RULES FOR THE IMPLEMENTATION OF THE CHINESE-FOREIGN CONTRACTUAL JOINT VENTURES

    Article 1  These Rules are enacted in accordance with the Law of the
People’s Republic of China on Chinese-Foreign Contractual Joint Ventures.

    Article 2  The establishment of Chinese-foreign contractual joint ventures
(hereinafter referred to as contractual joint ventures) within the territory
of China shall meet the development policies and industrial policies of the
state and shall abide by the state provisions on the direction of investment
of foreign funded enterprises.

    Article 3  Contractual joint ventures shall develop their own business
freely in accordance with the law and conduct operational and managerial
activities within the scope of the approved agreements, contracts and articles
of association of the contractual joint ventures without any interference from
any organizations or individuals.

    Article 4  Contractual joint ventures include those having attained the
status of Chinese legal persons and those not having attained the status of
Chinese legal persons in accordance with the law.

    Where special provisions are provided for in Chapter IX of these Rules,
such provisions shall apply to the contractual joint ventures which do not
have the status of legal persons.

    Article 5  The competent department of the Chinese party of the
contractual joint venture is also that of the contractual joint venture. Where
there are two or more Chinese parties, the authority for examination and
approval shall consult with the relevant departments to determine one
department to be the competent one, with the exceptions of those provided for
by law or administrative regulations.

    Article 6  The establishment of contractual joint ventures shall be
examined and approved either by the Ministry of Foreign Trade and Economic
Cooperation or by the department or local people’s government authorized by
the State Council.

    Where a contractual joint venture is established under one of the
following circumstances, the contractual joint venture shall be examined and
approved by the department or the local people’s government authorized by the
State Council:

    (1) Where the total investment amount is within the limit of the amount
stipulated by the State Council which can be examined and approved by the
department or the local people’s government authorized by the State Council;

    (2) Where the capital is raised by the contractual joint venture, and the
construction or production conditions are not required to be balanced by the
state;

    (3) Where the export of products does not require to receive the export
quota or permit as granted by the relevant state departments responsible, or
although such a quota or permit is required, the relevant state departments
responsible have agreed to grant them before the project proposal is submitted;

    (4) Where there are other cases examined and approved by the department
or the local people’s government authorized by the State Council as stipulated
by law or by administrative regulations.

    Article 7  Where a contractual joint venture is established, the following
documents must be submitted to the examination and approval authority by the
Chinese party:

    (1) The project proposal for establishing a contractual joint venture,
together with any documents which have been examined and approved by the
department responsible;

    (2) The feasibility study report jointly conducted by all parties to the
contractual joint venture, together with any documents which have been
examined and approved by the department responsible;

    (3) The agreement, contract and articles of association of the contractual
joint venture signed by the legal representatives or authorized
representatives of the parties to the contractual joint venture;

    (4) The business licenses or registration certificates of the
parties to the contractual joint venture, and their credit certificates and
the valid documents of their legal representatives; where the foreign party
is a natural person, valid certifying documents showing his or her identity,
his or her personal details and credit information should be provided;

    (5) The name list of the chairman, vice-chairman and directors of the
board of directors or the director, vice-director and members of the joint
management committee as decided in consultation by the parties to the
contractual joint venture;

    (6) Other documents whose submission is required by the examination and
approval authority.

    The documents listed in the preceding paragraph shall be submitted in
Chinese with the exception of the documents listed in Item (4) provided by the
foreign party; the documents listed in Items (2), (3) and (5) may be
simultaneously submitted in a foreign language, as decided in consultation by
the parties to the contractual joint venture.

    The examination and approval authority shall decide whether to grant
approval within 45 days of receiving all the documents stipulated; in cases
where the examination and approval authority thinks that the documents
submitted are incomplete or unsuitable, it has the right to demand the parties
to the contractual joint venture to complete or amend them within the
appointed time limit.

    Article 8  The Ministry of Foreign Trade and Economic Cooperation shall
issue certificate of approval to a contractual joint venture whose
establishment has been approved by the Ministry of Foreign Trade and Economic
Cooperation and the department authorized by the State Council.

    The local people’s government shall issue certificate of approval to a
contractual joint venture whose establishment has been approved by the
relevant local people’s government as authorized by the State Council, and
these documents of approval shall within 30 days as from the date of approval
be submitted to the Ministry of Foreign Trade and Economic Cooperation for the
record.

