China: China Legal Briefing -July 12 - August 20 2004

Last Updated: 27 September 2004
Article by Paul Thaler

CHINA LEGAL BRIEFING is a weekly collection of Chinese law related news gathered from various media and news services, edited by WENGER VIELI BELSER and distributed to its clients and CHINA LEGAL REPORT SUBSCRIBERS. WVB does not accept responsibility for accuracy of quotes or truthfulness of content. CHINA LEGAL BRIEFING is not intended to provide legal advice.


1. National

Reply to the Question of Whether the Administrative Acts of Government Agencies Taken In Accordance With Assistance Enforcement Orders of the Courts Are Within the Scope of Jurisdiction Ratione Materiae for Administrative Cases

Issued By Supreme People’s Court

Subject Jurisdiction

Promulgated on July 13th 2004

Effective From July 20th 2004


In the reply addressed to the High Court of Shangdong Province answering the question of whether administrative acts of government agencies taken in accordance with Assistance Enforcement Orders of the courts are within the scope of jurisdiction ratione materiae for administrative cases, the Supreme People’s Court observed that:

Adopting acts in accordance with Assistance Enforcement Orders issued by people’s courts are the statutory obligations of administrative institutions, which shall be discharged and excluded from the jurisdiction ratione materiae for administrative cases. Nevertheless, the people’s courts shall register cases filed by parties who believe they are injured by the acts of administrative institutions that have acted beyond the Assistance Enforcement Orders or in an unlawful manner.

Note from the authors: There is no doubt that acts taken in accordance with Enforcement Assistance Orders are administrative acts. It seems that, given that the government agencies are not decision-makers for the enforcement and have statutory obligation to give full credit to such Orders, the judicial interpretation exempts those acts from judicial review, which means finally that there is no way to challenge such government agencies’ acts complying with the Assistance Enforcement Orders they are based on, unless the courts rescind the Order itself.

Country-Specific Industry Guidance Catalogue for Overseas Investment

Issued By Ministry of Commerce, Ministry of Foreign Affairs

Subject Overseas Investment

Promulgated on July 8th 2004

Effective From July 8th 2004


The number of countries and regions covered by the Catalogue adds up to 67, the selection of which is made in accordance with the following criteria: (1) neighbouring countries; (2) countries strongly reciprocally complementary with China in economy; (3) major trade partners; (4) countries having established strategic partnership with China; (5) members of major regional economic organizations. The Catalogue promulgated is Block 1, which does not cover Switzerland.

The Catalogue will be used as an important yardstick by authorities in charge of foreign economic relations in guiding and acknowledging overseas investment made by China-based enterprises. Enterprises may enjoy in priority the preferential policies in respect of fund, foreign exchange, taxation, customs procedure, and entry & exit where they have satisfied the requirements in the Catalogue and obtained permits of overseas investment.

Provisions on Administration of Instructions, Tags and Package Marks of Medical Instruments

Issued By State Taxation Administration State Food and Drug Administration (SFDA)

Subject Medical Instruments Labeling

Promulgated on July 8th 2004

Effective From July 8th 2004

Repeal Provisions on Administration of Instructions of Medical Instrument 2002)


Medical instruments sold or used in China shall be accompanied by instructions, tags and package marks in accordance with the Provisions. In the case of ready-to-use products, one or two items of instructions, tags and package marks may not be furnished where the regulations of the SFDA provide so. The instructions, tags and package marks shall be in Chinese, which may be complemented by texts in other languages.

Nothing as follows shall appear in instructions, tags and package marks:

  • Declarations or guarantees on effects such as "best effects", "cure guarantee", "eradication", "immediate effects", "free from side effects", etc;
  • Absolute wording such as "highest technology", "most scientific", "most advanced", "most effective", etc;
  • Rate of cure or effectiveness;
  • Comparison with other producers in respect of product effects and safely;
  • Undertakings such as "already insured", "money back guarantee in case of no effects", etc;
  • Verifications and recommendations by use of names and images of entities and individuals;
  • Expressions which may induce readers to perceive they are being attached by certain illness, or they will be attached by certain illness or these illness will deteriorate if they do not resort to such medical instruments;
  • Expressions otherwise prohibited by laws and regulations.

