MEASURES FOR THE ADMINISTRATION OF EXAMINATION AND APPROVAL OF CHINESE-FOREIGN EQUITY JOINT VENTURE AND CONTRACTUAL JOINT VENTURE PROJECTS WITHIN THE RAILWAY SYSTEM

The Ministry of Railways

Notice of the Ministry of Railways Concerning Promulgating Measures for the Administration of Examination and Approval of Chinese-foreign
Equity Joint Venture and Contractual Joint Venture Projects within the Railway System

Tie Wai [1998] No.54

The relevant units under the Ministry of Railways:

Measures for the Administration of Examination and Approval of Chinese-foreign Equity Joint Venture and Contractual Joint Venture
Projects within the Railway System are hereby promulgated and please carry out.

The Ministry of Railways

May 4, 1998

Measures for the Administration of Examination and Approval of Chinese-foreign Equity Joint Venture and Contractual Joint Venture
Projects within the Railway System

Chapter I General Provision

Article 1

These Measures are formulated in compliance with such relevant laws and regulations as the Law of the People’s Republic of China on
Chinese-foreign Equity Joint Venture Enterprises, the Law of the People’s Republic of China on Chinese-foreign Contractual Joint
Ventures, the Law of Railways, etc. with a view to further expanding the opening of the railway system to the outside world, to making
better use of foreign direct investment, whereby upgrading the level of technological equipment and the level of administration of
the railway transportation industry, and of standardizing the examination and approval, and administration of Chinese-foreign equity
joint venture and contractual joint venture projects within the railway system, to promote the healthy development of Chinese-foreign
equity joint venture or of Chinese-foreign contractual joint venture enterprises.

Article 2

The term “Chinese-foreign equity joint venture and contractual joint venture projects” used in these Measures refers to Chinese-foreign
equity joint venture enterprises, the Chinese-foreign contractual joint venture enterprises, as well as other forms of foreign investment
projects established within the territory of China between railway entities enjoying corporate person status and foreign investors
(hereinafter referred to as joint venture projects or joint venture enterprises).

Article 3

The Chinese-foreign joint venture projects within the railway system shall abide by the following principles:

(1)

The projects shall accord with the government’s Interim Regulations for Foreign Investment Orientation, and the Catalogue of Industries
Needing Foreign Investment;

(2)

They shall accord with the development programme and guidelines of technology importation of the railway transportation industry;

(3)

They shall be conducive to the upgrading of the level of railway technological equipment and the product quality; and

(4)

They shall be conducive to the raising of the level of administration of railway enterprises, and of economic benefits.

Article 4

These Measures shall apply to the Chinese-foreign equity joint venture and Chinese-foreign contractual joint venture projects set
up within the territory of the People’s Republic of China.

Chapter II Administration of Examination and Approval

Article 5

The Ministry of Railways is the singular authority administering Chinese-foreign joint venture projects within the railway system;
the specific processing of examination and approval shall be undertaken by the department for foreign cooperation under the Ministry
of Railways together with the other concerned departments under this Ministry.

The competent departments of the railway enterprises throughout the country (i.e. railway administrations, general corporations, etc.)
are the sole competent departments for the Chinese-foreign joint venture projects and joint venture enterprises.

Article 6

All the Chinese-foreign joint venture projects, mainly concentrating on manufacturing products for the railways shall, irrespective
of the size of investment, be brought to the Ministry of Railways for examination and approval.

Chinese-foreign joint venture projects manufacturing non-railway products shall, upon the consent of the competent departments of
the said enterprises, be subject to the Ministry of Railways or the local governments for examination and approval; the relevant
provisions of the Ministry of Railways as contained in Document TieCai [1998] No.18 shall apply to their scope of investment.

Chinese-foreign joint venture projects, having been approved by the authorities responsible for examination and approval, shall be
submitted to the department of foreign cooperation of the Ministry of Railways for the record by the competent departments of the
concerned enterprises within two months. For the content of record, see the Table of Basic Conditions of Chinese-foreign Joint Venture
Projects within the Railway System (Attachment I).

