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MOFTEC Measures Are Welcome But Many Still Prefer to Opt For Other Exit Mechanisms
Achieving a quick exit from a foreign invested enterprise in China at a minimal cost has become increasingly important to growing numbers of foreign investors, for a variety of reasons. Ai Hong and Kate Kelly describe the proliferation of local liquidation rules for FlEs that led to MOFTEC's promulgation of national rules in 1996. They then analyze the MOFTEC measures and their effects, with comparisons to the local rules. In evaluating the enforceability of the MOFTEC measures and their relationship with local rules, the authors cover some less wellknown yet fascinating facets of Chinese lawmaking.
Foreign investors in China have recently shown increasing interest in the means available for liquidating a foreign invested enterprise in the PRC. This trend is likely to grow, for two main reasons.
First, some joint ventures established in the early years of China's open door policy are reaching the end of their term, and in a number of cases, the parties are choosing to dissolve the venture rather than extend the life of their project. Secondly, a number of foreign investors are seeking an early exit from the projects in which they have become involved. Their reasons range from disputes with their Chinese partners over management issues, failure to obtain the expected return on investment, and frustration with marketing and distribution problems in China, to policy shifts by the offshore parent that force a reconsideration of the corporation's China investment strategy. In this environment, the ability to achieve a quick exit from a foreign invested enterprise at minimal cost becomes increasingly important.
China's first national legislation dealing in detail with liquidation procedures for Sino-foreign joint ventures and wholly foreign-owned enterprises was promulgated by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) on July 9, 19%, effective the same day: the Liquidation Measures for Foreign Invested Enterprises (MOFTEC Liquidation Measures, or the Measures).
Seeking a Unified Approach
Before the MOFTEC Liquidation Measures were introduced, the national legislative regime applicable to foreign invested enterprises in China provided little guidance on procedures for dissolution and liquidation.
Implementing rules for each of the three main laws dealing with foreign invested enterprises, the Sino-Foreign Equity Joint Venture Law,l...