the PRC Securities Law and PRC Company Law.
A FISC shall disclose in its prospectus the potential risks that may occur from: 1) the reliance on (i) the supply of raw materials from overseas, (ii) clients from overseas and (iii) technology services from overseas; 2) the potential changes of national laws, regulations and policies on foreign invested company tax preferential treatment ; 3) the potential changes of laws and regulations on investment or technology transfer from the home country/headquaters of the shareholder to China; 4) foreign exchange rates. A FISC shall also disclose the affiliated transactions between the FISC and its shareholders, including but not limited to i) whether the FISC's business and technology relies on foreign shareholders; whether there are any limitation on the use of trademark, patent or know-how, if so, the methods taken to protect public interests; ii) affiliated transaction with foreign shareholders in the past 3years, including but not limited to raw materials supply, product sale, royalties of technology transfer, allotments of management expenses and distribution expenses, etc. iii) market segmentation between the FISC and its foreign shareholders; iv) details of senior officers' citizenships, overseas permanent residence and titles in other offshore companies.
In respect of shareholders holding over 5% of company shares, the FISC needs to disclose the legal requirements affecting those shareholders for making investment and transferring technology from their home country to China.
Rules on Establishment of Foreign Participated Funds Management Company
Issue Date: June 1, 2002
Issuing Authority: China Securities Regulatory Committee ("CSRC")
Effective Date: July 1, 2002
Summary
Foreign Participated Funds Management Company ("foreign funds management company") refers to those funds management companies invested jointly by overseas shareholders and domestic shareholders and those converted funds management companies by transferring company shares to overseas shareholders.
The overseas shareholder of a foreign funds management company is required to satisfy the following: 1) it must be duly incorporated in its own country and in good business standing without any major punishment from securities administration and judicial bodies; 2) its home country has advanced securities, legal and regulatory system, and the securities regulatory body has signed cooperation understanding with CSRC and keep effective cooperation relationship; 3) it has no less than 300 million Renminbi worth of exchangeable currency as paid-up capital. Meanwhile, foreign share equity (whether direct or indirect) may not exceed 33%. However, within 3 years upon the accession of China into the WTO, the foreign share equity may increase to 49%. Accordingly, the Chinese party of the foreign funds management company shall hold the majority of the shares.
There are two stages for establishing a foreign funds management company jointly invested by overseas and domestic shareholders, i.e (i) the preparation stage and (ii) the establishment stage. Both stages require approvals from CSRC.
Rules on Establishment of Foreign Participated Securities Company
Issue Date: June 1, 2002
Issuing Authorities: China Securities Regulatory Committee ("CSRC")
Effective Date: July 1, 2002
Summary
Foreign Participated Securities Company ("foreign securities company") refers to those securities companies invested jointly by overseas shareholders and domestic shareholders and those converted securities companies by transferring company shares to overseas shareholders.
The overseas shareholder of a foreign securities company need to satisfy the following requirements: 1) its home country has advanced securities legal and regulatory system, and the securities regulatory body has signed cooperation understanding with CSRC and keep effective cooperation relationship; 2) it is qualified for securities operation with over 10 years financial related practice without any major punishment from securities regulatory administration and judicial bodies within last 3 years; 3) it must comply with the risk supervisory standards in its home country for the past 3 years; 4) it has a complete internal control system; and 5) it has good reputation and business remarks in the international securities market.
The domestic shareholder of a foreign securities company may contribute cash or tangible assets while the overseas shareholder is required to contribute free exchangeable currency. The foreign share equity(direct or indirect) shall not exceed 1/3 of the total shares or interests ( ). If there is more than one domestic shareholder, at least one domestic shareholder shall hold no less than 1/3of the shares or interests in the foreign securities company.
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The China Law Digest News is intended to be used for news purposes only. It should not be taken as comprehensive legal advice, and Lehman, Lee & Xu will not be held responsible for any such reliance on its contents.
