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Law of the
People's Republic of China on
Chinese-Foreign Joint
Ventures
(Adopted by the
Second Session of the Fifth National People's
Congress on July 1, 1979, first amended according
to the Resolution on Revising the Law of the
People's Republic of China on Chinese-Foreign
Joint Ventures adopted by the Third Session of the
Seventh National People's Congress on April 4,
1990 and amended for the second time according to
the Resolution on Revising the Law of the People's
Republic of China on Chinese-Foreign Joint
Ventures adopted by the Fourth Session of the
Ninth National People's Congress on March 15,
2001)
Article 1 With a
view to expanding international economic
cooperation and technical exchange, the People's
Republic of China permits foreign companies,
enterprises, other economic organizations or
individuals (hereinafter referred to as ``foreign
partner in a joint ventures'') to join with
Chinese companies, enterprises or other economic
organizations (hereafter referred to as ``Chinese
partner in a joint ventures'') to establish joint
ventures in the People's Republic of China in
accordance with the principle of equality and
mutual benefit and subject to approval by the
Chinese government.
Article
2 The Chinese government protects, in
accordance with the law, the investment of foreign
partner in a joint ventures, the profits due them
and their other lawful rights and interests in a
joint venture, pursuant to the agreement, contract
and articles of association approved by the
Chinese government. All the activities of a joint
venture shall comply with the stipulations of the
laws and legal regulations of the People's
Republic of China. The state shall not nationalize
or take over joint ventures; under special
circumstances and according to the needs of social
public interests, the state may requisite joint
ventures according to legal procedures with due
compensation.
Article 3
The joint venture agreement, contract and articles
of association signed by the parties to the
venture should be submitted to the competent
foreign economic and trade department of the state
(hereafter referred to as the ``examining and
approving organ'') for examination and approval;
and the examining and approving organ shall,
within three months, decide whether to approve or
disapprove them. After approval, the joint venture
should register with the competent administration
department for industry and commerce, obtain a
license to do business and start operation.
Article 4 A joint venture
shall take the form of a limited liability
company. The proportion of the investment
contributed by the foreign joint venture(s) should
generally not be less than 25 percent of the
registered capital of a joint venture.
The
parties to the venture shall share the profits,
risks and losses in proportion to their respective
contribution to the registered capital. No
assignment of the registered capital of a joint
venture participant shall be made without the
consent of the other parties to the venture.
Article 5 Each party to a
joint venture may make its investment in cash, in
kind or in industrial property rights, etc. The
technology and the equipment that serve as the
investment of the foreign partner in a joint
venture must be advanced technology and equipment
that actually suit our country's needs. If the
foreign partner in a joint venture causes losses
by deception through the intentional use of
backward technology and equipment, it shall pay
compensation for these losses.
The
investment of a Chinese partner in a joint venture
may include the right to the use of a site
provided for the joint venture during the period
of its operation. If the right to the use of the
site does not constitute a part of a Chinese
partner's investment, the joint venture shall pay
the Chinese government a fee for its use. The
various investments referred to above shall be
specified in the joint venture contract and
articles of association, and the value of each
(excluding that of the site) shall be jointly
assessed by the parties to the venture.
Article 6 A joint venture
shall have a board of directors, which shall have
its size and composition stipulated in the
contract and the articles of association after
consultation between the parties to the venture,
and the directors shall be appointed and replaced
by the parties to the venture. The chairman and
vice-chairmen of the board shall be decided by the
parties to the venture through consultation or
elected by the directors of the board. The office
of chairman of the board shall be assumed by one
side of the venture, and that of the
vice-chairman, by the other party. The board of
directors shall decide major problems of the joint
venture in accordance with the principle of
equality and mutual benefit.
The board of
directors is empowered, pursuant to the provisions
of the articles of association of the joint
venture, to discuss and decide all major problems
of the joint venture: expansion programs,
proposals for production and operating activities,
the budget for revenues and expenditures,
distribution of profits, plans concerning manpower
and pay scales, the termination of business and
the appointment or employment of the president,
the vice-president(s), the chief engineer, the
treasurer and the auditors, as well as their
powers and periods of employment, etc. The offices
of president and vice-president(s) (or factory
manager and deputy manager(s)) shall be assumed by
the respective parties to the venture. Matters
such as the employment, dismissal, payment,
welfare, labor protection and labor insurance of
the staff and workers of joint ventures shall be
provided for in contracts reached in accordance
with the law.