    A contractual joint venture whose establishment has been approved shall
apply to the authority for the administration of industry and commerce for
registration and to obtain a business licence in accordance with the law.

    Article 9  Under any of the following circumstances, approval will not be
granted to an applicant for establishment of a contractual joint venture:

    (1) Harming state sovereignty or social public interests;

    (2) Endangering state safety;

    (3) Causing pollution to the environment;

    (4) Other circumstances which violate the law, administrative regulations
or state industrial policies.

    Article 10  The term “agreement of the contractual joint venture” as
stipulated in these Rules refers to the written document drawn up by the
parties to the contractual joint venture after they have come to an agreement
on the principles for establishing the venture and major projects.

    The term “contract of the contractual joint venture” as stipulated in
these Rules refers to the written document drawn up by the parties to the
contractual joint venture after they have come to an agreement upon the rights
and obligations of the parties for the establishment of the venture.

    The term “articles of association of the contractual joint venture” as
stipulated in these Rules refers to the written document drawn up by the
parties to the contractual joint venture according to the agreements made in
the contract of the contractual joint venture and agreed upon by all parties
to the contractual joint venture, agreeing on such matters as the
organizational principles and the methods of management and operation.

    In cases where discrepancies exist between the agreement or articles of
association of the contractual joint venture and the contract of the
contractual joint venture, the contract of the contractual joint venture
shall prevail.

    The parties to the contractual joint venture also have the right not to
conclude the agreement of the contractual joint venture.

    Article 11  The agreement, the contract and the articles of association of
the contractual joint venture shall enter into force as of the day when the
certificate of approval is issued by the examination and approval authority.
During the period of cooperation, any major changes to the agreement, the
contract or articles of association of the contractual joint venture must be
approved by the examination and approval authority.

    Article 12  The contract of the contractual joint venture shall clearly
state the following:

    (1) The name, place of registration, domicile of and the name, position
and nationality of the legal representatives of each party to the contractual
joint venture (where the foreign party is a natural person, his or her name,
nationality, and domicile);

    (2) The name, domicile and scope of business of the contractual joint
venture;

    (3) The total investment sum and the registered capital of the contractual
joint venture, the manner and time limit of the investment or conditions for
cooperation provided by each party to the contractual joint venture;

    (4) The transfer of investments or conditions provided by the parties to
the contractual joint venture;

    (5) The distribution of earnings or products and the sharing of risks and
losses among each party to the contractual joint venture;

    (6) The composition of the board of directors or the joint management
committee of the contractual joint venture and the number of people assigned
to be directors or committee members, the powers, and the measures for the
appointment and dismissal of the general manager and other high-ranking
managers;

    (7) The major equipment used for production, the productive technology and
their source;

    (8) Marketing arrangements for products sold inside and outside Chinese
territory;

    (9) Plans for revenue and expenditure regarding foreign currency;

    (10) The period of operation, dissolution and liquidation of the
contractual joint venture;

    (11) Other obligations of the parties to the contractual joint venture and
responsibilities for breach of the contract;

    (12) The operational principles for finance, accounting and auditing;

    (13) The settlement of disputes between the parties to the contractual
joint venture;

    (14) The procedures for amending the contract of the contractual joint
venture.

    Article 13  The articles of association of the contractual joint venture
shall clearly state the following:

    (1) The name and domicile of the contractual joint venture;

    (2) The business scope and the period of cooperation of the contractual
joint venture;

    (3) The name, place of registration, domicile of and the name, position
and nationality of the legal representatives of each party to the contractual
joint venture (where the foreign party is a natural person, his or her name,
nationality and domicile);

    (4) The total investment sum and the registered capital of the contractual
joint venture, the manner and time limit of the investment or the conditions
for cooperation provided by each party to the contractual joint venture;

    (5) The distribution of earnings or products and the sharing of risks and
losses among each party of the contractual joint venture;

    (6) The composition, powers and rules of procedure of the board of
directors or the joint management committee, the terms of office of directors
of the board of directors or members of the joint management committee, the
powers of the chairman and vice-chairman of the board of directors, and the
director and vice-director of the joint management committee;

    (7) The establishment, powers and working procedures of management
organs, the powers, the measures for appointment and dismissal of the
general manager and other high-ranking managers;

    (8) Provisions relating to such labour management as recruitment,
training, work contracts, wages, social insurance, welfare, on-the-job safety
and hygiene of the staff members;

    (9) Systems of finance, accounting and auditing of the contractual joint
venture;

    (10) The procedures for the dissolution and liquidation of the contractual
joint venture;

    Article 14  A contractual joint venture which has attained the status in
accordance with the law shall be a limited liability company. The parties to
the venture shall be liable to the contractual joint venture within the extent
of their investment or within their extent of the conditions for cooperation
contributed, with the exception of those cases otherwise agreed in the
contract.