Article 7

Scope of authority of examination and approval:

(1)

Application for a project, the total sum of investment of which is under USD 30,000,000 (USD 30,000,000 exclusive) shall be examined
and approved by the Ministry of Railways, and shall, depending on the nature of the project, be submitted to the State Planning Commission
and the State Economic and Trade Commission for the record;

(2)

Application for a project, the total sum of investment of which is above USD 30,000,000 (USD 30,000,000 inclusive) shall be examined
and approved by the State Planning Commission;

(3)

Application for a project, the total sum of investment of which is above USD 100,000,000 (USD 100,000,000 exclusive) shall be brought
to the State Planning Commission for examination, before the Commission submits the project proposal to the State Council for examination
and approval; and

(4)

Applications for Chinese-foreign joint venture projects in the areas of leasing, non-railway transportation, tourism, agency of freight
services, corporations of investment in nature, advertising, the building industry, etc. shall be transmitted by the Ministry of
Railways to the competent departments of relevant industries under the State Council for examination and approval.

Article 8

No organization or department shall be allowed to examine and approve Chinese-foreign joint venture projects beyond their scope of
authority; no enterprise shall be allowed to directly apply to the local government for initiating a Chinese-foreign joint venture
without the agreement of the competent department of the said enterprise.

Article 9

Where an existing Chinese-foreign joint venture enterprise within the railway system intends to change joint venture partners, transfer
ownership of stock, increase its registered capital, etc. or to extend the term of joint venture upon expiration of the outgoing
term, shall go through the procedures of examination and approval anew with the original authority of examination and approval.

Article 10

Procedures of application:

(1)

The Chinese joint venture partner shall submit a project proposal to the competent department of the enterprise about the joint venture
which it intends to establish with a foreign partner, or a preliminary feasibility study report of the said project. It is only when
the project proposal has been examined and agreed to by the competent department of the enterprise, and has been forwarded by the
said department to the superior authority which has given the approval, shall the partners involved in the joint venture embark on
the various kinds of work centering around the feasibility study report; on the basis of which they shall proceed to negotiate the
terms of agreement, contract, and articles of association relating to the joint venture.

For the particulars of the procedures of examination and approval of applications, see the Procedures of Examination and Approval
of the Application for Chinese-foreign Joint Venture Projects within the Railway System. (Attachment II)

(2)

The Chinese side of the proposed Chinese-foreign joint venture project shall be responsible for submitting to the superior authority
of examination and approval the following formal documents:

1.

Project proposal;

2.

The feasibility study report jointly prepared by parties to the venture;

3.

Agreement, contract, and articles of association for the joint venture signed by the authorized representatives of parties to the
venture;

4.

List of candidates for president, vice presidents, and board directors;

5.

Photocopy of the business license of the corporate person of the Chinese partner;

6.

Certification of the creditworthiness of the foreign partner and a photocopy of the business registration certificate (business license);

7.

State asset evaluation report and the document of approval by the Administration of State Assets;

8.

Evaluation report on the impact on the environment, and the document of approval by the Administration of Environmental Protection;

9.

Other relevant materials or information.

For the contents of the main documents for the application and the requirements, see the Essential Documents for the Preparation for
Establishing Chinese-foreign Joint Venture projects within the Railway System. (Attachment III)

Article 11

For a Chinese-foreign joint venture project, the total amount of investment of which is under USD 5,000,000, the Chinese partner of
the joint venture may, with almost all the required documents and materials available and the agreement of the competent department
of the enterprise and the consent of the examination and approval department of the Ministry of Railways, work out the project proposal
and the feasibility study report all at once and submit them to the superior authority for examination and approval.

