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Law of the
People's Republic of China on
Chinese-Foreign
Equity
Joint
Ventures
(Adopted at the
second session of the Fifth National People's
Congress on July 1, 1979, and Amended in
accordance with " The decision on Amendment to The
Law of the People's Republic of China on
Chinese-Foreign Equity Joint Ventures" adopted at
the Third Session of the Seventh National People's
Congress on April 4, 1990)
Article
1 With a view to expanding international
economic cooperation and technological exchange,
the People's Republic of China permits foreign
companies, enterprises, other economic entities or
individuals (hereinafter referred to as foreign
parties) to incorporate themselves, within the
territory of the People's Republic of China, into
equity joint ventures with Chinese companies,
enterprises or other economic entities
(hereinafter referred to as Chinese parties) on
the principle of equality and mutual benefit and
subject to authorization by the Chinese
Government.
Article 2 The
Chinese Government protects, by the legislation in
force, the investments of foreign parties, the
profits due to them and their other lawful rights
and interests in equity joint ventures, pursuant
to the agreements, contracts and article of
association approved by the Chinese Government.
All the activities of an equity joint
venture shall be governed by the laws, decrees and
pertinent rules and regulations of the People's
Republic of China.
The State will not
nationalize or expropriate any equity joint
venture. Under special circumstances, based on the
need of the social public interests, equity joint
ventures may be expropriated under legal
procedures and against appropriate compensation.
Article 3 All parties to
an equity joint venture shall submit their
agreements, contracts and articles of association
to the State's Competent Department of Foreign
Relations and Trade (simplified as the examination
and approval authority hereinafter) for
examination and approval. The examination and
approval authority shall decide whether to approve
or disapprove them within 3 months. Once approved,
the equity joint venture shall register with the
concerned department of the State Administration
for Industry and Commerce, and start operation
after receiving its business license.
Article 4 An equity joint
venture shall take the form of a limited liability
company.
In the registered capital of an
equity joint venture, the proportion of the
investment contributed by the foreign parties
shall in general not be less than 25 percent.
The profits, risks and losses of an equity
joint venture shall be shared by the parties to
the venture in proportion to their contributions
to the registered capital.
The transfer of
one party's share in the registered capital shall
be effected only with the consent of the other
parties to the venture.
Article
5 Each party to an equity joint venture
may contribute cash, capital goods, industrial
property rights, etc. as its investment in the
venture.
The technology or equipment
contributed by any foreign party as investment
shall be truly advanced and appropriate to China's
needs. In cases of losses caused by deception
through the intentional provision of outdated
equipment or technology, compensation shall be
paid for such losses.
The investment
contributed by a Chinese party may include the
right to the use of a site provided for the equity
joint venture during the period of its operation.
In case such a contribution does not constitute a
part of the investment from the Chinese party, the
venture shall pay the Chinese Government a fee for
its use.
The various contributions
referred to in the present Article shall be
specified in the contracts concerning the equity
joint venture or in its articles of association,
and the value of each contribution (excluding that
of the site) shall be ascertained by the parties
to the venture through joint assessment.
Article 6 An equity joint
venture shall have a board of directors with a
composition stipulated in the contract and the
articles of association after consultation between
the parties to the venture; each director shall be
appointed and replaced by his own side. The
chairman and the vice-chairmen shall be chosen
through consultation by the parties to the venture
or elected by the board of directors. If the
Chinese side or the foreign side assumes the
office of the chairman, the other side shall
assume the office(s) of the vice-chairman or
vice-chairmen. The board of directors shall decide
on important problems concerning the equity joint
venture on the principle of equality and mutual
benefit.
The board of directors is
empowered to discuss and take action on, pursuant
to the provisions of the articles of association
of the equity joint venture, all fundamental
issues concerning the venture, namely, expansion
projects, production and business programmes, the
budget, distribution of profits, plans concerning
manpower and pay scales, the termination of
business, the appointment or hiring of the
president, the vice-president(s), the chief
engineer, the treasurer and the auditors as well
as their functions and powers and their
remuneration, etc.
