WOFE Law Implementing Rules amended 1

Further to the amendments of the Law of the People’s Republic of China on Wholly Foreign Owned Enterprises(the WOFE Law) last October, its implementing rules were amended accordingly by the State Council on 12 April 2001.

Major amendments reflect those to the WOFE Law, including:

• the removal of the requirement that WOFEs should submit production and operation plans to the departments-in-charge
• the removal of the requirement that a WOFE may be established only if it uses either advanced technology or exports more than 50% of its products – now WOFE is only encouraged to do so.

In addition, other restrictions on registered capital are relaxed. For instance, the old Article 22 of the WOFE Implementing Rules prohibits the reduction of registered capital outright. The new version adds that if there is a need for a reduction due to changes in total investment, production and operation scale, authorisation from the approval authority must be sought.

Article 26 of the old WOFE Implementing Rules provides that if the foreign investor makes registered capital contribution in the form of machinery or equipment, the contribution must meet two conditions:

1. it is necessary for the production of the WOFE
2. it cannot be manufactured from China, or in the case that China does manufacture such machinery or equipment, its technological functioning or timing of supply cannot meet the need of the WOFE.

The new article eliminated condition two.

Similarly, the old Article 28 of the WOFE Implementing Rules provides for the situation where foreign investors make registered capital contribution in the form of industrial property rights or know-how. It requires, among other things, that in order to do so, such industrial property rights or know-how must have the potential to produce new products that China is in urgent need of products that are suitable for export. This requirement was removed in the new amendments.

For further information please contact Luke Filei on [email protected] or +86 10 6590 0389 in Beijing or +86 21 6289 6363 in Shanghai.