In applying for the establishment of a Sino-foreign equity joint venture or contractual joint venture enterprise, the investors concerned shall generally go through the following four steps:

1. To submit to competent authorities the proposal (application) on the project to establish the enterprise; Only when this proposal is approved can the investors proceed to do the various work centering on the production of the feasibility study report on the project.

2. To submit to competent authorities the feasibility study report on the project; Only when this report is approved can the investors proceed to sign the contract, charter of incorporation and other legal documents concerning the establishment of the enterprise.

3. To submit to competent authorities the contract and charter of incorporation concerning the establishment of the enterprise; After these legal documents are reviewed and approved, competent authorities responsible for the review and approval (hereinafter referred to as "the reviewing and approving authorities") will issue the enterprise with a certificate of approval for the foreign-funded enterprise. The aforesaid three steps are the steps for official approval of the establishment of a joint venture enterprise. The Chinese partner in the joint venture shall be responsible for submitting the legal documents to competent authorities for review and approval. In order to simplify the procedure, the application for the establishment of a small-size project can go through the steps in unitary way.

4. And, with the certificate of approval issued by the reviewing and approving authorities, to contact competent administrative authorities for industry and commerce to go through the formalities for registration. The procedure for the establishment a wholly foreign-owned enterprise is simpler. In applying for the establishment of a wholly foreign-owned enterprise, the investor can submit a formal application, the charter of incorporation and other legal documents for approval after the initial application for the project is approved in writing by the reviewing and approving authorities. After the formal application, the charter of incorporation and other legal documents are approved, it can take the certificate of approval and contact competent administrative authorities for industry and commerce to go through the formalities for registration.

II. Competent Authorities Responsible for Official Approval and Jurisdiction of Approval

In line with law, the establishment of foreign-funded enterprises in China is subject to the approval of competent authorities. Competent planning authorities shall join other government authorities in reviewing and approving proposals (applications) for the establishment of general foreign-funded projects and relevant feasibility study reports. Competent foreign trade and economic cooperation authorities shall join other government authorities in reviewing and approving proposals (applications) for foreign-funded technical transformation projects. Competent authorities for foreign trade and economic cooperation shall be responsible for reviewing and approving contracts and charters of incorporation concerning the establishment of foreign-funded projects.

Where projects fall into the category of projects constraining foreign investment, where projects fall into the category of projects whose conditions for construction and production are subject to comprehensive balancing by the State, where the export of products of projects is subject to the limitation of quotas or licensing, or where the approval of projects is beyond the jurisdiction of local authorities, competent authorities under the State Council - the highest governing body of China - shall be responsible for their approval. Where projects fall into the category of projects of service trades whose establishment is restricted, such as projects for the construction of airports, hotels and commercial retail outlets, projects of leasing, cargo transportation agency, banking and insurance, and projects for the incorporation of investment companies and joint stock companies, competent authorities under the State Council shall be exclusively responsible for their approval.

For projects which do not fall into the aforesaid categories, governments of Chinese provinces, autonomous regions or provincial-level municipalities concerned or government agencies authorized by them shall be responsible for their approval. The jurisdiction of local governments for the approval of foreign-funded projects only covers projects with a total investment of no more than 30 million U.S. dollars each. After a foreign-funded project is established with the approval of a local government, the party concerned shall submit relevant documents to competent authorities under the State Council for record in line with relevant regulations. In order to simplify the procedure for official approval of foreign-funded projects and shorten the time for the approval, Chinese provinces, autonomous regions or provincial-level municipalities may transfer the power of approval to lower levels within their jurisdiction in accordance with concrete local conditions.

III. Principles of Approval

The principles of approval are to check whether the contracts and charters of incorporation submitted conform to Chinese law, rules and administrative regulations; to check whether the projects concerned meet the contents of the feasibility study reports and documents approved; and to check whether the projects concerned conform to the principle of equality and mutual benefit.

In line with Chinese law, the contracts and charters of incorporation of foreign-funded enterprises are subject to approval by the government's reviewing and approving authorities before becoming valid.

IV. Registration

In the stage of application for the establishment of a foreign-funded enterprise, there are the following two steps of registration:

1. The registration of the name of the enterprise after the registration of the enterprise as a project;

2. And, the registration of the establishment of the enterprise after the contract and charter of incorporation are approved by the reviewing and approving authorities.

