Circular on Implementing Joint Annual Inspection for Enterprises with Foreign Investment

December 26,1996

In recent years, relevant departments of the State Council, according to law, has undertaken the work of annual inspection, annual audit or examination of and exchange for renewal of certificates for enterprises with foreign investment, which has played a positive role in standardizing behaviors of enterprises with foreign investment, strengthening administration and urging enterprises to conduct business operations according to law. At the same time, various departments carrying out their work separately also adds burden to the enterprises to a certain extent. In order to further improve the investment environment and lessen the burden on enterprises, under the coordination of the National Leading Group for Foreign Investment, in accordance with relevant provisions of the State on administration of enterprises with foreign investment, the Ministry of Foreign Trade and Economic Cooperation, the State Administration for Industry and Commerce, the State Economic and Trade Commission, the Ministry of Finance, the State Administration of Foreign Exchange, the State Administration of Taxation and the General Administration of Customs (hereinafter referred to as various departments conducting a joint annual inspection)have decided that as of the year 1997, a joint annual inspection of the state of affairs concerning the contribution, production and business operations, financial affairs, foreign exchange, export and import of enterprises with foreign investment (including enterprises with investment from Taiwan, Hong Kong and Macao compatriots and overseas Chinese, hereinafter referred to as enterprises) shall be conducted. Relevant matters are hereby notified as follows:

1. Various departments conducting an annual inspection shall draw up an annual inspection report together. Annual inspection reports shall be uniformly printed and distributed by administrative departments for industry and commerce.

2. An enterprise shall, within a prescribed time limit, obtain an annual inspection report from an administrative department for industry and commerce, fill it out according to requirements, and submit the completed annual inspection report together with relevant materials the submission of which is required by the Trial Plan on Implementing Joint Annual Inspection for Enterprises with Foreign Investment (hereinafter referred to as Trial Plan) respectively to the various departments conducting a joint annual inspection on time.

3. Where there are conditions conducive to handling official business together, an annual inspection to handle official business together shall be organized depending on the specific circumstances so as to render convenience to enterprises.

4. Various departments conducting a joint annual inspection shall, after receiving an annual report and other materials submitted by an enterprise, check on and examine them respectively, in accordance with relevant provisions put forward proposals dealing with the enterprise not up to the requirements upon inspection, and timely notify other departments conducting a joint annual inspection.

5. In the course of an annual inspection, various departments conducting a joint annual inspection shall handle affairs strictly in accordance with law, apart from the contents of a joint annual inspection report and the materials the submission of which is required by the Trial Plan, they shall not arbitrarily add other contents subject to examination, raise or lower the examination standard. Apart from that the administrative department for industry and commerce collects fees according to the standard as provided by the original provisions on annual inspection, no new fee shall be added for a joint annual inspection.

6. Various departments conducting a joint annual inspection shall strengthen supervision and administration of intermediary institutions and enterprises to ensure the accuracy of documents and materials for an annual inspection. Information processing and management shall be strengthened to raise the standard of the sharing of information step by step.

7. After a joint annual inspection is conducted, various departments conducting a joint annual inspection shall not, within their respective industries, additionally organize an annual inspection of enterprises (excluding the work of regular inspection conducted by relevant departments in accordance with relevant regulations).

8. Customs will participate in a joint annual inspection as of the year 1998, and before that, it shall conduct an annual audit of enterprises according to the current provisions on annual audit.

9. The Office of the National Leading Group for Foreign Investment shall be responsible for the coordination work for implementing a joint annual inspection.

Attachment 1:

Trail Plan for Implementing Joint Annual Inspection for Enterprises with Foreign Investment

I. Preparation for and publicity of annual inspection After the circular of a joint annual inspection is promulgated, the State and local relevant departments shall promptly set about work on preparation for the joint annual inspection. Various departments conducting a joint annual inspection shall strengthen coordination, cooperate with each other, timely exchange information, well organize personnel and provide a high level service in making publicity, such as making a public announcement.