The president and
vice-president(s) (or the general manager and
assistant general manager(s) in a factory) shall
be chosen from the various parties to the equity
joint venture.
Procedures concerning the
employment and discharge of the workers and staff
members of an equity joint venture shall be
stipulated according to law in the agreement or
contract concluded between the parties to the
venture.
Article 7 The
net profits of an equity joint venture shall be
distributed among the parties to the venture in
proportion to their respective shares in the
registered capital after the payment of an equity
joint venture income tax on its gross profit
pursuant to the tax laws of the people's Republic
of China and after the deductions therefrom as
stipulated in the articles of association of the
venture for the serve funds, the bonus and welfare
funds for the workers and staff members and the
expansion funds of the venture.
An equity
joint venture may, in accordance with provisions
of the relevant laws and administrative rules and
regulations of the State on taxation, enjoy
preferential treatment for reduction of, or
exemption from taxes.
A foreign party who
re-invests any part of his share of the net profit
within Chinese territory may apply for the
restitution of a part of the income taxes paid.
Article 8 An equity joint
venture shall, on the strength of its business
licence, open a foreign exchange account with a
bank or and other financial institution which is
permitted by the State agency for foreign exchange
control to handle foreign exchange transactions.
An equity joint venture shall conduct its
foreign exchange transactions in accordance with
the Foreign Exchange Regulations of the People's
Republic of China.
An equity joint venture
may, in its business operations, obtain funds from
foreign banks directly.
The insurances
appropriate to an joint venture shall be furnished
by Chinese insurance companies.
Article 9 The production
and business programmes of an equity joint venture
shall be filed with the authorities concerned and
shall be implemented through business contracts.
In its purchase of required raw and
semi-processed materials, fuels, auxiliary
equipment, etc., an equity joint venture shall
give first priority to Chinese sources, but may
also acquire them directly from the international
market with its own foreign exchange funds.
An equity joint venture is encouraged to
market its products outside China. It may
distribute its export products on foreign markets
through direct channels or its associated agencies
or China's foreign trade establishments. Its
products may also be distributed on the Chinese
market.
Whenever necessary, an equity
joint venture may set up affiliated agencies
outside China.
Article 10
The net profit which a foreign party receives as
his share after performing his obligations under
the pertinent laws and agreements and contracts,
the funds he receives at the time when the equity
joint venture terminates or winds up its
operations and his other funds may be remitted
abroad in accordance with the foreign exchange
regulations and in the currency(ies) specified in
the contracts concerning the ventures.
A
foreign party is encouraged to deposit in the Bank
of China any part of foreign exchange which he is
entitled to remit abroad.
Article
11 The wages, salaries or other
legitimate income of the foreign employees of an
equity joint venture, after payment of the
personal 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 12
The operation periods of equity joint ventures may
be handled differently according to their
particular lines of business and circumstances.
Equity joint ventures engaged in a certain line of
business shall specify in the contracts their
operation periods, while equity joint ventures
engaged in another line of business may choose
whether or not to specify their operation periods.
In the case of an equity joint venture with its
operation period specified, if the parties to the
venture agree to extend the operation period, the
venture may send an application to the examining
and approval authority 6 months before the
expiration of the operation period. The
examination and approval authority shall, within 1
month of receipt of the application, decide
whether to approve or disapprove it.
Article 13 If there occur
heavy losses, the failure of a party to perform
its obligations under the contract and the
articles of association or force majeure, etc.,
the equity joint venture may terminate the
contract through consultation and agreement by the
parties, and subject to approval by the
examination and approval authority and to
registration with the State's Competent Department
of Industry and Commerce Administration. In cases
of losses caused by a breach of contract, the
financial responsibility shall be borne by the
party that has breached the contract.
Article 14 Disputes
arising between the parties to an equity joint
venture which the board of directors fails to
settle through consultation may be settled through
conciliation or arbitration by an arbitral body of
China or through arbitration by an arbitral body
agreed upon by the parties.
Article 15 The present
law comes into force as of the date of its
promulgation. The right to amendment is vested in
the National People's Congress. |
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