Problems relating to Trade and Investment on China

4. Restrictions on withdrawal of operations
Issue	Issue details	Requests	Reference

(1) Nebulous, Prolonged Procedures on Company Liquidation / Withdrawal	- It is practically difficult to withdraw by liquidating a locally incorporated subsidiary of the Japanese enterprises in PRC. While the law allows withdrawal by liquidation, in practice, the competent authority either refuses its approval or it takes years of negotiation with the taxation authority. As a result, foreign investors' withdrawal in many cases takes the form of equity transfer (and that is tantamount to no-cost transfer), which is approved easily by the competent authority or easy to withdraw actually. - It probably differs among the types of withdrawal. Nevertheless, the schedule for withdrawal is nebulous. It takes too long at the Local and State Taxation Bureaus.	- Not a few enterprises think twice before entering PRC as withdrawal in practice is not assured. In light of attracting new investment and of shuffling of investment sectors, it is requested that GOC ensures a smooth withdrawal of foreign capital as needed. - It is requested that GOC ensures transparency in the process of withdrawal.	- Law on Foreign Investment Company - Detailed Rules For the Implementation of the Law on Wholly Foreign-Owned Enterprises in China, Articles 72.1,2, 72.2 - Guiding Opinions of the General Office of MOC on Doing a Good Job in the Dissolution and Liquidation of Foreign-funded Enterprises Article 2.3 - Company Law Articles 185, 187, 188, 189 - Labour Contract Law Article 44.5
	(Action) - Since the repeal of procedures for liquidation of foreign-funded enterprises on 15 January 2008, no new law has been promulgated. The provisions of Enterprise Law relative to liquidation apply to liquidation of FFEs. In addition, Circulars issued by MOC and the State Administration for industry and commerce apply on FFEs liquidation. - On 19 November 2008, General Office of Ministry of Commerce, General Office of Ministry of Foreign Affairs, General Office of Ministry of Public Security and General office of Ministry of Justice in their joint signatures promulgated "The Working Guidelines for the Chinese Interested Parties Related to the Abnormal Pullout of Foreign Investment to Conduct Transnational Investigation and Litigation".

(2) Difficulty in Capital Reduction Procedures

- While the Company Law does provide for capital reduction, GOC denies acceptance of application for capital reduction. (To this date, no precedence exists where application for capital reduction by Japanese affiliated enterprises got accepted.)
- A Member Firm's Subsidiary in PRC effected capital increase to resolve the accumulated past loss, and filed application for capital reduction. However, due to the demand for payment of corporate income tax on the capital reduction amount, the accumulated loss remains unresolved.

- It is requested that GOC:
-- clearly defines the terms and conditions for capital reduction, and
-- accepts application for capital reduction within the scope of the terms and conditions so defined.
- It is requested that GOC overhauls the capital reduction scheme.

- Circular of the Ministry of Foreign Trade and Economic Cooperation on Adjusting Total Investment Amount and Recording the Capital, Relative Provisions and Procedures (wai-jing-mao-fa 1995/366)

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