PRC Wholly Foreign-owned Enterprise Law Implementing Rules (Revised)

(Approved by the State Council on 28 October 1990, promulgated by the Ministry of Foreign Economic Relations and Trade on 12 December 1990, revised in the Decision> on 12 April 2001.)

Part One: General Provisions

Article 1: These Rules are formulated in accordance with the PRC Wholly Foreign-owned Enterprise Law.

Article 2: Wholly foreign-owned enterprises shall be governed and protected by the laws of China.

When conducting business activities in the People's Republic of China, wholly foreign-owned enterprises must abide by the laws and regulations of China and may not harm China's public interest.

Article 3: The establishment of wholly foreign-owned enterprises must be beneficial to the development of China's national economy, and yield notable economic benefits. The State encourages wholly foreign-owned enterprises to use advanced technology and equipment, develop new products, upgrade and replace existing products, save energy and raw materials, and the State also encourages the establishment of wholly foreign-owned enterprises that export products.

Article 4: Industries in which the establishment of wholly foreign-owned enterprises is prohibited or restricted shall be handled in accordance with the provisions of the State for directing foreign investment and the Foreign Investment Industrial Guidance Catalogue.

Article 5: Applications for the establishment of wholly foreign-owned enterprises shall not be approved in any of the following circumstances:

(1) Where China's sovereignty or public interest would be harmed;

(2) Where China's state security would be jeopardized;

(3) Where China's laws and regulations would be violated;

(4) Where the requirements for the development of China's national economy would not be satisfied; or

(5) Where environmental pollution might be caused.

Article 6: Wholly foreign-owned enterprises shall enjoy autonomy of management and operations, free from interference, when operating within their approved scope of business.

Part Two: Establishment Procedures

Article 7: The examination and approval of applications to establish wholly foreign-owned enterprises shall be carried out by the People's Republic of China, Ministry of Foreign Trade and Economic Cooperation (hereafter, "MOFTEC"); subsequent to examination and approval, an approval certificate shall be issued.

The State Council shall authorize the people's governments of provinces, autonomous regions, centrally governed municipalities, municipalities with independent development plans and Special Economic Zones to examine and approve applications, and to issue approval certificates, for the establishment of wholly foreign-owned enterprises in the following situations:

(1) where the total amount of investment does not exceed the maximum amount that the State Council has authorized the people's government in question to examine and approve; and

(2) where it is not necessary for the state to allocate raw materials, and the nationwide balance of energy, communications, transportation, foreign trade export quotas and similar items will not be affected.

Within 15 days after approving the establishment of a wholly foreign-owned enterprise within the limits of authority assigned by the State Council, the people's governments of provinces, autonomous regions, centrally governed municipalities, municipalities with independent development plans or Special Economic Zones shall record such approval with MOFTEC (MOFTEC and the people's governments of provinces, autonomous regions, centrally governed municipalities, municipalities with independent development plans and Special Economic Zones shall hereafter be collectively referred to as "examination and approval authorities").

Article 8: Where applications are made to establish wholly foreign-owned enterprises and where the production carried out by such enterprises would involve export licences, export quotas, import licences or imports that are restricted by the state, prior consent shall be obtained from the relevant responsible foreign economic relations and trade departments in accordance with the limits of administrative authority.

Article 9: Prior to applying to establish a wholly foreign-owned enterprise, the foreign investor shall submit a report to the local people's government at or above the county level in the place where he intends to establish the enterprise. The contents of such report shall include the following information concerning the wholly foreign-owned enterprise to be established: the objects of the enterprise; the scope and scale of business; the products to be produced; the technology and equipment to be employed; the area and specifications of land to be used; the specifications and quantities of water and electricity, coal, coal gas and other energy sources required; requirements for public utilities; and other items.

The local people's government at or above the county level shall reply to the foreign investor in writing within 30 days after receiving such report.