Article 12

For a Chinese-foreign joint venture project, the total amount of investment of which is above USD 10,000,000 (USD 10,000,000 inclusive),
the feasibility study report shall be prepared by the consulting agency or architectural designing institution which has class A
qualifications, and entrusted by both Chinese and foreign partners with the work.

Article 13

Ratio of registered capital to investment

(1)

The registered capital of a project, the total amount of investment to which is under USD 3,000,000 (USD 3,000,000 inclusive), shall
not be less than 70% of the total amount invested.

(2)

The registered capital of a project, the total amount of investment of which is above USD 3,000,000 to USD 10,000,000 (USD 10,000,000
inclusive), shall not be less than 50% of the total amount invested; of these, the registered capital of a project, the total amount
of investment of which is under USD 4,200,000, shall not be less than USD 2,100,000;

(3)

The registered capital of a project, the total amount of investment of which is above USD 10,000,000 to USD 30,000,000 (USD 30,000,000
inclusive), shall not be less than 40% of the total amount invested; of these, the registered capital of a project, the total amount
of investment of which is under USD 12,500,000, shall not be less than USD 5,000,000;

(4)

The registered capital of a project, the total amount of investment of which is above USD 30,000,000, shall not be less than one third
of the total amount invested; of these, the registered capital of a project, the total amount of investment of which is under USD
36,000,000, shall not be less than USD 12,000,000;

(5)

When it is necessary to make additional investment, the registered capital shall be incremented in compliance with the above-mentioned
provisions;

(6)

The ratio of investment of the foreign partner in a Chinese-foreign joint venture shall not be less than 25% of the registered capital.

Chapter III Operation, Supervision and Administration

Article 14

Chinese-foreign joint venture enterprises shall operate in compliance with the approved contracts, and articles of association, and
shall enjoy the right of autonomy as stipulated by the State.

Article 15

The technologies imported by a Chinese-foreign joint venture enterprise from the foreign partner or from a third party shall be advanced
and applicable; and when working out a technological transfer agreement, the right of autonomy of business operation and administration
of the joint venture enterprise shall be maintained; the conclusion of the technological transfer agreement shall not be made until
the consent of the competent department of the enterprise has been obtained.

Article 16

A Chinese-foreign joint venture enterprise may establish branch organizations in light of the production and operation needs. The
establishment of a branch organization within China shall be examined and approved by the original examination and approval department;
the application for the establishment of a branch organization abroad shall be submitted by the department for foreign cooperation
of the Ministry of Railways to the relevant government department for examination and approval.

Article 17

A time limit shall be set in explicit terms for the financial contributions to be made by the joint venture partners, which shall
be paid in full by them within the time limit as set in the contract.

Investment certificates to be issued to the joint venture partners in compliance with the relevant provisions upon the assets inspection
by certified accountants shall be submitted by the joint venture enterprise to the original examination and approval department and
the department of administration of industry and commerce for the record.

Where a lump sum payment is to be made for the whole amount of contribution from each of the partners as stipulated in the contract,
the joint venture partners shall each pay it in full within six months as of the date of the issue of the business license.

Where payment is to be made by installments as provided for in the contract, the total time limit set for the installment payments
shall not go beyond the duration listed below:

1.

Where the registered capital is under USD 500,000 (USD 500,000 inclusive), the full amount of the capital shall be paid up within
a year as of the date of issue of the business license;

2.

Where the registered capital is above USD 500,000 and under USD 1,000,000 (USD 1,000,000 inclusive), the full amount of capital shall
be paid up within a year and a half as of the date of issue of the business license;

3.

Where the registered capital is above USD 1,000,000 and under USD 3,000,000 (USD 3,000,000 inclusive), the full amount of capital
shall be paid up within two years as of the date of issue of the business license;

4.

Where the registered capital is above USD 3,000,000 and under USD 10,000,000 (USD 10,000,000 inclusive), the full amount of capital
shall be paid up within three years as of the date of issue of the business license;

5.