Authorities in charge of drug administration shall review instructions of medical instruments when these authorities are examining applications for registration of medical instruments. The producers shall be responsible for the truthfulness and completeness of the instructions. No changes may be made to the instructions already reviewed by competent authorities in absence of written notification to these authorities and positive feedbacks returned by them.

Provisions on Administration of Establishment of Radio & Television Offices by Overseas Institutions

Issued By State Administration of Radio, Film and Television (SARFT)

Subject Radio and Television Offices

Promulgated on June 18th 2004

Effective From August 1st 2004


The Provisions applies to the establishment of radio and television offices ("Offices") by institutions from foreign countries, Hong Kong, Macao and Taiwan ("Overseas Institutions"). The establishment of these Offices is subject to approval from the SARFT, which will not approve radio and television agency or editing institutions.

Overseas Institutions applying for the establishment of these Offices shall meet the conditions as follows:

  • In legitimate continuance in the State of incorporation;
  • Hospitable to China and well-reputed;
  • Business scope in conformity with provisions of Chinese laws, administrative regulations, decrees, and objectives set forth in the applications.

The head of the Offices shall be one of the following categories of persons:

  • Foreign citizens holding national passports, excluding international students in China;
  • Chinese citizens from mainland China who have obtained overseas permanent resident status;
  • Persons from Hong Kong, Macao and Taiwan holding valid identities.


1. National

Supreme Court Circular on Prohibition of Sitting Judges to Act as Arbitrators

Issued BySupreme People’s Court

Subject Professional Ethics

Promulgated on July 13th 2004

Effective From July 13th 2004


Faced with the enquiry posed by representatives of National People’s Congress on whether judges may be nominated to the list of arbitrators, the Supreme People’s Court gave negative answer:

Having regard to relevant provisions of Law on Judges and Law on Arbitration of the PRC, a judges will act beyond the power invested in the courts as well as members of the bench, if he takes up the post of arbitrator and handle arbitration cases, which contravenes relevant legal rules and does no help to protect legitimate rights and interests of parties to the disputes. Considering this, judges shall not act as arbitrators. Judges who had been nominated to the list of arbitrators by associations of arbitration shall decline the nomination within one month of the promulgation of the Circular and terminate the relationship with the associations.

Supreme Court Interpretation of Certain Issues Concerning the Application of Law on Arbitration of PRC (Consultation Paper)

Issued By Supreme People’s Court

Subject Arbitration

Promulgated on July 22nd 2004

Closing Date August 22nd 2004


The 27-article judicial interpretation is composed of 5 parts, dealing respectively with effects of arbitration clause, seizure and obtainment of evidence, annulment of arbitral awards, enforcement of arbitral awards, and miscellaneous matters.

In the part outlining the most import preliminary issue, the Interpretation addresses the effect of arbitration clauses in various circumstances, including changes to the personality of parties to the arbitration clause, transfer of contractual rights and obligations, arbitration clause in the articles of association and memorandums contemplating unspecified future disputes, contracts not concluded or never taking effect, inclusion of more than one arbitration institutions in the arbitration clauses, incorrect identification of arbitration institutions in the arbitration clauses, options of arbitration and judicial means, challenges for arbitration clause.

For seizure of properties and evidence, the Interpretation provides that courts at the place of the properties or evidence shall exercise these matters. Courts at the domicile of the respondents shall also have the jurisdiction over the applications for seizure of properties. However, the courts shall only accept applications submitted via arbitration institutions.

For annulment, the courts shall not register the applications for annulment made on the ground of new emerged evidence, unless such new evidence are discovered after the arbitral awards have been rendered and will materially affect the impartiality of the awards.

State Council Decision on Reform of Investment System

Issued By State Council

Subject Investment Administration

Promulgated on July 16th 2004

Effective From July 16th 2004


The Decision, composed of 5 parts and an appendix, blueprints the reforms to take place in the following years. It addresses such topics as guiding principles and objectives of reform, investment by enterprises, investment by governments, macro-control, and administration and supervision of investments.

Enterprises will be given more autonomy in making investment decisions and government control over investment by enterprises will be loosened. The present practice that all of the projects are subject to approval on the basis of investment value regardless of investors, sources of investment and nature of investment will be dropped. No approval will be needed for projects, which in the future will be subject to acknowledgement and filing. The projects subject to acknowledgement are those regarded as being significant or restricted, which are listed by industry in the appendix to the Decision. Projects not included in the regularly-updated appendix will be subject to filing. In the instance of acknowledgement, only project applications shall be submitted to relevant authorities. There will be no need to submit project plan, feasibility study and report of construction commencement.

