Laws of the People's Republic of China
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RELATING TO THE IMPORT SUBSTITUTION
BY PRODUCTS MANUFACTURED BY CHINESE-FOREIGN
EQUITY JOINT VENTURES AND CHINESE-FOREIGN
by the State Planning Commission
on October 1, 1987)
SUBJECT: CONTRACTUAL JOINT VENTURES
ISSUING-DEPT: STATE PLANNING COMMISSION
LENGTH: 1677 words
[Article 1] These Measures are formulated pursuant to the "Provisions of the State Council of the People's Republic of China for the encouragement of Foreign Investment" to encourage foreign businessmen to invest in and establish technologically advanced enterprises, and to help foreign investment enterprises balance their foreign exchange income and expenditure.
[Article 2] These Measures are applicable to productive Chinese-foreign equity joint venture and cooperative venture enterprises (hereinafter referred to as joint ventures and cooperative ventures) which provide advanced technology needed by the country and involve in the development and generation transition of existing products.
[Article 3] Applications for import substitution (treatment) may be made if the following conditions are met:
(1) When a joint venture or cooperative venture, which is equipped with advanced technology needed by the country and is in the process of increasing the local content of (components and parts) its products, encounters in the initial period of operation, tecmporary diffculties in balancing its foreign exchange account.
(2) If the joint venture's or cooperative venture's products are what the Central and local authorities or departments and currently importing and will continue to import.
(3) The specifications, performance and delivery time of products and the technical and training services that the joint venture and cooperative venture offer shall meet the requirements of the Chinese endusers. The quality of the joint venture or cooperative venture products shall be tested by a State-level product quality inspection center and proved to be up to that of similar imported goods.
[Article 4] Joint ventures and cooperative ventures which apply for import substitution may do so in their feasibility studies. In that case, their feasibility studies shall specify the proportions of products for export and domestic sales, schedule for the localization and a full evaluation and assessment of the possibility of carrying out import substitution (including the number of products to be put under the import substitution scheme and the amounts of foreign exchange involved on a yearly basis).
[Article 5] Two levels of approval for import substitution application namely that of the Central authorities and local authorities or departments will be implemented. Applications by joint ventures and cooperative ventures which are under the purview of the Central authorities will be handled by the State Planning Commission. Applications of joint ventures and cooperative ventures under the purview of local authorities and departments will be handled by the local authorities and departments themselves.
[Article 6] Import substitution approval which is under the purview of the State Planning Commission:
(1) Equity and contractual joint ventures may apply for import substitution in their feasibility studies subject to the following conditions: their products are those included in the State medium and long-term import plans, and the total demand of such products are in excess of the amount that can be supplied through imports conducted under long-term trade agreements which have already been signed with foreign suppliers plus imports that the State is committed in.
(2) In principle no advance approval will be given for products that are not on the State medium and long-term import plans. However, joint ventures and cooperative ventures can still apply for import substitution if such products have been included in the State import plan of a given year provided foreign imports have not yet satisfied the required amount. If approval is given, the joint ventures and cooperative ventures shall go through the import substitution formalities at the Ministry of Foreign Relations and Trade and such allowance is valid for that given year only.
(3) For products that have not been included in the State medium and long-term import plans nor the State import plan of a given year, joint ventures and cooperative ventures can apply for import substitution at the local planning commissions if the local authorities will import such products in a given year. If approval is granted, they may go through the import substitution formalities at the the local foreign economic relations and trade departments.
[Article 7] Import sustitution approval which is under the purview of local authorities or departments:
(1) By referring to the approval procedures of the Central authorities, planning commission of provinces, autonomous regions and special cities whose development plans are not incorporated in the State plan can handle import substitution applications by joint ventures and cooperative ventures in areas under their jurisdiction. However, they can only approve products imports of which have been included in their medium and long-term import plans or the import plan of a given year and the imports are substitutable by the joint venture or cooperative venture products. The substitution is considered effective for the same period as covered in the import plans under which such substitution is made.
(2) Trans-regional import substitution can be practised if a product is not included in the medium and long-term import plans or import plan of a given year of the region where the joint venture or cooperative venture is located but such product is imported by that region or another region. The joint venture or cooperative venture can directly apply for import substitution at the planning commission of the region which is importing the product. If approved, the joint venture or cooperative venture shall go through the import substitution formalities at the foreign economic relations and trade department of the region which is importing the product.
(3) If a product is imported by a government department using its own foreign exchange, a joint venture or cooperative venture can apply directly to that department for import substitution. If the department consents, the joint venture or cooperative venture shall go through the import substitution formalities at the same department.
[Article 8] Confirmation shall be made each year for products whose import substitution was approved in advance by the Central authorities or local planning commissions (or departments) under the provision of a medium or long-term import plan. Such confirmation exercise shall take into account the actual import situations of that year.
Under the same conditions, domestic endusers shall give priority to import substitutes made by joint ventures and cooperative ventures.
All levels of import administrations and import examination and approval authorities shall give guidance and encouragement to domestic endusers to duy products from joint ventures and cooperative ventures that conform to the import substitution requirements.
[Article 9] Domestic endusers shall pay the joint venture or cooperative venture foreign exchange for import substitutes, in part or in full, subject to the conditions agreed by both parties and approval by the State foreign exchange administration department.
[Article 10] In the case of import substitution of mechanical and electrical products, the State Economic Commission shall draw up and promulgate a catalog of eligible products and the relevant administrative measures. Domestic endusers shall give priority to such catalogued products in choosing their equipment.
Joint ventures and cooperative ventures whose products are on the catalog can submit tenders for biddings invited by the China Machine and Electrical Equipment Tendering Center (or other tendering companies authorized by the State Economic Commission). If the joint ventures and cooperative ventures are awarded the contracts, they shall carry out import substitution on the basis of the certificates issued by the Center.
[Article 11] The import procedures of materials and parts which must be imported by joint ventures and cooperative ventures that produce import substitutes shall be handled according to Article 4 of the "Implementing Measures of the Ministry of Foreign Economic Relations and Trade Concerning the Application for Export Licenses by Enterprises with Foreign Investment", If such imported materials and parts are sold to domestic users, Article 5 of the "Procedures of the Customs of the People's Republic of China for the Administration of Materials and Parts that Enterprises with Foreign Investment Need to Import in Order the Perform Product Export Contracts" shall apply.
[Article 12] Joint ventures and cooperative ventures whose products have been approved for import substitution shall:
(1) Strictly implement the contract requirements regarding the proportion of export sales and the progress of localization of components and parts used in the products;
(2) Maintain the product quality at the world advanced levels;
(3) Deliver the products in the exact quantity and time required in the contracts. The joint ventures and cooperative ventures will be held responsible for any economic losses as a result of late delivery, short in quantity or quality problems of the import substitutes, and
(4) Provide quality service to endusers.
[Article 13] Once the joint venture or cooperative venture products have been approved for import substitution, such products shall not be included in the State materials allocation plans.
[Article 14] The State Planning Commission shall be responsible for interpreting these Measures.
[Article 15] These Measures shall go into effect on the date of promulgation.
Appendix: The following products are open to import substitution application in the current five-year plan period (1986-90)
2. Pig iron
8. Chemical fertilizer
10. Polyacrylic fibers
11. Polyamide fibers
12. Artificial silk