Where the registered capital is above USD 10,000,000, the time limit for the financial contributions shall be determined by the examination
and approval department in consideration of the specific conditions.

Article 18

The failure of one party of the joint venture to pay the required amount or the full amount of investment within the time limit, shall
constitute a breach of the contract. The observant party shall remind the defaulter to pay the required amount, or in full within
a month. In case of failure to pay the required amount or in full by the defaulter beyond the one month extension, the defaulter
shall be regarded as having abandoned all its rights as provided in the joint venture contract, and automatically withdraws from
the joint venture enterprise. The observant party shall, within one month as of the expiration of the extension, apply to the original
examination and approval authority for the approval of dissolving the joint venture, or of finding another joint venture partner
to inherit the rights and obligations embodied in the joint venture contract heretofore concluded with the defaulter. The observant
party may, according to law, demand the defaulter to compensate for the economic loss so incurred because of the defaulter’s failure
to pay the required amount or in full of its financial contribution.

Article 19

The competent department of the Chinese-foreign joint venture enterprises and the departments administering examination and approval
shall supervise and inspect in earnest the operations of the said enterprises with respect to such major items as the contribution
of funding agreed upon, marketing of their products, procurement of raw materials and equipment, etc.

The competent department of the Chinese-foreign joint venture enterprises which has already been registered and is in operation shall
make semi-annual reports either at the end of July each year or at the end of January in the ensuing year to the department for foreign
cooperation of the Ministry of Railways on the progress of preparation for establishing the enterprises, or of the operations. For
the format of the report, see Information Form of Production and Operation of Chinese-foreign Joint Venture Enterprises within the
Railway System (Attachment IV).

Article 20

Chinese-foreign joint venture enterprises shall not import equipment and raw materials not related to production and operation for
reselling at high prices in China in order to reap huge profits by capitalizing on the preferential policies; the foreign partner’s
contribution in kind or equipment shall not be made by passing off what is inferior for good, or using old ones as substitutes for
the new, or quoting for what is actually low-priced; the manufactured products of joint venture enterprises shall be marketed abroad
as per the proportions set in the contract, the selling prices of which shall be fixed jointly by the two parties concerned.

Chapter IV Administration of Chinese Personnel

Article 21

There shall be a board of directors for a Chinese-foreign joint venture enterprise, the composition of which shall be decided upon
through joint consultation between parties to the joint venture, and written into the contract and articles of association; the appointment
and replacement of board members shall be made by each party to the joint venture. The board of directors shall decide upon major
issues of the joint venture enterprise on the principle of equality and mutual benefit and in compliance with the law.

Article 22

The employment, dismissal, salaries and wages, fringe benefits, labour insurance, labour protection, labour discipline, etc., shall
be handled in compliance with relevant laws and regulations such as the Labour Law of the People’s Republic of China, Regulations
on the Labour Administration for Enterprises with Foreign Investment, etc.

Article 23

The employees of Chinese-foreign joint venture enterprises shall enjoy the right to forming grass-root trade unions and organizing
union activities, in accordance with the relevant provisions of the Trade Union Law of the People’s Republic of China, and Trade
Union Charter of China.

Chapter V Duration, Termination and Liquidation

Article 24

The duration of a Chinese-foreign joint venture enterprise shall be fixed by the parties concerned in the joint venture. The duration
of joint venture of a general kind shall be 10 to 30 years in principle. The projects which require huge investments, long construction
cycles, and have low capital to profit ratios, or projects to which foreign partners provide advanced or key technology, or which
produce top-of-the-line products, or the projects which turn out products which are very competitive in world markets, shall have
their duration of joint operation extended to 50 years. Those projects which have been specially examined and approved by the State
Council may have their duration extended beyond 50 years.

Article 25

The duration of joint operation of a Chinese-foreign joint venture enterprise shall be prescribed in the agreement, contract, articles
of association by the parties to the joint venture. The duration of a joint venture enterprise shall commence as of the date the
business license of the joint venture is issued.

