CHINA LAW DIGEST NEWSLETTER
Vol. 1, No.9 - November 6, 2002
TOPICS THIS ISSUE:
- Supplementary Notice on Issues Related to Converting the Unlisted Foreign Investment Shares of Foreign Invested Joint Stock Limited Companies into B Shares and Making Them Tradable
- Notice on Issues Related to Making Further Adjustments to the Policies for Administration of Current Account Foreign Exchange Accounts
- Implementing Rules for Administration of the Current Account Foreign Exchange Accounts of Domestic Companies
- Implementing Regulations for the Trademark Law of the People's Republic of China
- Provisional Regulations on administration of Foreign Investment in the Rare Earth Industry
- Measures for Foreign Exchange Administration in Bonded Zones
Supplementary Notice on Issues Related to Converting the Unlisted Foreign Investment Shares of Foreign Invested Joint Stock Limited Companies into B Shares and Making Them Tradable
Issue Date: August 16, 2002
Issuing Authority: Ministry of Foreign Trade and Economic Cooperation
Effective Date: As of the issue date.
Summary:
A follow up to The Several Opinions on Issues Related to Listed Companies That Involve Foreign Investment issued by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) on October 8th 2001 ("the Opinion"), the Supplementary Notice provides further elaboration of the legal requirements that must be met in order to effect such a conversion.
In addition to the requirements set forth previously for conversion, the Supplementary Notice emphasizes that Foreign Invested Joint Stock Limited Companies shall comply with the following: 1) it must be established legally; 2) it shall comply with the policies on foreign invested industries; and 3) it shall pass the joint annual inspection on foreign invested companies and be profitable for the previous two consecutive years.
The Supplementary Notice also listed the situation that may constitute "special obligations", which will bar a Foreign Invested Joint Stock Limited Company from converting its unlisted shares according to the Opinion. Such special obligations include but are not limited to shareholder loans, loan security, technology transfer and trademark licensing.
The Supplementary Notice further clarifies the procedures that must be followed to effect conversion and the application documentation that must be submitted.
Notice on Issues Related to Making Further Adjustments to the Policies for Administration of Current Account Foreign Exchange Accounts
Issue Date: September 9, 2002
Issuing Authority: State Administration of Foreign Exchange (SAFE)
Effective Date: October 15, 2002.
Summary:
To further boost foreign trade in China and reduce operation costs, the Notice unifies the legal regime for the current account of foreign exchange accounts of both the Chinese funded enterprises and foreign invested enterprises. Under the unified system, the current account foreign exchange settlement account and the special-purpose foreign exchange account will be unified into one current account foreign exchange account.
The Notice sets a cap on the current account foreign exchange accounts. In principle, the cap on the current account foreign exchange account of a "domestic" company (including foreign invested companies) is up to 20% of the domestic company's current account foreign exchange receipt in the previous year. When a domestic company that has no current account foreign exchange receipt in the previous year opens a current account foreign exchange account, the initial cap should not exceed an amount equivalent to US$100,000.
The local SAFE authorities may adjust the caps within their jurisdiction according to the granted cap range that SAFE sets forth for the regions. The current account foreign exchange settlement accounts and special-purpose foreign exchange accounts opened before the Notice may continue to be used according to their original cap. However, domestic companies must go through the procedures with the local SAFE authorities for combining of foreign exchange accounts.
Implementing Rules for Administration of the Current Account Foreign Exchange Accounts of Domestic Companies
Issue Date: September 9, 2002
Issuing Authority: SAFE
Effective Date: October 15, 2002.
Summary:
The Implementing Rules were issued as an annex to the Notice on Issues Related to Making Further Adjustment to the Policies for Administration of Current Account Foreign Exchange Accounts ("the Notice"). "Domestic companies" refers to all domestic organizations including foreign invested enterprises, but excludes financial institutions.
The Implementing Rules provide detailed rules for the new legal regime for current account foreign exchange accounts, which is outlined in the Notice. It covers the requirements and procedures to open a current account foreign exchange account, change of the accounts, close and cancellation of the accounts as well as general operation rules of the accounts and supervision to the accounts.