Private investment will be encouraged. Private capital may be invested to infrastructure and public facilities if the laws and regulations do not preclude such entry. The governments will adopt such measures as provision of capital, subsidies for interests and preferential taxation treatments to encourage and incent private capital be invested to infrastructure and profit-making public facilities in the form of wholly owned enterprise, equity joint venture, cooperative joint venture, contractual cooperation, and project finance.

Draft Amendments to Company Law


The Legal Office of State Council has finished drafting amendments to Company Law early this month, which is being circulated among relevant institutions for comments and is expected to be submitted to the Standing Committee of the National People’s Congress for debate late this year. It is reported that over 120 articles will be revised and the number of changes has amounted to over 400.

  • Restriction upon Investment by Companies: The existent Company Law has a 50% limit on the total investments made by a company to other companies unless the investing company is an investment company or holding company. In the draft amendments, this restriction is removed.
  • Single Shareholder Company: The minimum number of shareholders for a limited company under the present Law is two. The draft amendments recognize single shareholder companies. However, each natural person can establish only one single shareholder company and demonstrate such nature in the name of the company.
  • Independent Director: The present legal source for independent directors is a regulation promulgated by China Securities Regulatory Commission. The Law itself does not provide for independent director. The draft amendments require that at least 1/3 of the board members of a public company shall be independent directors.
  • Registered Capital and Contribution: The minimum amount of registered capital for a limited company is RMB 100,000 under the present Law, which silences on whether shares may be used as contribution to registered capital. The draft amendments reduce the threshold to RMB 50,000 and give positive answer to the question of contribution by shares. Furthermore, it removes the 20% limit on contributions of industrial property rights and non-patent technologies.
  • Conditions of Listing: Under the current Law, the threshold of share value is RMB 50 million for a company limited by shares wishing to be listed. The draft amendments reduce the threshold to RMB 30 million.


1. National

Reply to the Question of Whether People’s Courts Shall Register Applications for Reopening of Annulment Procedure after Earlier Applications for Annulment of Arbitral Awards Have Been Rejected

Issued By Supreme People’s Court

Subject Arbitration, Annulment

Promulgated on July 26th 2004

Effective From July 29th 2004


In a response addressed to the High Court of Shan’xi Province, the Supreme Court gave negative answer to the question of whether parties may reopen the annulment procedure after their earlier applications for annulment of arbitral awards have been rejected:

Given the spirit of Article 9 of Arbitration Law,1 People’s Courts shall not register applications by parties for reopening of annulment procedure after the courts have rejected their earlier applications.

Response to the Question of How to Determine When the Time Limit for Arbitration of Labor

Dispute Starts to Run in the Case of Termination of Employment Contracts

Issued By Supreme People’s Court

Subject Employment Dispute Settlement

Promulgated on July 26th 2004

Closing Date July 29th 2004


The Supreme Court, in its response to the High Court of Yun’nan Province, addressed the issue of calculating the time limit in the event that employers terminate employment contracts:

In the event that disputes arise from termination of employment contracts in accordance with Article 25 (4) of Labor Law of the PRC by employers,2 the time limit for submitting the disputes to labor dispute arbitration associations by employees shall start to run from the receipt of termination notice in writing.

Catalogue of Advantageous Industries for Foreign Investment in Central and Western Areas (2004 Version)

Issued By Ministry of Commerce, National Development and Reform Commission

Subject Foreign Investment

Promulgated on July 23rd 2004

Effective From September 1st 2004


Repeal Catalogue of Advantageous Industries for Foreign Investment in Central and Western Areas (2000 Version)

The 2004 Catalogue of Advantageous Industries for Foreign Investment in Central and Western Areas ("2004 Catalogue") is adopted to implement the 2002 Provisions on Guidance of Foreign Investment ("2002 Provisions", State Council, 2002), which encouraged the central and western areas of the People’s Republic of China to develop their industries with comparative advantage by attracting foreign investments.

Foreign investments to industries included into the 2004 Catalogue will enjoy treatments granted to "the encouraged industries" as provided for in the 2002 Provisions and in the Circular Transmitted by the General Office of State Council on Positions of Ministry of Foreign Trade and Economic Cooperation [Ministry of Commerce at present] et al to Further Encourage Foreign Investments (1999).