    The contractual joint venture is liable for covering the debts of the
venture with all its assets.

    Article 15  The total investment sum in the contractual joint venture
means the investment total which need be contributed according to the scale of
production and management as stipulated in the contract and the articles of
association of the contractual joint venture.

    Article 16  The registered capital of the contractual joint venture means
the total capital contributed by the parties to the contractual joint venture
as registered in the administrative organs for industry and commerce for the
purpose of establishing the contractual joint venture. The registered capital
may be expressed in Renminbi Yuan or in another convertible foreign currency
as agreed by the parties to the contractual joint venture.

    Article 17  The parties to the contractual joint venture shall provide
investment for the venture or conditions for cooperation in accordance with
the provisions of the relevant laws or administrative regulations and the
agreement in the contract of the contractual joint venture.

    Article 18  The investment or conditions for cooperation contributed by
the parties to the contractual joint venture may be provided in cash or in
kind, including industrial property rights, specialized technology, the right
to the use of land or other property rights.

    In cases where the investment or conditions for cooperation contributed by
the Chinese parties are part of the state assets, they shall be valued
according to the provisions of the relevant laws and administrative
regulations.

    In cases where the contractual joint venture has attained the status of
Chinese legal person in accordance with the law, the investment contributed by
foreign parties shall usually not be less than 25% of the registered capital
of the contractual joint venture. In cases where the contractual joint venture
has not attained the status of Chinese legal person, the specific requirements
as to the investment or conditions contributed by the parties to the
contractual joint venture shall be stipulated by the Ministry of Foreign Trade
and Economic Cooperation.

    Article 19  The parties to the contractual joint venture may contribute
their own property or property rights as investment or conditions for
cooperation, and may not raise mortgages or other forms of guarantee on the
contributed investment or conditions for cooperation.

    Article 20  The parties to the contractual joint venture shall, according
to the production and management needs of the contractual joint venture and in
accordance with the provisions of the relevant laws or administrative
regulations, agree upon within the contract of the contractual joint venture a
deadline before which each party shall provide investment or conditions for
cooperation in the contractual joint venture.

    In cases where each party to the contractual joint venture has not
provided the investment or conditions for cooperation in the agreement in the
contractual joint venture’s contract, the administrative authority for
industry and commerce shall prescribe a time limit for him to provide; in
cases where investment has not been made before the time limit, the authority
for examination and approval shall revoke the certificate of approval of the
contractual joint venture, and the administrative authority for industry and
commerce shall revoke the business licence of the contractual joint venture
and shall publicly announce this decision.

    Article 21  In cases where one party to the contractual joint venture has
not provided investment or conditions for cooperation in accordance with the
contract of the contractual joint venture, he shall be liable for violating
the contract to the other party who has provided investment and conditions for
cooperation in accordance with the contract of the contractual joint venture.

    Article 22  The investments or conditions for cooperation provided by the
parties to the contractual joint venture shall be verified by a Chinese
certified public accountant who shall provide a verification report. The
contractual joint venture shall issue certificates of investment to the
parties to the venture on the basis of the report. The certificates of
investment shall clearly state the following:

    (1) The name of the contractual joint venture;

    (2) The date of establishment of the contractual joint venture;

    (3) The designation or name of each party to the contractual joint venture;

    (4) The contents of the investment or conditions for cooperation
contributed by the parties to the contractual joint venture;

    (5) The date on which the parties to the contractual joint venture
provided the investment or conditions for cooperation;

    (6) The serial number and the date of issue of the investment certificate.

    Copies of the investment certificate shall be submitted to the
examination and approval authority and the administrative authority for
industry and commerce.

    Article 23  If the parties to the contractual joint venture transfer all
or some of the rights stipulated in the contract of the contractual joint
venture to each other, or if one party to the venture transfers all or some of
the rights stipulated in the contract to a party other than the other party to
the venture, the written consent of the other party must be obtained and
submitted to the examination and approval authority for approval.

    Article 24  The contractual joint venture shall establish a board of
directors or a joint management committee. The board of directors or the joint
management committee is the authoritative organization of the contractual
joint venture, deciding the major issues of the contractual joint venture
according to the provisions of the articles of association of the contractual
joint venture.