Article 10: A foreign investor who wishes to establish a wholly foreign-owned enterprise shall apply and submit the following documents to the examination and approval authorities through the people's government at or above the county level in the place where the investor intends to establish the enterprise:

(1) an application for the establishment of a wholly foreign-owned enterprise;

(2) a feasibility study;

(3) the articles of association of the wholly foreign-owned enterprise;

(4) the name of the legal representative (or the names of the members of the board of directors) of the wholly foreign-owned enterprise;

(5) the legal certificate and a certificate of credit-worthiness of the foreign investor;

(6) the written reply from the people's government at or above the county level of the intended place of establishment of the wholly foreign-owned enterprise;

(7) a list of Materials that must be imported; and

(8) other documents to be submitted.

The documents described in Items (1) and (3) of the preceding paragraph must be written in Chinese. The documents described in Items (2), (4) and (5) may be written in a foreign language, but shall be accompanied by Chinese translations.

Where two or more foreign investors jointly apply for the establishment of a wholly foreign-owned enterprise, a duplicate of the contract between the investors shall be recorded with the examination and approval authority.

Article 11: Examination and approval authorities shall decide whether or not to approve an application to establish a wholly foreign-owned enterprise within 90 days from the date of receiving all the documents pertaining to such application. If an examination and approval authority finds that the aforementioned documents are not complete or are not in order, it may demand that the missing documents be submitted or that the submitted documents be amended within a specified period of time.

Article 12: After the application to establish a wholly foreign-owned enterprise has been approved by examination and approval authorities, the foreign investor shall, within 30 days from the date of receiving the approval document, apply to the industry and commerce administrative authorities for registration and obtain a business licence. The date of issuance of the business licence of the wholly foreign-owned enterprise shall be the date of establishment of the enterprise.

The approval certificate for a wholly foreign-owned enterprise shall become void automatically if the foreign investor fails to apply to the industry and commerce administrative authorities for registration within a full 30 days from the date of issue of the approval certificate.

Wholly foreign-owned enterprises shall carry out tax registration with the tax authorities within 30 days after the date of their establishment.

Article 13: Foreign investors may appoint Chinese foreign investment enterprise service organizations or other economic organizations to carry out, on their behalf, the procedures in Article 8, the first paragraph of Article 9 and Article 10, provided that they enter into a contract for such appointment.

Article 14: Written applications for the establishment of a wholly foreign-owned enterprise shall include the following information:

(1) the name, address and place of registration of the foreign investor and the name, nationality and position of its legal representative;

(2) the name and address of the wholly foreign-owned enterprise to be established;

(3) the scope of business, types of product and scale of production;

(4) the total amount of investment, registered capital, sources of funds, and the method and time limits for capital contribution of the wholly foreign-owned enterprise to be established;

(5) the form of organization, structure and legal representative of the wholly foreign-owned enterprise to be established;

(6) the principal equipment to be employed and the age of such equipment, and the level and sources of the production technology and processes to be employed;

(7) the targeted buyers and sales areas of the products, marketing methods and channels;

(8) the scheme for arranging receipts and expenditures in foreign exchange;

(9) the structural and staffing organization of the enterprise, and arrangements for the hiring, training, wages, welfare benefits, insurance, labour protection, and other items pertaining to employees;

(10) the maximum possible degree of environmental pollution that might be caused, and measures to solve this problem;

(11) the selection and area of the land to be used;

(12) the funds, energy and raw materials for capital construction, production and operation, and the methods for obtaining such funds;

(13) the schedule for carrying out the project; and

(14) the term of operation of the wholly foreign-owned enterprise to be established.

Article 15: The articles of association of a wholly foreign-owned enterprise shall cover the following matters:

(1) the name and address;

(2) the objects and scope of business;

(3) the total amount of investment, registered capital and time limits for contributing capital;

(4) the organizational structure;

(5) internal organizations and their powers and rules of procedure; and the duties and limits of authority of personnel such as the legal representative, the general manager, the chief engineer and the chief accountant;

(6) the principles and systems for conducting financial matters, accounting and auditing;

(7) labour management;

(8) the term of operation, [and provisions for] termination and liquidation; and

(9) the procedures for amending the articles of association.

