Member Article

The Ministry of Finance promulgated the Measures for the Examination and Approval of the Advanced Recovery of Their Investment by Foreign Partners in Chinese-foreign Cooperative Joint Venture Enterprises on 9 June 2005. The Measures, which entered into effect on 1 September 2005, specify the conditions that foreign investors must satisfy to obtain advanced recovery of their investment in a Chinese-foreign cooperative joint venture (“CJV”). Conditions The “advanced recovery of investment” is defined in the Measures as an act whereby a foreign partner of a CJV recovers its investment in advance during the term of cooperation through funds derived from its share of the depreciation of fixed assets and amortisation of intangible assets and other ways in accordance with the provisions of the law and the stipulations of the contract (“advanced recovery”). A CJV must meet the following requirements to be eligible for advanced recovery: • at the expiry of the term of cooperation, all fixed assets of the CJV after liquidation shall be handed to the Chinese partner free of charge; • the CJV issues an undertaking to discharge debts with precedence over the advanced recovery; • the foreign partner that is to effect the advanced recovery issues an undertaking to bear joint and several liability for the debts of the CJV to the extent of the advanced recovery; • the capital of the CJV has been contributed in full in accordance with the law and the provisions of the CJV contract; and • the CJV has a good business and financial position and has no losses that have not been made up. Formalities The provincial-level finance authority shall be the examination and approval authority for advanced recovery. The Measures specify the documents to be submitted by the CJV for the purpose of obtaining approval for advanced recovery. The Measures require the finance authority to make a decision on whether to grant advanced recovery within 20 days of its receipt of the application. If the application is approved, the finance authority shall send a copy of its reply and the letters of undertaking submitted by the CJV and foreign investors to the commerce authority and the foreign exchange administration at the corresponding level.