Article 7
Staff and workers of joint ventures shall
establish their trade union organizations, conduct
trade union activities and safeguard their lawful
rights and interests according to the law. Joint
ventures shall provide necessary conditions for
the activities of the trade unions within the
enterprises.
Article 8
After payment, pursuant to the provisions of the
tax laws of the People's Republic of China, of the
joint venture income tax on the gross profit
earned by the joint venture and after deduction
from the gross profit of a reserve fund, a bonus
and welfare fund for staff and workers, and a
venture expansion fund, as provided in the
articles of association of the joint venture, the
net profit should be distributed to the parties to
the joint venture in proportion to their
respective contributions to the registered
capital.
A joint venture may enjoy
preferential treatment of tax reduction or
exemption in accordance with state tax laws and
administrative regulations. A foreign partner in a
joint venture that reinvests in China its share of
the net profit may apply for refund of a part of
the income taxes already paid.
Article 9 A joint venture
shall open a foreign exchange account with a bank
approved by the state foreign exchange
administration or other financial organs for
handling foreign exchange businesses, with its
business license. The pertinent foreign exchange
transactions of a joint venture shall be conducted
in accordance with the regulations on foreign
exchange control of the People's Republic of
China. In its operating activities a joint venture
may directly raise funds from foreign banks.
The various kinds of insurance coverage of
a joint venture shall be furnished by insurance
companies within Chinese territory.
Article 10 In its
purchase of required raw and processed materials,
fuels, etc. within the approved business scope, a
joint venture may make the purchases from Chinese
market or the international market according to
the principle of being fair and rational.
A joint venture is encouraged to market
its products outside China. Export products may be
distributed to foreign markets through the joint
venture directly or through associated agencies,
and they may also be distributed through China's
foreign trade agencies. Products of the joint
venture may also be distributed in the Chinese
market.
Whenever necessary, a joint
venture may establish branches outside China.
Article 11 The net profit
that the foreign side in a joint venture receives
after fulfilling its obligations under the laws
and various agreements and contracts, the funds it
receives at the time of the joint venture's
scheduled expiration or early termination, and any
other funds, may be remitted abroad in accordance
with the foreign exchange regulations and in the
currency specified in the joint venture contract.
The foreign side in a joint venture shall
be encouraged to deposit in the Bank of China the
foreign exchange that it is entitled to remit
abroad.
Article 12 The
wages, salaries and other legitimate income earned
by the foreign staff and workers of a joint
venture, after payment of individual income tax
under the tax laws of the People's Republic of
China, may be remitted abroad in accordance with
the foreign exchange regulations.
Article 13 The contract
period of a joint venture may be decided through
consultation by the parties to the venture
according to its particular line of business and
circumstances. The joint ventures of some trades
should decide their contract periods; and the
joint ventures of other trades may or may not
decide their contract periods. If the parties to a
joint venture with a prescribed contract period
agree to extend the period, an application for
extension of the contract should be made six
months before its original expiration date. The
examining and approving organ should make a
decision within one month from the day of
receiving the application.
Article
14 In case of heavy losses, failure of a
party to fulfill the obligations prescribed by the
contract and the articles of association, force
majeure, etc., the contract may be terminated
through consultation and agreement by the parties
to the venture, subject to approval of the
examining and approving organ and to registration
with the industry and commerce administrations of
the state. In cases of any losses caused by a
breach of contract, the party violating the
contract shall assume financial responsibility.
Article 15 Disputes
arising between the parties to a joint venture
that the board of directors cannot settle through
consultation may be settled through mediation or
arbitration by a Chinese arbitration agency or
through arbitration by another arbitration agency
agreed upon by the parties to the venture. In
cases where the parties of a joint venture have
not made any stipulations on arbitration in their
contract or have not reached an agreement on
arbitration in writing afterward may take
proceedings to the people's court.
Article 16 This law shall
come into force on the day of promulgation. |
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