Article 16: The articles of association of a wholly foreign-owned enterprise, and any amendments thereto, shall become effective upon approval by the examination and approval authorities.

Article 17: If wholly foreign-owned enterprises are divided or merged, or if major changes in their capital occur for other reasons, approval must be obtained from the examination and approval authorities, and Chinese registered accountants shall be engaged to verify the changes and to issue capital verification certificates. Upon approval by the examination and approval authorities, the changes shall be registered with the industry and commerce administrative authorities.

Part Three: Form of Organization and Registered Capital

Article 18: The form of organization of a wholly foreign-owned enterprise shall be a limited liability company. Upon approval, wholly foreign-owned companies may also be subject to other forms of liability.

Where a wholly foreign-owned enterprise is a limited liability company, the liability of the foreign investors in respect of the enterprises shall be limited to the amounts of capital that they contribute.

Where wholly foreign-owned enterprises are subject to other forms of liability, the liability of the foreign investors in respect of the enterprises shall be as specified in the laws and regulations of China.

Article 19: The term "total amount of investment of a wholly foreign-owned enterprise" means the total amount of funds required to set up a wholly foreign-owned enterprise, i.e. the sum of the capital construction funds and working capital required to be invested in order to realize the enterprise's scale of production.

Article 20: The term "registered capital of a wholly foreign-owned enterprise" means the total amount of capital used in the establishment of a wholly foreign-owned enterprise that is registered with industry and commerce administrative authorities, i.e. the total amount of capital contributed by the foreign investor.

The amount of the registered capital of a wholly foreign-owned enterprise shall correspond to its scale of business. The ratio between the registered capital and the total amount of investment shall conform to the relevant regulations of China.

Article 21: Wholly foreign-owned enterprises may not reduce their registered capital during their term of operation. However, where it is necessary to make such reductions due to changes in total investment and production or the scale of operation or production, the reduction shall be subject to the approval of the examination and approval authority.

Article 22: The increase or transfer of the registered capital of a wholly foreign-owned enterprise must be approved by the examination and approval authorities. Upon approval, such change shall be registered with the industry and commerce administrative authorities.

Article 23: The mortgage or assignment by a wholly foreign-owned enterprise to a third party of its property or interests must be approved by the examination and approval authorities and recorded with the industry and commerce administrative authorities.

Article 24: The legal representative of a wholly foreign-owned enterprise shall be the responsible person who, pursuant to the enterprise's articles of association, has the power to represent the enterprise.

If the legal representative is unable to exercise his powers, he shall appoint an agent, in writing, to exercise such powers on his behalf.

Part Four: Methods and Time Limits for Contributing Capital

Article 25: Foreign investors may contribute capital in the form of freely convertible foreign currencies, or may capitalize items such as machinery, equipment, industrial property or proprietary technology according to the monetary value of such items.

Upon approval by the examination and approval authorities, foreign investors may also use as capital contribution Renminbi profits derived by them from other foreign investment enterprises established in the People's Republic of China.

Article 26: Where foreign investors capitalize machinery and equipment according to its value, machinery or equipment shall be that required for the production by the wholly foreign-owned enterprises.

The value at which the above machinery and equipment is capitalized may not exceed the current regular price on the international market for the same kind of machinery and equipment.

A detailed list shall be made of all machinery and equipment that is capitalized according to value. Such list shall specify the descriptions, types, quantities, assessed value, and other matters concerning the machinery and equipment. The list shall be annexed to the application for the establishment of the wholly foreign-owned enterprise, and submitted to the examination and approval authorities together with such application.

Article 27: Where foreign investors capitalize industrial property or proprietary technology according to its value, such property or technology shall be owned by the foreign investor.

The valuation of such industrial property or proprietary technology shall be consistent with common international principles of valuation, and the amount at which such property or technology is valued shall not exceed 20% of the registered capital of the wholly foreign-owned enterprise.

Detailed information shall be prepared concerning the industrial property or proprietary technology that is capitalized according to its value. Such information shall include copies of certificates pertaining to ownership and details of their validity, information on the technical function and practical value of the property or technology, and the bases and standards used for conducting valuation. The above information shall be annexed to the application for establishment of the wholly foreign-owned enterprise, and submitted to the examination and approval authorities along with such application.

Article 28: When machinery and equipment that have been capitalized according to their value arrive at a Chinese port, the wholly foreign-owned enterprise shall request that a Chinese commodity inspection organization inspect the machinery and equipment. Such commodity inspection organization shall issue an inspection report.

Where discrepancies occur between the types, quality and quantities of machinery and equipment that have been capitalized according to their value and the types, quality and quantities of the machinery and equipment specified on the list of items capitalized according to their value submitted by the foreign investor to the examination and approval authorities, the examination and approval authorities shall have the power to demand that the foreign investor rectify such discrepancies within a specified period of time.

Article 29: The examination and approval authorities shall have the power to inspect industrial property or proprietary technology that has been capitalized according to its value, after the use of such property or technology has commenced. Where discrepancies occur between such industrial property or proprietary technology and the information originally supplied by the foreign investor, the examination and approval authorities shall have the power to demand that the foreign investor rectify such discrepancies within a specified period of time.

Article 30: The time limit within which a foreign investor is to contribute its capital shall be stated in the application to establish the wholly foreign-owned enterprise and in the enterprise's articles of association. Foreign investors may contribute their capital in instalments, provided that the final instalment is contributed within three years from the date of issuance of the business licence. The first of such instalments may not account for less than 15% of the amount of capital to be contributed by the foreign investor, and shall be contributed in full within 90 days from the date of issuance of the business licence of the wholly foreign-owned enterprise.

If a foreign investor fails to pay in the first instalment of its capital contributions within the time limit set forth in the preceding paragraph, its approval certificate shall automatically become void. The wholly foreign-owned enterprise shall carry out procedures with the industry and commerce administrative authorities to cancel its registration and turn over its business licence for cancellation. If the wholly foreign-owned enterprise fails to cancel its registration and turn over its business licence for cancellation, the industry and commerce administrative authorities shall revoke such business licence and make a public announcement.

Article 31: Foreign investors shall contribute according to schedule all instalments following the first instalment of their capital contributions. If a capital contribution becomes 30 days overdue without legitimate reason, the matter shall be handled pursuant to the second paragraph of Article 30 of these Rules.

If a foreign investor requests an extension of the time limit for its capital contribution for legitimate reasons, such extension shall be agreed to by the examination and approval authorities and recorded with the industry and commerce administrative authorities.

Article 32: After a foreign investor has contributed all the instalments of its capital contribution, the wholly foreign-owned enterprise shall engage a Chinese-registered accountant to verify the contribution and issue an investment verification report. Such report shall be recorded with the examination and approval authorities and the industry and commerce administrative authorities.

Part Five: Use of Land and Related Fees

Article 33: The land to be used by a wholly foreign-owned enterprise shall be arranged by the people's government at or above the county level in the location of the enterprise. Land use shall be considered and arranged in light of local circumstances.

Article 34: Within 30 days from the date of issue of their business licences, wholly foreign-owned enterprises shall present their approval certificates and business licences to the land administration departments of the county or higher level people's governments in the places where the enterprises are located, carry out procedures for acquiring use of the land, and obtain Land Use Certificates.

Article 35: Land Use Certificates shall be the legal documents on the basis of which wholly foreign-owned enterprises may use land. Without approval, wholly foreign-owned enterprises may not assign the right to use their land during their terms of operation.

Article 36: When collecting their Land Use Certificates, wholly foreign-owned enterprises shall pay rent to the land administrative departments in the places where they are located.

Article 37: Wholly foreign-owned enterprises using developed land shall pay land development fees.

