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Circular on Serious Implementation of the Urgent Notice of the State Council General Office Concerning Enhancement of Management over State-Owned Assets in Foreign-Invested Enterprises
(Promulgated by State-Owned Assets Administration on April 16,1996)
On November 22,1995,the General Office of the State Council issued the
Urgent Notice on Issues Relating to Current Examination and Approval of Enterprises with
Foreign Investment (Guiana Plain Code Telegram No.35<1995>,hereinafter referred to
as the Urgent Notice), which, has provided clear stipulations concerning some prominent
issues existing in the current process of examination and approval of enterprises with
foreign investment and the management of state-owned assets, requiring the tightening of
examination and approval of foreign investment projects and at the same time
"strengthening the management of state-owned assets to ensure their value
preservation and appreciation". In order to ensure the smooth administration of
state-owned assets in foreign-invested enterprises, the State Council General Office also
requires, in the notice, that "governments of various levels and relevant departments
concerned should actively support the work of state-owned assets administrative
departments and evaluation agencies". In the spirit of recent instructions by Central
Party Committee and State Council leaders on strengthening state-owned assets management
in foreign-invested enterprises, and with a view to implementing the stipulations of the
Urgent Notice, this circular is hereby issued to address the relevant questions concerning
the management of state-owned assets in foreign-invested enterprises.
I. State-owned assets administrative departments of
all levels should, in accordance with the requirements of the Urgent Notice, immediately
organize forces to conduct in an in-depth manner the work of managing state-owned assets
in foreign-invested enterprises. Special organs should be appointed to be responsible for
this matter and chief leaders or the competent leaders in charge of managing state-owned
assets in enterprises should assume responsibility in person as an institutional
guarantee. Currently, emphasis should be laid on doing the following items well.
1.Deeply conduct surveys and studies of the status of state-owned
assets management in foreign-invested enterprises. The stock of state-owned assets in
foreign-invested enterprises and their changes upward or downward should be accurately
found out; the operational efficiency of those state-owned assets should be ascertained
and forecasts about the trends of their changes should be made through analysis; the main
problems relating to the management of such state-owned assets and their root causes
should be identified and analyzed, including issues of infringement by unlawful foreign
businessmen and dereliction of duty on the part of Chinese management as well as the
losses in state-Chinese assets arising therefore, and measures should be immediately
adopted to resolve those problems and the results of solution should be reported to the
State State-Owned Assets Administration level by level.
2.Actively coordinate the investigations by financial and taxation
departments on the distribution, utilization and collection of the operational revenues
from state-owned assets in foreign-invested enterprises and on the status of corporate tax
payment, deduction or exemption. In accordance with the stipulations of the Caigongzi
Document No.295(1995)jointly issued by the Ministry of finance and the State State-Owned
Assets Administration, collaboration is required with the financial departments in
surrendering and monitoring the hand-over of operational revenues from state-owned assets.
3.Conduct a statistical survey on the basic facts of state-owned assets
in foreign-invested enterprises, and the results of the survey as well as attached written
explanations should be submitted to the State State-Owned Assets Administration by the end
of June(statistical forms are attached to this circular).
II. The work of state-owned assets management should
be strengthened at the link of examination and approval of the establishment of
enterprises with foreign investment, and strict procedures should be applied to the
state-owned assets evaluation and confirmation prior to the examination and approval. The
work of project proposal and confirmation of state-owned assets evaluation should be
closely linked with state-assets management so as to avoid losses of state assets that may
result from delinkage of the two tasks.
1.The Administrative Method for State-Owned Assets Assessment (State
Council Degree No.91)should be strictly abided by. Any enterprise and unit which intends
to contribute state-owned assets as investment to enterprises with foreign investment must
have the assets assessed and the results of assessment shall be submitted to the
departments of state assets administration for confirmation. If enterprises with foreign
investment, which are established after the issuance of State Council General Office's
Urgent Notice on November 22,1995,are found to fail to go through the procedure of assets
assessment and confirmation or to violate the rules by non-assessment or under-evaluation,
the causes must be investigated and serious treatment shall be meted out in cases of
violation of State Council General Office rules. In such cases, apart from necessary
economic penalties, the leaders of the Chinese partners shall be held responsible. Cases
of failure to assess the state assets that amount to fairly big value and state assets
losses arising therefore shall be reported to State State-Owned Assets Administration,
which may then further be reported to the State Council when necessary.
2.To better coordinate the management of state assets assessment with
that of state-owned property right and let assets assessment play a better role in basic
administration and make state-owned property management more scientific, realistic and
operable, departments of state- owned assets administration should make full use of the
results of assets assessment in conducting the job of state property right management in
foreign -invested enterprises and verification of state assets contribution should be
based on the notification of assessment confirmation.