Article 26

A Chinese-foreign joint venture project may be terminated and liquidated when-

1.

The duration of the joint venture is due;

2.

Unable to continue to operate owing to heavy losses;

3.

One party to the joint venture has failed to honour its obligations as spelt out in the agreement, contract, and articles of association,
making the enterprise unable to go on;

4.

The joint venture has suffered heavy losses on account of force majeure of natural disasters or war, rendering the joint venture unable
to go on;

5.

The operational targets of the joint venture have not been reached, and at the same time there is no prospect for development; and

6.

Causes of breakup described in the contract and articles of association have already occurred.

When circumstances such as those mentioned in Items (2), (3), (4), (5) and (6) have occurred, the board of directors shall apply for
termination to the original examination and approval authority which shall deal with it.

Under the circumstance in Item 3, the party that has not met its obligations as stipulated in the agreement, contract, or articles
of association shall be liable for compensating the economic losses according to law.

Article 27

The liquidation of a Chinese-foreign joint venture project shall be conducted in compliance with the relevant provisions of the State,
and report the outcome of the liquidation to the original examination and approval authorities, and it shall request the original
registration department to cancel the registration and revoke the business license.

Chapter VI Supplementary Provisions

Article 28

When the Chinese employees of Chinese-foreign joint venture enterprises are to go abroad for business survey, business negotiation,
or for board meetings, study, training, the competent departments of the enterprises shall make arrangements for them in compliance
with the scope of authority to grant permission for them to go abroad on a temporary basis as stipulated by the Ministry of Railways.

Article 29

Applications from companies, enterprises, other economic organizations or individuals based in Hong Kong, Macao, or Taiwan, or Chinese
citizens sojourning abroad to establish equity or contractual joint venture enterprises, shall be processed with reference to the
these Measures.

Article 30

The procedures for the examination and approval of construction and operation to be undertaken by the railway trunk lines, or branch
lines, or the local railways shall remain the same, i.e. examination and approval shall be made by the relevant departments in accordance
with the current provisions of the Ministry of Railways, and shall not come within the scope of administration of these Measures.

Article 31

The department for cooperation with foreign countries of the Ministry of Railways shall be responsible for the interpretation of these
Measures. The competent departments of enterprises concerned may formulate their own rules of implementation as per these Measures.

Article 32

These Measures shall be implemented as of the date of promulgation.

Attachment I: Table of Basic Conditions of Chinese-foreign Joint Venture Projects within the Railway System Competent Department of
Enterprise (omitted)

Attachment II: Procedures of Examination and Approval of the Application for the Establishment of Chinese-foreign Joint Venture Project
within the Railway System (omitted)

Attachment III: Essential Documentation for the Preparation of Establishing Chinese-foreign Joint Venture Projects within the Railway
System

Attachment IV: Information Form of Production and Operation of Chinese-foreign Joint Venture Enterprises within the Railway System
(omitted) Attachment III:Essential Documentation for the Preparation of Establishing Chinese-foreign Joint Venture Projects within the Railway System

I.

Project Proposal

The project proposal is a document prepared by the Chinese partner to a joint venture and submitted to the superior competent department,
explaining about their intention to establish a joint venture with some foreign businessmen. The Chinese partner of a joint venture
shall give their preliminary opinions and proposals about the importation of technology, scale of production, marketing, and effect
of investments, in light of the long-term development plan drawn up by the State and the industry, guidelines of economic construction,
and on the basis of survey and investigation and preliminary discussions with foreign businessmen. The purpose of preparing the project
proposal is to give a preliminary justification of the necessity of starting the project, as well as its technical, financial and
economic feasibility.

The main content of the project proposal shall include:

(1)

Project post_title, organization undertaking the project

(2)

Nature of the project and mode of cooperation

Explain whether this is going to be a new construction project or a technical renovation project, whether this is going to be a Chinese-foreign
equity joint venture or Chinese-foreign contractual joint venture project; it should also be noted whether the mode of foreign investment
is in the form of fund, equipment or technological patent, etc.