The land development fees mentioned in the preceding paragraph shall include expenses incurred during requisitioning of the land, demolition, removal and resettlement, and the construction expenses incurred when linking the wholly foreign-owned enterprise to existing infrastructure. Land development work units may charge land development fees in a lump sum or in annual instalments.

Article 38: Wholly foreign-owned enterprises using undeveloped land may develop the land themselves or engage relevant Chinese work units to carry out such development. The construction of infrastructural facilities shall be centrally arranged by the local people's governments of the places where the wholly foreign-owned enterprises are located.

Article 39: The scales for the rent and land development fees charged to wholly foreign-owned enterprises shall be set in accordance with the relevant regulations of China.

Article 40: The term of a land use right held by a wholly foreign-owned enterprise shall be the same as the term of operation of the enterprise.

Article 41: In addition to obtaining land use rights in accordance with this Part, wholly foreign-owned enterprises may obtain such rights pursuant to other laws and regulations of China.

Part Six: Purchases and Sales

Article 42: Wholly foreign-owned enterprises shall have the right to decide on their own purchases of machinery, equipment, raw materials, fuel, spare parts, accessories, components, devices, means of transportation, office articles and other items used by the enterprises themselves (hereafter, "Materials").

When wholly foreign-owned enterprises purchase Materials in China, they shall be granted terms equal to those enjoyed by Chinese enterprises, given that conditions are equal.

Article 43: Wholly foreign-owned enterprises may sell their products on the Chinese market. The State encourages wholly foreign-owned enterprises to export the products they produce.

Article 44: Wholly foreign-owned enterprises shall have the right to export their own products, and may also appoint Chinese foreign trade companies or companies outside the People's Republic of China to sell their products on their behalf.

Wholly foreign-owned enterprises may sell their own products in China or appoint a commercial organization to sell their products on their behalf.

Article 45: Where foreign investors contribute as capital machinery and equipment for which China requires import licences, the wholly foreign-owned enterprises shall, either directly or through an appointed agent, apply to the licensing authorities and obtain import licences on the strength of the enterprises' approved lists of imported equipment and Materials.

Where wholly foreign-owned enterprises, within their approved scopes of business, import Materials required for use in their own production for which Chinese regulations require the obtaining of an import licence, such enterprises shall draw up annual import plans for these Materials and shall, once every six months, apply to the licensing authorities and obtain import licences.

Where wholly foreign-owned enterprises export products for which China requires an export licence, the enterprises shall draw up annual export plans and once every six months apply to the licensing authorities and obtain export licences.

Article 46: The prices of the Materials imported by wholly foreign-owned enterprises and of their labour services may not exceed the normal prices of the same Materials and services on the international market at that time. The prices of products exported by wholly foreign-owned enterprises shall be set by wholly foreign-owned enterprises themselves by reference to the prices on the international market at that time, provided that they are not set lower than reasonable export prices. If wholly foreign-owned enterprises evade taxes by means such as importing at high prices and exporting at low prices, the tax authorities shall have the power to investigate the liability of the enterprises pursuant to tax laws.

Article 47: Wholly foreign-owned enterprises shall provide statistical information and submit statistical statements in accordance with the PRC Statistics Law and China's regulations for the system of keeping statistics concerning the use of foreign funds.

Part Seven: Taxation

Article 48: Wholly foreign-owned enterprises shall pay taxes in accordance with the laws and regulations of China.

Article 49: The employees of wholly foreign-owned enterprises shall pay individual income tax in accordance with the laws and regulations of China.

Article 50: Wholly foreign-owned enterprises shall be entitled to tax reductions or tax exemptions in accordance with the relevant provisions of the tax laws of China when importing the following supplies:

(1) machinery, equipment, spare parts, construction materials and the materials required for installing and reinforcing machinery, that serve as the capital contributions of the foreign investor;

(2) machinery, equipment, spare parts, vehicles and management equipment necessary for the enterprises' production that are imported by wholly foreign-owned enterprises using funds from their total amounts of investment; and

(3) raw materials, auxiliary materials, components, spare parts and packaging materials imported by wholly foreign-owned enterprises for the production of export products.