Projects approved under the 2000 Catalogue shall continue enjoying the treatments provided by that Catalogue.

Projects under construction, which meet the conditions of the 2004 Catalogue, may enjoy treatments under the new Catalogue.

Provisions on Administration of Qualifications for Foreign Labor Service Cooperation

Issued By】Ministry of Commerce, State Administration of Industry and Commerce

Subject Export of Labor Services

Promulgated on July 26th 2004

Effective From August 25th 2004


The Provisions applies to the administration of qualifications for foreign labor service cooperation business (including trainees) conducted by enterprises incorporated in China. For the purpose of this regulation, Foreign Labor Service Cooperation refers to economic activities in which qualified domestic enterprise legal persons conclude contracts with overseas companies, intermediate agencies and individual employers that are permitted to take in foreign labors, and recruit, select and dispatch Chinese citizens to provide labor services to foreign employers abroad, and manage these labors. Overseas enterprises, natural persons and Offices of foreign institutions at China shall not take in laborers directly in China.

Enterprises applying for licenses for foreign labor service cooperation shall satisfy the following conditions:

  • An enterprise legal person duly incorporated, existing for more than 3 years, with registered capital no less than RMB 5 million or RMB 3 million in case of enterprises seating in central and western areas;
  • Ratio of debt to asset no more than 50%;
  • Permanent establishment with office acreage no less than 300 square meters;
  • Complete management system with certification of ISO9000 quality management;
  • Qualified personnel among whom no less than 5 members of staff responsible for foreign labor service have junior college or medium technical degrees; no less than 2 full time staff members responsible for training management; no less than 2 full time staff members responsible for financial matters, and at least 1 staff member in charge of legal matters.
  • Established track record and provision of no less than 300 laborers to enterprises with qualification for foreign labor service cooperation in the past 3 years.

Enterprises that have obtained licenses for foreign labor service cooperation before promulgation of the Provisions shall meet the criteria set forth therein within one year after the Provisions are effective.


1. National

Guidelines on Due Diligence of Commercial Banks in Extension of Credit

Issued By China Banking Regulatory Commission (CBRC)

Subject Due Diligence

Promulgated on July 26th 2004

Effective From July 26th 2004


The CBRC, making reference to the concept of due diligence adopted by the Basel Committee and practice of other jurisdictions, published the Guidelines drawn up in accordance with Law on Commercial Banks, Law on Banking Administration and Supervision, and General Principles for Loans. The Guidelines is composed of 7 parts. In addition to general principles and miscellaneous matters, it deals with due diligence requirements in the whole process of credit extension, including investigations into the clients’ background and acceptance of business, analysis and assessment, decision-making and implementation, post-credit-extension management and disposal of problematic credit. It also lays down rules for establishing due diligence mechanisms by banks and for accountabilities of the staff responsible for credit extension.

Credit for the purpose of the Guidelines refers to credit extended to clients who are not natural persons, both on and off the balance sheet. Credit on the balance sheet includes loan, project finance, trade finance, commercial papers discounting, overdrawing, factoring, inter-bank borrowing, redemption, etc. Credit off the balance sheet includes loan commitment, guarantee, letter of credit, acceptance of commercial instruments, etc.

The Guidelines require commercial banks to create independent positions in charge of due diligence investigation and provide clear description of these positions. Staff handling credit extension will not be held liable for problematic credit when they have discharged their due diligence responsibilities in each stage of credit extension. On the other hand, they may be held accountable based on the results of investigation conducted by the staff responsible for due diligence in the following circumstances:

  • Make false record, misleading statements and material omission;
  • Fail to conduct thorough check of information about clients
  • Act ultra vire and violate procedural rules for approval;
  • Fail to inspect the credit and the assets placed under security in accordance with prescribed time limit and procedure;
  • Fail to conduct prompt on-site investigation in the event of material changes and contingencies happened to clients;
  • Fail to seek provisional measures faced with early warning signals;
  • Deliberately conceal information;
  • Being not cooperative with the staff in charge of due diligence investigation or furnish false information.

