The approvals and registration process

As specified in the draft contract, it is the responsibility of the Chinese partner to submit the formal application documents to the relevant authorities and to lobby the departments involved within each reviewing body. This task is normally assigned to the Chinese chief negotiator personally .

The documents to be submitted to the approval authorities are listed in Detailed Rules for the Implementation of the Law of the People's Republic of China on Sino-foreign Equity Joint Ventures (promulgated on 20 September 1993 by the State Council and amended on 15 January 1986, 21 December 1987 and 22 July 2001), Article 9, and consist of the following:

application for the establishment of an equity joint venture;
the feasibility study report prepared by the parties to the venture;
equity joint venture agreement (optional), contract and articles of association signed by representatives authorised by parties to the venture;
list of candidates for chairman, deputy chairman and directors of the board appointed by parties to the venture; and
written opinions of the department in charge and the people's government of the province , autonomous region or municipality directly under the central government where the equity joint venture is located with regard to the establishment of the equity joint venture.

All the documents submitted must be written in Chinese, but the second, third and fourth documents in this list may be written simultaneously in a foreign language agreed jointly by the parties.

The status of the Chinese partner, the nature and industrial classification of the project and the limits of authority of the municipality, province, autonomous region or city under whose jurisdiction the JV falls and the value of the total investment will together determine whether the authorities involved are at central government ministry level or at local level where ministry authority is entrusted to a local department, commission or bureau . At the appropriate level, the ministries involved will be the industry ministry to which the Chinese partner reports and, invariably, MOFTEC. In some cases, more than one industry ministry may be involved, and the approval process abounds with complexities (see chart in Chapter 1.5).

At central government level, each of the ministries involved has an effective right of veto over any joint venture application, but outright rejection is unlikely at this stage, particularly if a continuing dialogue with the authorities has been maintained during the negotiating phase.

Familiarity with the project and prior consultation will help to ease the approvals process, but it is likely that some amendments to the contract and articles will be demanded. Hopefully, these amendments will not be of substance and can be addressed by the parties between them at a distance. If not, then representatives of the parties will have to reconvene to determine whether an acceptable solution can be found. Reversals of ministry decisions are necessarily difficult to achieve, which underlines the value of consultation during the negotiation process.

Article 10 of the above law stipulates that the examination and approval authorities shall decide within three months whether or not to approve the documents submitted. If the documents are not approved, the authorities are obliged to demand any modifications, without which no approval shall be granted, within a limited period of time thereafter.

In practice, the decision and any modifications can often be completed within the specified three-month period. For smaller joint ventures, the approvals procedure can be much swifter. In Tianjin, for example, which has approval authority for projects up to US$30 million total investment, the municipality has located all of the relevant approvals departments in a single foreign investment service centre (FISC) under the leadership of Tianjin's Commission of Foreign Economic Relations and Trade.

As noted earlier, the establishment of all equity joint ventures in China is subject to examination and approval by MOFTEC. On approval, the certificate of registration for the joint venture is issued by MOFTEC. Within one month after receipt, the Chinese partner shall register the certificate of registration with the administrative bureau for industry and commerce of the province, autonomous region or municipality directly under the central government where the JV is located. The date on which the bureau (referred to as the registration and administration office) shall then issue its business licence for the JV is regarded as the date of formal establishment of the equity joint venture.