If, upon approval, the imported Materials mentioned in the preceding paragraph are sold in the People's Republic of China, rather than being exported, or are used for the production of products to be sold in the People's Republic of China, rather than for the production of export products, duties and tax shall be paid retrospectively in accordance with China's tax laws.

Article 51: Export products produced by wholly foreign-owned enterprises, except for those the export of which is restricted by China, shall be entitled to tax reductions, tax exemptions or tax refunds in accordance with the relevant provisions of the tax laws of China.

Part Eight: Exchange Control

Article 52: The foreign exchange matters of wholly foreign-owned enterprises shall be handled in accordance with the relevant exchange control regulations of China.

Article 53: Wholly foreign-owned enterprises may on the strength of the business licences issued to them by the industry and commerce administrative authorities, open accounts with banks in the People's Republic of China that are allowed to engage in foreign exchange business. The payments into and out of such accounts shall be supervised by the banks with which they have been opened.

The foreign exchange revenue of wholly foreign-owned enterprises shall be deposited in the foreign exchange accounts they have opened with their banks. Foreign exchange expenditures shall be paid out of their foreign exchange bank accounts.

Article 54: Wholly foreign-owned enterprises that wish to open foreign exchange accounts with banks outside the People's Republic of China in order to meet their production and business needs must obtain approval from China's exchange control authorities and regularly report their foreign exchange receipts and payments and submit bank check sheets in accordance with the regulations of China's exchange control authorities.

Article 55: Upon payment of tax in accordance with China's tax laws, the wages and other lawful foreign exchange income of the expatriate, Hong Kong, Macao and Taiwan employees of wholly foreign-owned enterprises may be freely remitted out of the country.

Part Nine: Financial Matters and Accounting

Article 56: Wholly foreign-owned enterprises shall establish a finance and accounting system in accordance with Chinese legislation and the regulations of China's financial authorities and shall record such system with the finance and taxation authorities in the place where they are located.

Article 57: The fiscal year of wholly foreign-owned enterprises shall commence on 1 January of the Gregorian calendar and end on 31 December of the same year.

Article 58: Wholly foreign-owned enterprises shall make allocations to reserve funds and to bonus and welfare funds for their employees from their profits after paying income tax in accordance with China's tax laws. The allocations to the reserve fund of an enterprise may not be lower than 10% of the after-tax profits of the enterprise, but when the cumulative amount of allocated funds equals 50% of the registered capital, no further allocations need be made. The rate of allocations to the bonus and welfare fund for employees shall be determined by the wholly foreign-owned enterprises themselves.

Wholly foreign-owned enterprises may not distribute profits until their losses from preceding fiscal years have been made up. Retained profits from preceding fiscal years may be distributed together with the distributable profits of the current fiscal year.

Article 59: Accounting vouchers, books and statements printed by wholly foreign-owned enterprises themselves shall be written in Chinese; where such vouchers, books and statements are written in a foreign language, they shall include notes in Chinese.

Article 60: Wholly foreign-owned enterprises shall keep independent accounts.

The annual accounting statements and liquidation accounting statements of wholly foreign-owned enterprises shall be prepared in accordance with the regulations of China's finance and tax authorities. If accounting statements are prepared in a foreign currency, renminbi accounting statements shall be prepared simultaneously by converting the foreign currency amounts into renminbi.

Chinese registered accountants shall be engaged to verify the annual accounting statements and liquidation accounting statements of wholly foreign-owned enterprises and to issue reports [concerning such verification].

The annual accounting statements and liquidation accounting statements of wholly foreign-owned enterprises described in the second and third paragraphs, together with the reports issued by Chinese registered accountants, shall be submitted within the prescribed time limits to the finance and tax authorities and shall be recorded with the examination and approval authorities and industry and commerce administrative authorities.

Article 61: Foreign investors may engage at their own expense Chinese or foreign accounting staff to inspect the accounts of their wholly foreign-owned enterprises.