The registration of the name of the enterprise is intended to prevent possible re-registration and use of the name by other parties in the process of negotiations and official approval. No party concerned may engage in business operations in the name of the enterprise registered before the registration of the enterprise is completed.

After the contract and charter of incorporation are approved by the reviewing and approving authorities, the investors shall take the certificate of approval for the foreign-funded enterprise and other documents concerned and apply to competent industry and commerce administration authorities for registration within 30 days. After the approval of competent registration authorities, a business license shall be issued. The date of issuing the business license shall be date of establishing the foreign-funded enterprise concerned.

V. Term of Operation

The term of operation of foreign-funded enterprises shall be fixed by their investors through consultations in line with relevant regulations of the State and in accordance with actual conditions of different trades and projects. Generally, the term of operation of a foreign-funded enterprise ranges between 10 years and 30 years, and may reach 50 years in the maximum. However, with the special approval of the State Council, it may exceed 50 years. Where a Sino-foreign joint venture enterprise falls into the category of projects encouraging and permitting foreign investment, it is applicable that the investors do not fix a term of operation. For a foreign-funded enterprise whose term of operation has been fixed, where its investors agree to extend the term of operation, they shall apply to the relevant reviewing and approving authorities 180 days before the date of expiry of the term of operation to obtain approval. Where the investors fail to apply for an extension of the term of operation or where the application for an extension is not approved, the enterprise concerned shall be terminated upon the expiration of the term of operation.

VI. Conditions for Termination

In line with Chinese law, a foreign-funded enterprise shall be terminated where any of the following conditions occurs:

That the term of operation expires;

That the investors have decided to dissolve the enterprise because of poor operation and serious losses;

That the enterprise can not continue to operate because one of the partners has failed to fulfil its obligations defined by the contract and charter of incorporation;

That the enterprise can not continue to operate because of serious losses resulting from factors of force majeure such as natural disasters and war;

That the enterprise has become insolvent;

That the enterprise has been dissolved for violation of law or harming public interests;

And, that there have occurred other reasons to dissolve the enterprise as defined by the contract and charter of incorporation.

VII. Procedure for Termination

Where there has occurred any of the conditions to dissolve a foreign-funded enterprise, the board of directors of the enterprise shall file an application and submit it to the reviewing and approving authorities. The date of approving the application shall be date of terminating the enterprise. Within a period of 15 days counted from the date of termination, the enterprise shall make a public announcement and notify all of its creditors that the enterprise has entered the period of liquidating its assets.

Within a period of 15 days counted from the date of making the public announcement, the enterprise shall produce a procedure and principles for the liquidation of assets and nominate candidates for the liquidation panel before submitting them to the reviewing and approving authorities for approval. Only when they are approved by the reviewing and approving authorities can the process of liquidation start. The liquidation panel shall comprise representatives of the board of directors, creditors and competent authorities in charge of the enterprise. The liquidation panel shall be in charge of the whole liquidation work and report to the board of directors. The liquidation panel is under the obligations to check the assets, creditor's rights and debts of the enterprise on an overall basis, work out a statement of assets and liabilities and catalogue of properties, propose the bases for assets evaluation and computation, and work out the scheme for liquidation, which shall be implemented after adoption by the conference of the board of directors.

Foreign-funded enterprises shall be liable for their debts with all their assets. The remaining assets after the payment for debts shall be shared among the original investors in line with relevant provisions of the contract and charter of incorporation. The value added of the net assets and residual properties of the enterprise in excess of its registered capital shall be viewed as profits and shall be subject to the levy of income tax payable in line with law.

After the end of the liquidation of assets, the liquidation panel shall present a liquidation report. After adoption by the conference of the board of directors, the liquidation report shall be submitted to the reviewing and approving authorities for approval. Then, the parties concerned shall contact competent administrative authorities for industry and commerce to go through the formalities for canceling the registration and return the business license of the enterprise for revocation.

It is necessary to state here that under most circumstances, the structure of ownership of a foreign-funded enterprise, after its termination, can be changed through the transfer of shareholding rights, with the Chinese partner or other Chinese enterprises buying the shares held by the foreign partner. An enterprise whose structure of ownership has been changed may continue to operate in a new form after re-registration by competent administrative authorities for industry and commerce.

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