China: Corporate, Foreign Investment, Trade, and Intellectual Property Laws Company Law Amended

On August 28, 2004, the Standing Committee of the 10th National People's Congress revised the Company Law by deleting Article 131 (2), which had required that a company wishing to issue a stock at a price over book value obtain prior approval from the securities administration of the State Council. The revisions to the law took effect on the same day.

The article was deleted in recognition of the government's reduced role in setting prices. There is growing acceptance of allowing prices to be set by supply and demand, not by government order.

Securities Law Amended On August 28, 2004, the Standing Committee of the 10th National People's Congress revised Articles 28 and 50 of the Securities Law. The revisions to the law took effect on the same day.

Article 28 was revised in order to comply with the new Company Law. As revised, Article 28 requires that the issuer of a stock and the decide on the price of any stock that is to be issued at a price higher than its book value. The new law no longer requires that the price be reported to the securities authority of the State Council for approval.

Article 50 was revised in order to meet international standards. Those matters that should not be controlled by the government are now released to the market. As revised, Article 50 requires that a company applying to list its company bonds on the market gain approval from the stock exchange where the shares are traded. Previously, the law required that the company report to the securities authority of the State Council for approval.

China Amended Rules Regarding Corporate Registered Capital

The State Administration of Industry and Commerce's ("SAIC") Regulations of Administration on Registration of Corporate Registered Capital took effect on July 1, 2004. The regulations replace the 1995 Provisional Regulations on Administration of Corporate Registered Capital.

The regulations stipulate legal requirements for capital contribution, changes to registered capital, and capital audits. The regulations apply to all companies, including foreign invested enterprises. Under the regulations, if a shareholder fails to contribute promised non-cash capital the SAIC will impose punishment on any shareholder who fails to make such non-cash capital contribution, or makes a false capital contribution or withdraws a capital contribution after the establishment of the company, and on any company that falsely declares registered capital.

Rules for the Implementation of Administration on Enterprise Name Registration

The State Administration of Industry and Commerce's Rules for the Implementation of Administration on Enterprise Name Registration took effect on July 1, 2004. The new Rules replace the three notices which had previously governed this subject matter.

The rules stipulate detailed legal requirements of enterprise nomenclature; legal requirements and procedures for enterprise name registration and change; legal requirements for the use of enterprise names; and regulations for supervision of and dispute settlement concerning enterprise names. According to the rules, both wholly foreign invested enterprises and majority-owned foreign invested enterprises using a foreign party's trade name - are allowed to use the word "China" in their enterprise names. Names of foreign enterprises will be protected in accordance with any relevant international pacts to which China is a party.

Rules for the Implementation of Foreign Invested Insurance Company Administrative Regulations

The Commission of Insurance Supervision and Administration of the People's Republic of China issued the Rules for the Implementation of Foreign Invested Insurance Company Administrative Regulations on March 15, 2004. The regulations took effect on June 15, 2004.

The rules bring China into compliance with WTO regulations and with China's commitments for WTO entry. They supplement the Administrative Regulations for Foreign Invested Insurance Companies (effective February 2002), and enable China to adapt to new developments in its insurance industry.

Most significantly, the rules cover the following:

1. The ratio of Chinese to foreign shares in a joint venture life insurance company is specified at under 50% of the total capital stock of the company. This ratio also must be observed when a foreign insurance company directly or indirectly holds shares of a joint venture life insurance company.
2. A branch of a joint venture or foreign insurance company may operate only in the province, autonomous region or provincial-level municipality (either Beijing, Tianjin, Shanghai and Chongqing), where it is registered. If a joint venture or a foreign insurance company wishes to operate in a province, autonomous region or municipality other than that in which it is registered, it must first establish a branch company there.
3. Procedures for the dissolution, liquidation and cancellation of foreign insurance companies are also provided in the new rules.

Companies from Hong Kong, Macao and Taiwan should refer to the rules when establishing insurance companies in Mainland China.