Implementing Rules for Regulation on Administration of Foreign Invested Financial Institutions (Revised)

Issued By China Banking Regulatory Commission (CBRC)

Subject Foreign Invested Financial Institutions

Promulgated on July 26th 2004

Closing Date September 1st 2004


As a reaction to developments since China’s entry into the WTO, the CBRC initiated the revision process in last September and adopted the revamped Implementing Rules based on comments from interested parties. The following guiding principles were observed when proposals for revision were considered: (1) reflect the change of the regulatory body (from People’s Bank of China to CBRC); (2) simplify the procedure of market access; (3) revise within the framework of existent Implementing Rules; (4) continuity and legal certainty; (5) highlight the principle of prudent supervision; (5) simplify procedure for approval and supervision; (6) equal treatment of Chinese invested and foreign invested banks in respect of supervision.

Eleven provisions have been added to the existent Implementing Provisions, which address respectively the change of the regulatory body, prudential establishment of new business and expansion of existent business, restructuring between institutions with independent personality and branches of foreign banks, acknowledgement of senior members of the management, principle of prudent accounting, reserves for loss from loans, eligibility of new shareholders of foreign invested financial institutions with independent personality, submission of business reports to the CBRC and its local offices, and priority of debts in liquidation.

Meanwhile, four provisions have been deleted, which were respectively relevant to the one-year interval between applications for opening new branches by foreign banks and the interval between new applications and failed prior applications for establishing institutions, reporting of RMB business conducted outside the place of the seat, transfer or sale of assets after submitting applications for winding-up, and the arrangement of enacting provisions on administration of outlets within the same city (the said regulation has been promulgated).

Provisions on Administration of Financial Service Companies of Enterprise Groups (Revised)

Issued By China Banking Regulatory Commission

Subject Financial Service Companies

Promulgated on July 27th 2004

Effective From September 1st 2004


The new Provisions are based on an earlier regulation with the same name adopted by the People’s Bank of China in 2000. Compared to its parent regulation, the new one is novel in the following respects:

  • Altered definition of the business field (functions) of financial service companies: In the earlier regulation, the functions of those companies were defined as "mainly engage in medium and long term financial business to provide financial service for members of enterprise groups in respect of the improvement of technologies, development of new products and marketing of products". In the new regulation, the business field is defined as "provide financial management service for members of enterprise groups with a view to reinforce the collective management of fund and improving efficiency of fund utilization".
  • Reduction of market access requirements: The earlier regulation set high threshold for financial service companies. Its establishment was limited to large enterprise groups in such industries as manufacturing, energy and transportation. These requirements were difficult to be met by most foreign invested enterprises and enterprises in industries other than the foresaid ones. The revised regulation hence significantly lower the requirements in respect of registered capital and business revenue for enterprise groups that wish to establish their own financial service companies.
  • Permission of financial service companies to establish branches: The revised regulations expressly open the possibility of establishing outlets by financial service companies. However, these outlets can only either be branches or representative offices, both without independent personality. That also means that the business scopes of such outlets are limited to specific areas based on the fact they are branches or representative offices.
  • Adjustment of business scope of financial service companies: This is the logical result after changing the business field (see above at (1)) of financial service companies. As a general rule, it is highly likely to obtain consent for conducting business with the aim of reinforcing collective management of funds and providing financial services for the members of enterprise groups.

It should be noted that since the establishment of financial service companies by foreign invested companies is subject to this regulation, foreign invested financial service companies are governed by Regulation on Administration of Foreign Invested Financial Institutions.

Circular on Issues Concerning Investment by Insurance Companies in Convertible Corporate Bonds

Issued By China Insurance Regulatory Commission (CIRC)

Subject Investment in Capital Market

Promulgated on July 23rd 2004

Effective From July 23rd 2004


To implement Observations of the State Council on the Promotion of Reform, Opening Up and Steady Development of the Capital Market, CLB No. 60), the CIRC announced that insurance companies forthwith might invest in convertible corporate bonds (CCB). The investment must satisfy the following prerequisites:

  • The CCB to be invested shall have been approved by the China Securities Regulatory Commission (CSRC) and comply with Provisional Rules on Administration of Convertible Corporate Bonds and Implementing Measures on Issue of Convertible Corporate Bonds by Public Companies
  • Overall investment in bonds (including the CBC) calculated on the basis of purchase price shall not exceed 20% of total assets of the preceding month;
  • The investment of a single issue in one CCB shall neither exceed 15% of the said bond of that issue, nor 2% of the total assets of the preceding month, whichever is lower.
  • Investment decisions shall be observed prudentially. The CCB may not at present be converted to shares, the conversion of which is subject to later provisions.