(3)

Basic information about the parties to the project

1.

Name of Chinese partner, basic conditions of the present enterprise;

2.

Name of foreign partner, basic conditions of the present company.

(4)

Justifications for applying for starting the project

1.

State the necessity of starting this project in terms of the gaps existing between Chinese products and technologies and those of
foreign countries, and the demands and supplies at home and abroad; and

2.

State the feasibility of starting this project in terms of the marketing channels, sources of foreign investment and the background
of such a joint venture.

(5)

Major items of the project

1.

Scale and scope of production and operation;

2.

Mode of joint venture, and duration;

3.

Planning, nature of construction and progress of construction;

4.

Main items of technology importation and modes of importation;

5.

Implementation of the acquisition of raw materials, fuels, power, transport, and collaboration in production, as well as the nationalization
plan, and progress of the implementation thereof;

6.

Environmental protection by the enterprise and the measures that have been taken in this regard;

7.

Organizational setup of the enterprise, base number of year-hours and hour norms;

8.

Number of employees in the enterprise, wages and salaries, welfare and personnel management;

9.

Investment estimation and sources of funding, capital composition of Chinese and foreign parties and ratio of investment between the
two sides; and

10.

Foreign exchange balance and measures adopted.

(6)

Preliminary technical and economic analysis, and risk analysis

1.

Direct economic effects after the establishment of the joint venture, e.g. sales income, tax, profits and foreign exchange income,
etc.;

2.

Socio-economic benefits, e.g. employment, energy saving, reduction of consumption, depollution, and reduction of importation, etc.;

3.

Technological benefits, e.g. degree of improvement in the means of production, and efficiency, effects of saving in energy and raw
materials, etc., and

4.

Factors affecting the economic results and the measures that have been adopted.

(7)

Conclusion

(8)

Attachment

1.

Intent of joint venture reached by the Chinese and foreign partners, and the signed agreement; and

2.

Basic condition of the foreign enterprise and certification of its creditworthiness.

II.

Feasibility Study Report

The feasibility study report is crucial to the decision on whether to establish the Chinese-foreign joint venture project; it is prepared
by the designing agency or economic-technical consulting agency jointly entrusted by the Chinese and foreign partners on the basis
of the said Project Proposal; it is the best alternative from among many considered, by making an analysis of the economic, technical
positions, and a marketing survey both at home and abroad, and the input by the two parties concerned. The basic principles and data
contained in the feasibility study report shall serve to guide the sequel of the application procedure. The purpose of writing this
report is to make a comprehensive analysis and evaluation from the technical, commercial and economic perspectives, providing a basis
for project investment decision-making.

The main items covered by the feasibility study report are:

(1)

Overview

1.

Name of project, nature, organization undertaking the project, responsible person, examining and approving authority of the project
proposal;

2.

Background of the project, basis and scope of study;

3.

Explanation of the social benefits of the project; and

4.

Briefs on production and development of the products both at home and abroad.

(2)

Basic information about the partners of the joint venture

1.

Basic information about the Chinese partner: conditions of the premises, existing equipment, plan for upgrading, current level of
production, state of operation, etc.; and

2.

Basic information about the foreign partner: name of the partner, credit, state of operation, conditions for joint venture, etc.

(3)

Project details

1.

Mode of joint operation;

2.

Project investments: total investment, registered capital, investment by the Chinese partner, investment by the foreign partner, solution
to fund shortage, subscription, etc.;

3.

Layout and scope of project: names of products, specifications, performance, scale of production, plan for development, ancillary
installations to match the said project, plan for product indigenization, etc.;

4.

Selection of technology and technological flow: content of technology imported, mode of importation, comparison and evaluation of
several alternatives, level of technology

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