    Article 25  The board of directors or the joint management committee shall
be composed of not less than three members, and their distribution shall be
determined through consultation by the Chinese and foreign parties with
reference to the investment or conditions for cooperation contributed by each
party.

    Article 26  The members of the board of directors or the joint management
committee shall be appointed or dismissed by the Chinese and the foreign party
respectively. The method of the selection of the chairman and vice-chairman of
the board of directors or the director and vice-director of the joint
management committee shall be stipulated in the articles of association of the
contractual joint venture. Where the Chinese or the foreign party assumes the
chairmanship of the board of directors or the directorship of the joint
management committee, the other party shall assume the vice-chairmanship or
the vice-directorship.

    Article 27  The term of office of the members of the board of directors or
the joint management committee shall be specified in the articles of
association of the contractual joint venture; however, each term may not be
longer than three years. At the expiration of a director’s or a committee
member’s term, he may serve another term if re-appointed.

    Article 28  Meetings of the board of directors or the joint management
committee shall be convened at least once a year and shall be convened and
presided over by the chairman or the director. When the chairman or the
director is unable to perform his duties due to special reasons, the
vice-chairman, the vice-director or another board or committee member as
designated by the chairman or the director shall convene and presided over the
meeting. A meeting of the board of directors or the joint management committee
may be convened upon proposal made by one-third or more of the directors or
committee members.

    Meetings of the board of directors or the joint management committee may
be held only if two-thirds or more of the directors or committee members are
present. Directors or committee members who are unable to attend the meetings
of the board of directors or the joint management committee shall entrust a
representative in writing to attend and to vote. A resolution made at a
meeting of the board of directors or joint management committee requires the
approval of half or more of all the directors or committee members before it
passes. A director or a committee member who does not attend the meeting of
the board of directors or the joint management committee without any just
cause, and does not entrust a representative to attend on his behalf is deemed
to have been present at the meeting of the board of directors or joint
management committee and to have abstained from voting.

    All directors or committee members shall be notified ten days before a
meeting of the board of directors or joint management committee is convened.

    The meetings of the board of directors or the joint management committee
may use means of communication to pass a resolution.

    Article 29  A resolution on the following matters must be adopted
unanimously by all directors or committee members attending the meeting of the
board of the directors or the joint management committee:

    (1) An amendment of the articles of association of the contractual joint
venture;

    (2) An increase or decrease in the registered capital of the contractual
joint venture;

    (3) The dissolution of the contractual joint venture;

    (4) The mortgage of the assets of the contractual joint venture;

    (5) A merger, division or change in the corporate form of the contractual
joint venture;

    (6) Other matters agreed by the parties to the contractual joint venture
which must be adopted unanimously by all directors or committee members
present at the meeting of the board of the directors or joint management
committee.

    Article 30  Except as otherwise stipulated in these Rules, the methods of
discussion and voting procedures used in the meetings of the board of
directors or the joint management committee shall be stipulated in the
articles of association of the contractual joint venture.

    Article 31  The chairman or the director is the legal representative of
the contractual joint venture. In cases when the chairman or the director is
unable to perform his duties due to special reasons, he must authorize the
vice-chairman, the vice-director or another director or committee member to
represent the contractual joint venture in its external relations.

    Article 32  The contractual joint venture shall have one general manager
who shall be responsible for the day-to-day operation and management of the
contractual joint venture and shall be responsible to the board of directors
or the joint management committee.

    The general manager of the contractual joint venture shall be appointed
and dismissed by the board of directors or the joint management committee.

    Article 33  The general manager and the other high-ranking managers may
be either Chinese or foreign citizens.

    Directors or committee members, as appointed by the board of directors or
the joint management committee, may concurrently hold the position of general
manager or other high-ranking managers of the contractual joint venture.

    Article 34  When the general manager or other high-ranking managers are
not competent at their jobs, neglect their duties seriously or engage in
fraudulent practices or embezzlement, they may be dismissed through a
resolution adopted by the board of directors or the joint management
committee; in cases where damage is done to the contractual joint venture, the
liability for the damages shall be awarded in accordance with law.

    Article 35  When a contractual joint venture, after its establishment,
entrusts a third party with its operation and management, unanimous consent
must be obtained from the board of the directors or the joint management
committee, and a contract entrusting the operation and management shall be
signed with the person thus entrusted.