Article 62: Wholly foreign-owned enterprises shall submit their annual balance sheets and profit and loss statements to the finance and tax authorities and shall record such sheets and statements with the examination and approval authorities and the industry and commerce administrative authorities.

Article 63: Wholly foreign-owned enterprises shall keep their accounts in the place where they are located. Such accounting books shall be subject to supervision by the financial and taxation authorities.

If a wholly foreign-owned enterprise violates the provisions of the preceding paragraph, the finance and tax authorities may impose a fine on the enterprise and the industry and commerce administrative authorities may suspend the business activities of the enterprise or revoke its business licence.

Part Ten: Employees

Article 64: Wholly foreign-owned enterprises shall enter into labour contracts with the employees that they employ in the People's Republic of China, in accordance with the laws and regulations of China. Such contracts shall specifically cover matters such as employment, dismissal, remuneration, welfare, labour protection and labour insurance.

Wholly foreign-owned enterprises may not employ children as labourers.

Article 65: Wholly foreign-owned enterprises shall be responsible for the business and technical training of their employees and the establishment of an employee assessment system, in order that the production and management skills of their employees will be sufficient to meet the production and development requirements of the enterprises.

Part Eleven: Labour Union

Article 66: The employees of wholly foreign-owned enterprises shall have the right to establish basic-level labour unions and carry on labour union activities in accordance with the PRC Labour Union Law.

Article 67: The labour unions of wholly foreign-owned enterprises shall represent the rights and interests of employees. Such unions shall have the right to enter into labour contracts with the enterprise on behalf of employees and to supervise the implementation of such contracts.

Article 68: The basic tasks of the labour union of a wholly foreign-owned enterprise shall be to protect the lawful rights and interests of the employees in accordance with the laws and regulations of China; to assist the enterprise in arranging and using the bonus and welfare fund for employees in a rational way; to organize the employees in political, scientific, technical and vocational study; to organize cultural and athletic activities; and to teach the employees to observe disciplinary rules for labour and strive to accomplish the various economic tasks of the enterprise.

When a wholly foreign-owned enterprise considers and decides on matters concerning its employees such as rewards, punishment, the wage system, welfare benefits, labour protection and labour insurance, a representative of the labour union of the enterprise shall have the right to attend the meeting. Wholly foreign-owned enterprises shall listen to the opinions of their labour unions and obtain their co-operation.

Article 69: Wholly foreign-owned enterprises shall actively support the work of their labour unions and, in accordance with the PRC Labour Union Law, shall provide such unions with the necessary premises and equipment for office work and meetings and for use in organizing welfare, cultural and athletic activities for employees. Wholly foreign-owned enterprises shall each month allocate labour union funds at the rate of 2% of the total take-home wages of their employees. Such funds shall be used by the labour unions of the enterprises in accordance with the provisions for the use of labour union funds formulated by the All-China Federation of Trade Unions.

Part Twelve: Terms, Termination and Liquidation

Article 70: The terms of operation of wholly foreign-owned enterprises shall be tentatively set by foreign investors in their applications to establish the wholly foreign-owned enterprises, based on the specific circumstances of their particular industries and enterprises, and shall be approved by the examination and approval authorities.

Article 71: The term of operation of wholly foreign-owned enterprises shall be reckoned from the date of issue of their business licences.

If the term of operation of a wholly foreign-owned enterprise must be extended upon expiration, a written application for extension of the term of operation shall be submitted to the examination and approval authorities 180 days prior to expiration. The examination and approval authorities shall decide whether or not to approve the application within 30 days from the date of receipt.

Wholly foreign-owned enterprises that have obtained approval to extend their terms of operation shall register the changes with the industry and commerce administrative authorities within 30 days from the date when they receive the approval document for such extensions.

Article 72: A wholly foreign-owned enterprise shall be wound up in any of the following circumstances:

(1) its term of operation has expired;

(2) it suffers heavy losses due to mismanagement and the foreign investor decides to dissolve it;

(3) it suffers heavy losses due to an event of force majeure such as a natural disaster or war;

(4) it becomes bankrupt;

(5) it is lawfully closed because it has violated the laws and regulations of China, thereby harming the public interest; or

(6) other grounds for dissolution occur, as specified in the articles of association of the wholly foreign-owned enterprise.