3.To prevent unlawful foreign businesses from over-pricing their
investments in the form of either tangible assets like imported machinery and equipment or
intangible assets like proprietary technology, and to prevent them from contributing
shoddy or outdated assets as quality or new ones, the monitoring agencies and competent
authorities in charge of examining and approving equity or contractual joint venture
contracts shall require the Chinese parties to provide price assessment reports from
commodity inspection departments or documents of state assets assessment confirmation from
state assets administrative departments.
III. Strengthening management of Chinese state-owned
property right in foreign-invested enterprises so as to effectively safeguard the
legitimate rights and interests of state assets owners.
1.Prior to the approval of enterprises with foreign investment, the
state-owned assets administrative departments shall, through state assets monitoring
agencies or enterprise administrative departments, require Chinese parties to submit their
join venture contracts for examination, and if questions of unreasonably low ratio of
equity share or revenue share or unreasonably arrangements in cost sharing and managerial
staff, they are obliged to order the Chinese partners in the ventures to contact the
foreign partners in a timely manner for appropriate settlement.
2.After the registration and operation of foreign-invested enterprises,
state assets administrative departments should collaborate with industrial and commercial
administrative departments in regular examination of the status of cash contributions by
foreign partners and fulfillment of other terms of cooperation. If the cash contribution
is not in place according to contractual time limit, they shall require the Chinese
parties to discuss with foreign parties the adjustment of equity contribution ratios and
terms of cooperation, and the foreign parties shall be held responsible for the losses
arising from foreign party's violation of contractual terms.
3.When major changes in property like capital increase or stock
enlargement in foreign-invested enterprises involve the exercise of investor rights, the
Chinese partners should listen to report by Chinese managerial staff and call meetings of
technical and financial staff for joint deliberation and decision-making prior to
convention of board of directors. Cases involving fairly large value or affecting the
position of Chinese parties' majority equity holders, approval should be solicited from
state assets monitoring departments or enterprise administrative departments, which should
be filed with state assets administrative department for record.
4.Where Chinese parties are majority equity owners in equity or
contractual joint ventures, changes in property right are subject to corporate assets
assessment by state assets administrative departments in accordance with the
Administrative Method for State-Owned Assets Assessment and its implementing rules.
IV. Establishing the system of state-owned assets
report and assessment in foreign-invested enterprises so as to ensure the value
preservation and appreciation of state-owned assets.
1.State assets administrative department of various levels should
enhance working links with financial departments and should assist the financial
departments in verifying the annual final accounts of foreign-invested enterprises, and on
the basis of corporate accounting reports, carry out sect oral general analysis about the
state-owned assets stock and its upward or downward changes of foreign-invested
enterprises as well as economic performance analysis. The materials of collective regional
reports and written explanations should be submitted by the end of June every year to
State State-Owned Assets Administration and Ministry of Finance.
2.The system of examining state assets value preservation and
appreciation in foreign-invested enterprises should be established, and the examinations
of foreign-invested enterprises or Chinese partners in such enterprises shall be conducted
in accordance with the stipulations of the Trial Method for Examining State-Owned Assets
Value Preservation and Appreciation (Guoziqifa No.98<1994>)jointly formulated and
issued by State State-Owned Assets Administration, Ministry of Finance and Ministry of
Labor. The criteria of examination shall be set and issued by the monitoring agencies or
enterprise administrative departments.
State assets administrative departments of all levels are obliged to
organize and push forward the work of examination and carry out holistic and industry -by
-industry examination of the status of state assets value preservation and appreciation in
foreign-invested enterprises.
V. Strengthening the discipline and code of behavior
for Chinese parties and urging Chinese partners to seriously live up to the responsibility
of safeguarding the rights and interests of Chinese state assets owners.
1.In collaboration with the monitoring agencies or enterprise
administrative departments, state assets administrative departments of all levels shall
urge Chinese partners in foreign-invested firms to seriously fulfill their duty of the
principal investors and the responsibility of preserving an increasing the value of
state-owned assets and let them effectively exercise all their legitimate right and
safeguard the interests of Chinese state assets owners. State assets administrative
departments shall regularly organize sporadic examinations to find out whether the Chinese
partners have effectively exercised all their rights and whether they have fulfilled all
the duties prescribed by the monitoring and enterprise administrative departments.
2.The qualifications of Chinese partners in foreign-invested
enterprises should be standardized. Shell enterprises or those without the function of
production and operation can hardly fulfill the rights and obligations of joint venture
partners and cannot be allowed to continue holding the state property rights in
foreign-invested enterprises, and therefore necessary adjustments should be made to the
effect that the monitoring agencies or enterprise administrative departments re-decide new
Chinese partners, and after obtaining the agreement of state assets administrative
departments, formalities of property right transfer and registration shall be conducted.
Appendix: Forms of statistical survey on the basic status of
state-owned assets administration in foreign-invested enterprises(omitted)
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