II. Time and procedures for the annual inspection The working time for a joint annual inspection is from January 1 to April 30 each year. The specific procedures are as follows:

1. Printing and distribution of annual inspection reports The format of annual inspection reports shall be designed by the State Administration for Industry and Commerce and the printing and distribution shall be conducted by its authorized registration agency. An enterprise itself may, as of January 1, 1997, obtain an annual inspection report from the local administrative department for industry and commerce in the place where it is registered.

2. Filling in and submission of an annual inspection report and other documents An enterprise shall conscientiously, truthfully and completely fill in the annual inspection report. Data entered must be consistent with the financial report audited by an accounting firm which is chosen and authorized by the enterprise on its own. An enterprise must submit the annual inspection report and other documents which shall be submitted respectively to the various departments conducting the joint annual inspection for applying for an annual inspection. An enterprise shall submit the following documents respectively to the various departments conducting the joint annual inspection:

Foreign trade and economic cooperation department
(1) a duplicate of the annual inspection report;
(2) a photocopied duplicate of the approval certificate; and
(3) a photocopied duplicate of the business license.

Administrative department for industry and commerce
(1) the original of the annual inspection report;
(2) the annual balance sheet and statements of profits and losses audited and verified by an accounting firm;
(3) a duplicate of the business license; and
(4) a capital verification report for an enterprise which shall make contributions in the current year.

Economic and trade department
(1) a duplicate of the annual inspection report; and
(2) the annual balance sheet and statements of profits and losses audited and verified by an accounting firm.

Finance department
(1) a duplicate of the annual inspection report;
(2) a duplicate of the financial registration certificate;
(3) the enterprise’s accounting statements for the previous year and the auditing report issued by a certified public accountant; and
(4) the capital verification report.

State taxation bureau and local taxation bureau(one set for each)
(1) a duplicate of the annual inspection report;
(2) a duplicate of the taxation registration certificate;
(3) a taxation registration form; and
(4) a photocopied duplicate of the business license;

Administrative department of foreign exchange
(1) a duplicate of the annual inspection report;
(2) photocopies of the annual balance sheet and statements of profits and losses audited and verified by an accounting firm;
(3) a capital verification report; and
(4) the original of the foreign debt registration certificate and the foreign exchange (transferred) loans registration certificate for an enterprise which has foreign debts.

Customs To be decided.

Order of submission of documents:
An enterprise shall submit 7 copies of the annual inspection report, together with the documents submitted to various departments, simultaneously to the various departments conducting the joint annual inspection.
3. Examination and verification of the annual inspection

Various departments conducting the joint annual inspection shall, after receiving the documents for annual inspection, promptly examine and verify the documents submitted by an enterprise for annual inspection according to relevant provisions. If the various departments conducting the joint annual inspection find that an enterprise falls into the circumstances under which it shall not pass the annual inspection, they shall notify the administrative department for industry and commerce within 10 days as receipt of the documents for annual inspection and the administrative department for industry and commerce shall retain 10 days to make the coordination. The administrative department for industry and commerce shall circulate a list of enterprises which have not passed the annual inspection to other departments jointly participating in the annual inspection on a weekly basis.

Being qualified upon examination by the administrative department for industry and commerce which has not received the opinions which make the enterprise fail in the annual inspection from relevant departments within 10 days, the enterprise shall be deemed as having passed the annual inspection, and a label stating that the annual inspection has been passed shall be attached to the enterprise’s business license.

All examination and verification work in relation to annual inspections shall be accomplished by May 31.

With respect to the general problems which are reflected in the enterprises?business operations, the economic and trade departments(economic commissions or planning and economic commissions) shall, together with relevant departments, put forward policies and measures to strengthen and improve management.

III. Standards for annual inspection and penalty measures

In the joint annual inspection, an enterprise which is found to have seriously violated laws and regulations, have no business premises, no actual contributions or no business operations shall be determined as an enterprise unqualified in the annual inspection and having failed in the annual inspection, and other enterprises may all pass the annual inspection. The administrative department for industry and commerce shall notify the enterprises unqualified in the annual inspection to make amends and rectification within a prescribed time period, and those which have not made amends and rectification shall be punished according to law, where the circumstances are serious, the foreign trade and economic cooperation department shall revoke their approval certificates according to law, and the administrative department for industry and commerce shall cancel or suspend their business licenses according to law.

An enterprise which, in violation of these Provisions, does not apply for annual inspection shall be deemed as an enterprise unqualified in the annual inspection.
Various departments shall focus inspection and administration on the enterprises to whose business licenses a label of annual inspection is not attached. The business license which shall be attached but not attached with a label of annual inspection shall not be deemed as evidential documents for applying for undergoing relevant procedures.
The administrative department for industry and commerce shall impose a fine on the enterprise which exceeds the time period for participating in annual inspection.
With respect to an enterprise which, in the annual inspection, is found to have committed other acts in violation of regulations, the various departments conducting the joint annual inspection shall still separately or jointly take penalty measures in accordance with the department rules after the enterprise has passed the annual inspection.

IV. Information processing of materials for annual inspection

The Ministry of Foreign Trade and Economic Cooperation shall be responsible for formulating the applied software for annual inspection. The departments of foreign trade and economic cooperation shall be responsible for entering and compiling the joint annual inspection report. After the compilation work is completed, the materials of floppy disks shall be distributed and sent to the various departments conducting the joint annual inspection.

The various departments conducting the joint annual inspection shall enter the contents about annual inspection information according to need.

V. Verification of the annual inspection

Upon completion of an annual inspection, the various departments conducting the joint annual inspection may conduct a random inspection of enterprises and intermediary institutions depending on the circumstances. If an enterprise is found to have committed such acts as making false statements or deliberate concealment, it shall be penalized according to law; if an intermediary institution such as an accounting firm is found to have practiced frauds or supplied false auditing materials, a report shall be timely made to the finance department or relevant administrative department, the finance department or relevant administrative department shall, according to law, impose penalties even up to canceling the qualification as a certified public accountant or other qualifications, and the various relevant departments shall no longer accept the materials audited and verified by him.

VI. Implementation of this Plan

Upon implementation of this Plan as of January 1, 1997, various localities shall organize and arrange joint annual inspections as required by this Plan.

Attachment 2:

Enterprises with Foreign Investment and Enterprises with Investment from Taiwan, Hong Kong and Macao compatriots and overseas Chinese Joint Annual Inspection Report

(Year)
Name of Enterprise( in Chinese):
Enterprise Code: _____________________
Overseas Investor:_____________________
Country(Region): _____________________
Type of Enterprise: _____________________
Registration Agency:_____________________
Date of completion:_____________________

Produced by the State Administration for Industry and Commerce Instructions on How to Fill in the Form

1. This report is to be filled in by Chinese-Foreign equity joint ventures, Chinese-Foreign contractual Joint ventures, wholly foreign-invested enterprises, stock limited companies with foreign investment and enterprise with investment from Taiwan, Hong Kong and Macao compatriots and overseas Chinese which have been established upon approval and registered.

2. An enterprise must truthfully fill in this report and submit it respectively to the departments conducting the joint annual inspection on time. The departments conducting the joint annual inspection are: the departments of foreign trade and economic cooperation, the departments of industry and commerce, the economic and trade departments, the finance departments, the departments of foreign exchange, the taxation departments and Customs.

3. Relevant columns in the report shall be filled in based on the actual situation of the enterprise at the time of annual inspection. If the relevant registered items have been modified, an explanation of the modified items shall be attached when the report is submitted to the registration agency in the department of industry and commerce.
4. Where the form requires to be filled out in units of US$10,000 and if there is a difference from the original currency, it shall, without exception, be converted into US dollars in units of 10,000 according to the State exchange rates when the actual contribution is made or as stipulated in the contract.

5. This report must be typed or filled out in ink, the handwriting shall be clear and neat, and when submitted to the various departments conducting a joint annual inspection, the enterprise’s official stamp shall be affixed at the place of the date of completion on the cover page.

6. If the matter referred to in relevant columns does not exist, "no" may be filled in this column, and if there is much more content to be filled in, additional pages may be attached.Form of enterprise’s basic information.

Promulgated by The Ministry of Foreign Trade and Economic Cooperation, the State Administration for Industry and Commerce, the State Economic and Trade Commission, the Ministry of Finance, the State Administration of Foreign Exchange, the State Administration of Taxation on 1996-12-26