Rules for the Implementation of the Sino-Foreign Cooperative Education Institution Act

The Ministry of Education issued the Rules for the Implementation of the Sino-Foreign Cooperative Education Institution Act on March 1, 2004. The Rules took effect on July 1, 2004, and are designed to expand China's access to international education, attract excellent educational resources from abroad, and promote cooperation in higher education and professional education.

The rules cover the establishment, activities and administration of Sino-foreign educational institutions. The rules also specify the methods of examination, approval and administration for Sino-foreign cooperative educational projects relating to degree education, tutoring, preschool education, etc.

The rules also apply to educational institutions in Hong Kong, Macao and Taiwan that sponsor cooperative projects with educational institutions on the Mainland.

Regulations of Country of Origin of Imported & Exported Goods

The Regulations become effective January 1, 2005, and will replace the currently effective Rules on Country of Origin of Exported Goods (issued by the State Council on March 8, 1992) and the Provisional Regulation by Customs on Country of Origin of Imported Goods (issued by the Customs on December 6, 1986).

The Regulations cover the identification of country of origin for imported and exported goods in non-preferential trade measures. Subjects covered by the Regulations include implementation of most-favored nation treatment, anti-dumping and anti-subsidy regulations, security measures, the administration of marks of origin, nation-number restrictions, duty quotas, and, concerning government purchases, trade statistics.

Goods manufactured entirely in one country or region, will be deemed to be made in that country. When goods are jointly manufactured by two or more countries, the country which makes the final substantial changes to the goods will be deemed the country of origin.

When declaring goods at customs-in accordance with the Customs Law of the People's Republic of China and with relevant regulations-the consignee of the goods must faithfully declare the country of origin of the imported goods in accordance with the identification standards as stipulated in the Regulation. If the consignee is declaring goods from more than one country of origin, the country of origin of each category of goods must be declared.

Marks of origin are administered by each country of origin. The country of origin indicated by the mark on any good or its packaging must be consistent with the country of origin as identified in the Regulation.

Anyone who declares a country of origin of imported goods in violation of the Regulation will be penalized. Fines will be imposed in accordance with the Foreign Trade Law, the Customs Law and the Rules for the Implementation of Customs Administrative Penalties of the People's Republic of China.

Rules for the Implementation of the Intellectual Property Customs Protection Act

The Customs General Office approved the Rules of Implementation of the Intellectual Property Customs Protection Act, which took effect on July 1, 2004. The rules replace the previous Implementing Rules of Intellectual Property Customs Protection.

The rules stipulate the detailed legal requirements and procedures for customs recordation of intellectual property; the legal requirements and procedures for IP owners or their attorneys to have customs detain goods suspected of infringing on IP rights, and the procedures for Customs to investigate and handle suspected infringing goods. Under the rules, in order to have Customs detain suspected infringing goods, the owner of the IP right must submit sufficient evidence of infringement. An example of sufficient evidence would be evidence that the relevant goods are about to be imported or exported and that the goods feature a trademark or rely on patents or copyrights owned by the IP owner. The IP owner must also provide Customs with a guarantee of funds or letter of undertaking issued by a bank or similar credit institution.

Receivers and shippers of imported and exported goods, and their attorneys, are responsible for knowing, within reason, the IP status of the goods that they import or export. They must accurately declare the IP status of the goods to customs and submit relevant certification documents if necessary.

Regulations of Administration on Trademark Printing

The Regulations of Administration on Trademark Printing were implemented on September 1, 2004, replacing the previous regulations, issued by the SAIC on September 5, 1996. The regulations provide detailed requirements for trademark printing. A company must supply a trademark registration certificate or a trademark license granted by the trademark owner before the trademark may be printed on goods or packaging. The sample print of a registered trademark must be identical to the design and logo on the trademark registration certificate. The trademark printing company must establish a record and storage system for the trademarks printed and must keep all records for at least two years. Violation of the regulations may expose the trademark printing company to trademark infringement liability as provided in the Trademark Law.

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