Implementing Regulations for the Trademark Law of the People's Republic of China
Issue Date: August 3, 2002
Issuing Authority: State Council
Effective Date: September 15, 2002
Summary:
Almost one year after the publication of the amended Trademark Law, the State Council issued the Implementing Rules which incorporated significant changes as to the examination procedures of trademark registration.
Under the new Implementing Rules, the trademark applicant can make amendments with the Trademark Office as to the change of applicant's name, address, trademark agent, or delete designated goods/service items for pending applications. The applicant can also assign its application while the application is pending.
Meanwhile, partial opposition/cancellation is introduced to trademark dispute cases. If an application/registration is in conflict with a prior right in respect of some of the designated goods/services, the application /registration can still remain valid for the remaining non-conflicting goods/services.
Previously, an oral hearing was very rare in cases examined by the Trademark Office (TMO) or the Trademark Review and Adjudication Board (TRAB). Now, according to the amended Rules, the TRAB may hold oral hearings open to the public at the request of the concerned parties or on its own initiative. The availability of oral hearings certainly will give both parties the opportunity to fully present their arguments to the examiners of the TRAB.
The Implementing Rules also provide specific provisions on the protection of well-known trademarks. It provides that if a well-known mark owner, who does not hold any registration of its well-known mark in China finds a third party is using a confusingly similar mark for similar or identical goods, or if a well-known mark owner who owns a registration for its well-known mark in China finds a third party is using a mark for dissimilar goods and such use may mislead the public and cause damage to the interest of the well-known mark owner, the well-known mark owner can complain with the local administrations for industry and commerce (local AICs) and request the local AIC to stop the use.
Provisional Regulations on administration of Foreign Investment in the Rare Earth Industry
Issue Date: August 1, 2002
Issuing Authority: State Development and Planning Commission
Effective Date: August 1, 2002
Summary:
The Provisional Regulations divide foreign invested projects in the rare earth industry into three main categories: 1) mines, 2) smelting and separation, and 3) intensive processing and applications.
Foreign investment is prohibited in the rare earth mining industry. Foreign investment may set up joint ventures to operate smelting and separation business. Investment is encouraged in rare earth intensive processing and applications. If a Chinese enterprise plans to establish a joint venture in rare earth smelting and separation projects with a foreign investor, its business related to the mining business may not be included as part of the joint venture.
All projects of rare earth smelting and separation, despite of total investment, shall be submitted to State Development and Planning Commission for approval. For intensive processing and application projects, local planning commissions may approve those projects with less than USD30 million total investment.
Measures for Foreign Exchange Administration in Bonded Zones
Issue Date: July 25, 2002
Issuing Authority: SAFE
Effective Date: October 1, 2002
Summary:
The new Measures provide detailed rules on foreign exchange management in bonded zones.
It restates that every transaction between the bonded zone and outside the zone must be priced and settled by foreign exchange. Every transaction concerning bonded goods must be priced and settled by foreign exchange. Non-bonded goods can be traded either by renminbi or foreign exchange. The same goes for transactions between enterprises within one bonded zone. Non-trade transactions, such as services, must be priced and settled in renminbi. Transactions between bonded zones and export processing zones and the Shanghai Diamond Market can be treated as transactions between bonded zones.
The new Measures retain the general rule against foreign exchange purchases but introduce more exceptions to the rule. For instance, a zone enterprise established with renminbi funds may purchase foreign exchange for payments to parties outside of China or in non-zone areas if the enterprise's own foreign exchange funds are insufficient upon approvals from relevant foreign exchange administration. The total amount of foreign exchange purchased cannot exceed the paid-in renminbi investment of the enterprise.
Zone goods distribution enterprises and zone processing enterprises may also purchase foreign exchange for payments to parties outside of China or in non-zone areas for import trades if the enterprise's own foreign exchange funds are insufficient. However, the foreign exchange purchased annually cannot exceed the total amount of goods such enterprises import each year.
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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.