In any of the circumstances described in Items (2), (3) and (4) of the preceding paragraph, the wholly foreign-owned enterprise shall voluntarily submit a written application for dissolution to the examination and approval authorities for approval. The date on which the examination and approval authorities give approval shall be the date of the enterprise's termination.

Article 73: A wholly foreign-owned enterprise that has been terminated pursuant to Item (1), (2), (3) or (6) of Article 72 hereof shall make a public announcement and notify its creditors within 15 days from the date of termination. In addition, the enterprise shall, within 15 days from the date of issuing the public announcement of termination, submit a proposal to the examination and approval authorities concerning the procedures and principles for liquidation of the enterprise and the candidates for the liquidation committee, and shall implement such proposals after examination by the examination and approval authorities.

Article 74: A liquidation committee shall be composed of the legal representative of a wholly foreign-owned enterprise, representatives of the creditors of the enterprise and representatives of the relevant responsible authorities. In addition, persons such as accountants and lawyers registered in China shall be invited to serve on the committee.

The liquidation expenses shall be paid out of the property currently held by the wholly foreign-owned enterprise on a priority basis.

Article 75: A liquidation committee shall exercise the power:

(1) to convene creditors' meetings;

(2) to take over the management of and to organize the property of the enterprise, and to prepare a balance sheet and a property list;

(3) to assess the value of the property and to state the basis for the calculation of the values assigned;

(4) to prepare the liquidation plan;

(5) to redeem the claims of the enterprise, and to satisfy its debts;

(6) to recover any amounts to be contributed by the shareholders that have not yet been contributed;

(7) to distribute the balance of the property; and

(8) to represent the wholly foreign-owned enterprise when it sues or is being sued.

Article 76: Prior to completion of the liquidation of a wholly foreign-owned enterprise, the foreign investor may not remit or carry the funds of the enterprise out of the People's Republic of China and may not dispose of the enterprise's property on its own authority.

Upon completion of the liquidation of a wholly foreign-owned enterprise, where the net assets of the enterprise plus the balance of its property exceed the registered capital of the enterprise, the portion in excess shall be regarded as profit, and income tax shall be paid on this portion in accordance with China's tax laws.

Article 77: Upon completion of the liquidation of a wholly foreign-owned enterprise, procedures for the cancellation of registration shall be carried out with, and its business licence shall be returned for cancellation to, the industry and commerce administrative authorities.

Article 78: When wholly foreign-owned enterprises liquidate and dispose of their property, Chinese enterprises or other organizations shall have a priority right to purchase this property, provided that conditions are equal.

Article 79: A wholly foreign-owned enterprise that is terminated pursuant to Item (4) of Article 72 hereof shall be liquidated by reference to the relevant laws and regulations of China.

A wholly foreign-owned enterprise that is terminated pursuant to Item (5) of Article 72 hereof shall be liquidated in accordance with the relevant regulations of China.

Part Thirteen: Supplementary Provisions

Article 80: All insurance policies taken out by wholly foreign-owned enterprises shall be taken out from insurance companies in the People's Republic of China.

Article 81: Contracts between wholly foreign-owned enterprises and other companies, enterprises, economic organizations or individuals shall be governed by the PRC Contract Law.

Article 82: Matters concerning wholly owned enterprises established in mainland China by companies, enterprises, other economic organizations, or individuals from Hong Kong, Macao and Taiwan, or by Chinese citizens resident abroad shall be handled by reference to these Rules.

Article 83: Foreign employees and employees from Hong Kong, Macao and Taiwan of wholly foreign-owned enterprises may bring in reasonable amounts of vehicles and daily necessities for their own use. Such employees shall carry out customs formalities for these goods in accordance with the regulations of China.

Article 84: These Rules shall be effective as of the date of promulgation.