1. National

Circular on Prohibiting Revising Step by Step Procedural Enforcement Measures with a View to Attributing Liabilities of Respondents to their Institutions at Higher Level

Issued By Supreme People’s Court

Subject Enforcement Proceedings

Promulgated on July 9th 2004

Effective From July 9th 2004


Given the recent practice of some local courts in proceedings against assisting financial institutions or low level financial institutions as respondents in which further enforcement measures such as fine and judicial detention were adopted against the respondents’ related higher level financial institutions, the Supreme People’s Court denounced such practice and pronounced its positions thereon:

1. Change of respondents in enforcement proceedings shall be subject to strict conditions laid down in the Circular on Regulation of Enforcement by People’s Courts and of Assistance in Enforcement by Financial Institutions, Supreme People’s Court and People’s Bank of China, 2000). In brief, related financial institutions at higher levels shall not be liable for the obligations of their lower institutions unless the enforcement against the latter have turned out to be unable to satisfy the claims and the former is jointly liable for such claims.

2. Only when the conditions set out in paragraph one have been satisfied and the institutions at higher level have been identified as respondents in the enforcement proceedings, and only when such institutions fail to discharge its obligations within the 15-day time limit, enforcement measures might be adopted against them.

3. Cases in which financial institutions act as assisting agencies are distinct from the particular cases in which they are obliged in the enforcement proceedings. The liability to be subject of enforcement measures shall be borne by such institutions themselves. Imposing those measures against their institutions at higher level is erroneous as a matter of law.

4. Finding of fault on the part of financial institutions is the precondition for enforcement measures, which can only be imposed against intentional acts that impede the enforcement proceedings.

5. Financial institutions against which enforcement measures have been imposed are entitled to review the underlying imposition decision by higher courts. Though the effect of such measures shall not be suspended while the final decision of higher courts is still pending.

Observations on Further Regulation of Tendering and Bidding

Issued By General Office of State Council

Subject Tendering and Bidding

Promulgated on July 12th 2004

Closing Date July 12th 2004


This document is published to correct the irregularities since the promulgation of Law on Tendering and Bidding, 2000. It addresses such issues as sectional and regional anticompetitive conducts, transparency, assessment of tenders, agency, expansion of use of tenders, and administrative surveillance.

To increase the unity of national market, the Observations provides that sectional and regional monopolization must be removed; that no restrictive conditions may be imposed upon bidders from other regions and other sectors; that unlawful procedural requirements such as bidding permit, inspection of qualification, and registration shall be put to an end; that awards from the host region or the host sector shall be neither given extra credits nor been treated as the condition precedent; that no pressure, either expressly or implicitly, shall be imposed upon the successful bidders to sub-contract the projects to contractors and suppliers from the host regions or the host sectors.

Circular on Certain Issues Regarding Overseas Listing of Enterprises Affiliated to Domestic Public Companies

Issued By China Securities Regulatory Commission (CSRC)

Subject Overseas Listing

Promulgated on August 10th 2004

Effective From August 10th 2004


This Circular, enacted in accordance with Securities Law, Company Law and Special Rules by the State Council on Overseas Marketing of Equities and Public Listing, applies to overseas public listing of enterprises controlled by domestic public companies. It does not, however, apply to companies that issue both A-shares and B-shares.

The Circular expressly provides that overseas listing is subject to approval from the CSRC. It set out financial requirements for the enterprises wishing to be listed overseas, internal decisions which shall be adopted by the public companies, retaining of financial consultant from securities agencies included in the rolls of sponsors by the CSRC, and obligations to disclose information.

Circular on Certain Issues Regarding the Application of Taxation Agreements and Law on Personal Income Tax to Individuals without Domicile within China

Issued By State Administration of Taxation

Subject Personal Income Tax

Promulgated on July 23rd 2004

Effective From July 1st 2004


The Circular mainly clarifies rules for three issues: calculation of length of stay in China, calculation of the actual working time on the date of arrival and leaving, application of tax agreements to senior management staff.

The non-domiciled individuals’ length of stay in China, which is the basis for determining the category of taxation obligations, shall be calculated in accordance with his actual length of stay. The day on which they arrive at or leave China shall be counted as one day.

When calculating the working time of non-domiciled individuals who hold positions both in domestic and overseas institutions or only hold positions in overseas institutions, the day on which they arrive at or leaves China shall be counted as half-day.

