Hong Kong: Regulations for Pilot Trade Joint Ventures in China

Last Updated: 11 December 1996
People familiar with China will know that sino-foreign joint ventures have been limited to areas of manufacturing or services and have not generally been permitted to carry on trading activities except ancillary to such primary objectives. There was therefore a considerable interest when it was announced earlier in 1996 that the Chinese government would permit the establishment of trading joint ventures to allow certain specified sino-foreign joint ventures to carry on trading activities and be set up primarily with these objectives in mind.

The Provisional Measures for the Pilot Sino-foreign Foreign Trade Joint Ventures (the "Measures") was promulgated by the Chinese Ministry of Foreign Trade and Economic Co-operation (MOFTEC") and came into force on 2 September 1996 The Measures set out certain qualifications and requirements for sino-foreign joint ventures formed to can on import and export business ("Trade JV") as well as for both Chinese and foreign Trade JV parties. As the Measures are intended to introduce foreign investment into this "experimental field", the Trade JVs are for the time being only permitted to set up in Shenzhen Special Economic Zone (the "SEZ") and Shanghai Pudong New Area (the "Pudong"). Like other pilot reforming measures, it is likely that there will be a tight control over the number (or quota) of pilot Trade JVs permitted.

1 Qualifications for the investors

Foreign investors to the Trade JVs should have the following qualifications:-
  • turnover for the previous year must be over US$5 billion;
  • the average annual trade turnover with China for the previous three years was over US$30 million, and
  • representative office(s) in China has been established for more than three years, or, the aggregate investment in China is over US$30 million.

Chinese co-investors to the Trade JVs should have the following qualifications:

  • they must be permitted to do import and export business;
  • the average annual import and export turnover for the previous three years was over USS200 million in which the average annual export turnover was not less than US$100 million; and
  • more than three branches, subsidiaries or joint ventures have been established outside China whose average annual turnover for the previous three years was over US$10 million.

2 What Can the Trade JVs Do?

The application to set up such a Trade JV must clearly and specifically list the scopes of commodities or the business that the Trade JV is proposed to trade or carry out. The Trade JVs may only carry out such import and/or export business within the limited scope as approved by MOFREC. Without MOFFEC's approval. Trade JVs are not permitted to carry out any other business.

So far as the geographical area of the Trade JVs' business operation is concerned, it is not entirely clear whether such Trade JVs may extend their import and/or export business to cities other than the SEZ or Pudong because the Measures itself do not specifically deal with this- Nor it is clear whether the Trade JVs are permitted to set up branch(es) in other cities of China. Obviously, the Trade JVs themselves, and perhaps the local authorities of the SEZ and Pudong, will be keen wish to not be so constrained. MOFTEC's view on this, however, is untested.

3 What are the Requirements of the Trade JVS?

The Measures provide that the Trade JV should be a limited liability company. Accordingly, Trade JVs may only be established in the form of equity joint ventures. The chairman of the board of directors shall be appointed by the Chinese co-investor. In addition, the Trade JVs should meet the following requirements:-

  • the registered capital may not be less than Rmb100 yuan (or approximately US$12 million), and the foreign investor's equity should be 25% or more but may not be higher than 49%;
  • they must have their own names and management organisations,
  • they must have their own business premises, professional staff and other facilities suitable and necessary for the import and export business.

4 What are the Obligations of the Trade JVs?

Trade JVs must comply with the laws and regulations of China. Foreign exchange, accounting and auditing and taxation matters will be dealt with in accordance with the relevant laws and regulations. In addition to these, Trade JVs have the following obligations:-
  • registered capital of the trade JVs should be paid up within one month after their respective business licences are issued;
  • the Trade JVs should apply to join the chambers of the import and export companies or the association of foreign investment enterprises and shall be subject to the rules of the chambers or the association.

5 Approving Authority

Applications for setting up Trade JVs should be made to the MOFTEC via local branches of the MOFTEC. MOFTEC will review the applications and report to the State Council, Once the State Council approves, MOFTEC will issue the approval certificate.

6 Conclusion

it still remains to be seen that how many and what foreign companies will be selected by Chinese government to form Trade JVs with Chinese counterparts and when the Trade JVs will be permitted to established in any other cities. It might be the Chinese government's intention to allocate a number of quotas to the foreign companies which have been continuously, actively and friendly trading with China. Door for trading business has not been fully opened (foreign involvement in domestic trading is still strictly prohibited) in China. This pilot Measures, however, open a window to a selected number of foreign companies that are going to share a cake with China.

FURTHER INFORMATION on the above may be obtained via Linklaters & Paines Hong Kong office or via any of the other nine Linklaters & Paines offices world-wide, located in Singapore, Tokyo, London, Brussels, Paris, Frankfurt, New York, Washington D.C. and Moscow. Contact details for the various L&P offices worldwide are available via the Linklaters & Paines corporate listing c/o Business Monitor Online - http://www.businessmonitor.co.uk

c Linklaters & Paines 1996 - Tel +852 2842 4888

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions