Circular on Implementing Joint Annual Inspection of Foreign-Funded Enterprises

By Ministry of Foreign Trade and Economic Cooperation, State Economic and Trade Commission, Ministry of Finance, General Administration of Customs, State Administration for Industry and Commerce and State Administration of Foreign Exchange

[1998] Foreign Trade No. 938

Provinces, autonomous regions and municipality governments, ministries of the state council, institutions directly affiliated with the above-ministries:

The Plan of Implementation of Joint Annual Inspection of FFE has been approved by the State Council, and here is the notice for you to follow.

The joint annual inspection for Foreign-funded Enterprises(FFE) in the last two years has played an important role in improving China’s investment environment, relieving burdens on the FFE, enhancing administration of businesses, and urging companies to abide by laws. In order to further regulate and improve the inspection, the following notices are being given:

I.All regions and department should view the joint annual inspection for FFE as an important measure in improving the investment environment, enhancing administration on FFE and urging FFE to abide by the laws, and the leadership and coordination of the annual inspection should study the experience of previous years to carry out relevant work smoothly. To make it easer for FFE reporting and to enable better coordination, different regions should create conditions to carry out annual inspection in the form of joint offices.

II.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.

III.Any expenses incurred from joint annual inspections should be undertaken by local fiscal authorities, and no department is allowed to set new charge items apart from the original charge by department of commerce and industry administration.

IV. Various departments conducting a joint annual inspection shall, after receiving an annual report and other materials submitted by an enterprise, check and examine them respectively. This should be done in accordance with relevant provisions putting forward proposals dealing with those enterprises not up to the requirements upon inspection, and timely notice should be given to those other departments that conduct joint annual inspections.

V. In the course of an annual inspection, various departments conducting a joint annual inspection shall handle affairs strictly in accordance with the law, and shall not arbitrarily add other content subject to examination, raise or lower the examination standard.

VI.Various departments conducting a joint annual inspection shall strengthen their supervision and administration of intermediary institutions and enterprises. This is to ensure the accuracy of documents and materials presented at an annual inspection.

VII.Information processing and management shall be strengthened to set up an information network in a gradual process and to realize information sharing.

VIII.Various departments conducting a joint annual inspection shall not, within their respective industries, additionally organize an annual inspection of enterprises. Apart from the seven ministries, without approval from the State Council, no departments or units are allowed to conduct annual inspection of FFE.

IX.The Ministry of Foreign Trade and Economic Cooperation shall be responsible for the coordination work for implementing a joint annual inspection.

Ministry of Foreign Trade and Economic Cooperation, State Economic and Trade Commission, Ministry of Finance, General Administration of Customs, State Administration for Industry and Commerce and State Administration of Foreign Exchange

December 10, 1998

Attachment 1:

Plan of Implementation of Joint Annual Inspection of FFE

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 to work on preparation for the joint annual inspection. Various departments conducting a joint annual inspection shall strengthen coordination, cooperate with each other, participate in the timely exchange of information, ensure well organized personnel and provide a high level service in generating publicity, such as issuing public announcements.

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. The selection and authorization of such an accounting firm is the sole responsibility of the the enterprise. 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 when 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 copy 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, provided that the circumstances are serious enough as to warrant this. 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 for 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 any enterprise that 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 fraud 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 amounting to canceling the qualification as a certified public accountant or other qualifications, and the various relevant departments shall no longer accept materials audited and verified by him.