Where non-domiciled individuals hold senior management positions in China-based enterprises and the taxation agreement between their national State and China do not specify whether payment derived from such senior management positions is covered by the provisions on director’s fees, such payment shall be taxed in accordance with provisions on dependent personal services. On the other hand, where such persons hold both the directorship and senior management positions in China-based enterprises, the payment derived from these positions shall be taxed under the head of director’s fees.

Provisional Measures on the Administration of Overseas Utilization of Insurance Funds in Foreign Exchange

Issued By China Insurance Regulatory Commission (CIRC), People’s Bank of China

Subject Overseas Investment

Promulgated on August 9th 2004

Effective From August 9th 2004


Given the scarcity of investment options in respect of funds in foreign exchange available to insurance companies, the CIRC enacted Provisional Measures with a view to diversifying investment risks and offsetting the pressure on RMB.

Insurance Companies for the purpose of this regulation refer to insurance companies within China which have been duly approved by the CIRC and registered in accordance with law, including Chinese-Invested Insurance Companies, Wholly Foreign Invested Insurance Companies, Sino-Foreign Joint Equity Insurance Companies and branches of Foreign Insurance Companies. Insurance funds for the purpose of this regulation refer to the combination of capital, provident fund, undistributed profit, reserve, and deposit.

The CIRC gives effect to the principle of prudent supervision in 5 aspects:

1. Prescribing the eligibility to utilize insurance funds in foreign exchange overseas in terms of financial indicators (overall assets, funds in foreign exchange at disposal) and internal control (Chapter 2);

2. Restricting the scope of permissible investment and imposing ratio limits upon investment (Chapter 3);

3. Custodian Requirement (Chapter 5);

4. Recognizing the role of overseas professional investment institutions (Chapter 4);

5. Establishing coordinated supervision formed by the CIRC, the State Administration of Foreign Exchange and other regulatory bodies (Chapter 6).


1. National

Provisions on Administration of Auto Loans

Issued By People’s Bank of China

China Banking Regulatory Commission

Subject Auto Loan

Promulgated on August 16th 2004

Effective From October 1st 2004

Repeal Provisions on Administration of Loans for Auto Consumption 1998


Auto Loans for the purpose of this regulation refer to credit granted by the creditors to the debtors that are to be used to finance the purchase of cars. The Auto Loans are classified into three categories, personal auto loans (Chapter 2), dealers’ auto loans (Chapter 3), and institutional auto loans (Chapter 4), each subject to its own rules. Compared with the 1998 Provisions, which are to be replaced by this regulation, there are appreciable changes in the following aspects:

  • The scope of creditors is expanded. Creditors will no longer be limited to Wholly State-Owned Commercial Banks. Potential creditors will include commercial banks, urban joint credit institutions, rural joint credit institutions, and other financial institutions licensed to carry out auto loan businesses.
  • Debtors are further classified. Different eligibility criteria as well as risk management requirements will be applied to the three categories of debtors including individuals, auto dealers, and institutions.
  • Foreigners are able to borrow auto loans. The Provisions expressly provides that residents of Hong Kong, Macao and Taiwan as well as foreigners may borrow auto loans as individual creditors provided that they have consecutively lived in China for no less than one year.
  • Different terms, such as maturity, cap, and risk management, are applied to different categories of loans. For instance, the caps of auto loans are respectively 80%, 70% and 50% of purchase price, depending on whether the cars financed by the loans are for personal or business use or are secondhanded.
  • Risk management is reinforced (Chapter 5). Creditors are required to establish rating systems to evaluate the credit of the debtors and place early warning mechanisms. Furthermore, they are required to segregate the assessment from approval and monitor the facility based on the classification of loans. Arrangements for information exchange are also called for.

Provisions on Administration of Assessing and Approving Applications of Foreigners for Permanent Residency in China

Issued By Ministry of Public Security, Ministry of Foreign Affairs

Subject Permanent Residency

Promulgated on August 15th 2004

Closing Date August 15th 2004


The 29-article Provisions prescribe rules for issues regarding applications for permanent residency in China, including eligibility, application materials, approval procedure, approval authority, and lost of permanent residency status.

Foreigners who are in good health, with no criminal records and abide by laws of China may apply for permanent residency in China, provided they satisfy one of the following conditions:

  • Make direct investment in China while the investment situation is stable in 3 consecutive years and has a proper taxation record;
  • Take the post of a vice manager or above, or have the associate advanced technician title such as associate professorship or above, for no less than 4 years within which the accumulative stay in China is no less than 3 years, with proper taxation records;
  • Make significant or outstanding contributions to China, or contributions being greatly in China’s needs;
  • Being the spouses or unmarried children under the age of 18 of the persons referred to in paragraph 1, 2 and 3;
  • Being the spouse of a citizens and permanent resident of China, whose marriage has lasted for no less than 5 years during which they have resided in China for no less than 9 months each year for no less than 5 years with places of residence and stable sources of incomes;
  • Being a dependant unmarried child under the age of 18;
  • Being a dependant elder person above the age of 60 who has direct relatives in China but have no direct relatives overseas and who has resided in China for no less than 9 months each year for no less than 5 years with places of residence and stable sources of incomes.

The permanent residents of China shall reside in China for no less than 3 months each year. Even if provincial public security authorities at the place of their residence waive the requirement of a 3-month residency, they shall reside in China for no less than one accumulative year within every 5 years.

Provisions on Complaining Illegal Pricing Conducts

Issued By National Development and Reform Commission

Subject Pricing

Promulgated on August 19th 2004

Effective From October 1st 2004

Repeal Provisions on Reporting Illegal Pricing Conducts 2001


According to this regulation, individuals, legal persons and other entities are entitled to bring the illegal pricing conducts of business operators to the notice of pricing authorities through correspondence, personal visit and telephone:

  • Conspiracy to manipulate market prices with a view to harming other operators and consumers;
  • Sell goods at a price below the cost with a view to squeeze competitors or gain monopoly power except for sale of fresh goods, seasonal goods and overstocked goods;
  • Price discrimination;
  • Push the market price over-rising by means of fabricating and disseminating information on the rising of prices;
  • Induce consumers or other competitors to the transaction by means of dishonesty or misleading pricing methods;
  • Indirectly raise or lower prices by raising or lowering the grades of products and service;
  • Procure sudden huge profit in contravening with laws and regulations;
  • Non-conformity with government-regulated or government-set prices;
  • Non-implementation of statutory intervening measures or measures of emergency;
  • Violation of rules on price tag;
  • Providing untrue information when under investigation.

Pricing authorities shall deal with the complaints in accordance with Law on Pricing, Provisions on

Administrative Penalties against Illegal Pricing Conducts, and this regulation.

2. Local

Six Bans on Relationship between Judges and Parties including the Counsels

Issued By High Court of Beijing Municipality

Subject Judicial Administration

Promulgated on August 18th 2004

Effective From August 18th 2004


The document provides that judges who are confirmed to be engaged in one of the following six activities will be subject to dismissal, compulsory transferal and removal regardless of the quality of their failure. Relevant court leaders will be responsible for covering-up and harboring.

The six banned conducts include:

  • Acceptance of any form of financial benefits from parties including their counsels such as treat, money and goods;
  • Disclosure of information on deliberation within the penal of judges, discussions within the judicial committee, and contents of un-delivered judgments;
  • Breach the rules on recusal;
  • Participate in non-official activities paid by the parties including their counsels;
  • Recommend counsels to the parties or procure cases for the lawyers;
  • Meet a single party including its counsel.

Footnotes from China Legal Briefing 84

1 Article 9 of PRC Arbitration Law provides that:

A system of a single and final award shall be practiced for arbitration. If a party applies for arbitration to an arbitration commission or institutes an action in a peoples court regarding the same dispute after an arbitration award has been made, the arbitration commission or the peoples court shall not accept the case.

If an arbitration award is set aside or its enforcement is disallowed by the peoples court in accordance with the law, a party may apply for arbitration on the basis of a new arbitration agreement reached between the parties, or institute an action in the peoples court, regarding the same dispute.

2 Article 25 provides that:

The employer can revoke labor contracts should any one of the following cases occur with its laborers:


(4) When they are brought to hold criminal responsibilities in accordance with law.

This publication is intended to provide accurate information in regard to the subject matter covered. Readers entering into transaction on the basis of such information should seek additional, in-depth services of a competent professional advisor. Wenger vieli belser, the author, consultant or general editor of this publication expressly disclaim all and any liability and responsibility to any person, whether a future client or mere reader of this publication or not, in respect of anything and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication.

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