กกSino-Foreign Equity Joint Venture Law
(Adopted at the Second Session of the Fifth
National People's Congress on July 1, 1979, and revised in accordance with the Decision of
the National People's Congress Regarding the Revision of the Law of the People's Republic
of China in 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 shall permit foreign companies,
enterprises, other economic organizations or individuals (hereinafter referred to as
'foreign joint ventures') to establish equity joint ventures together with Chinese
companies, enterprises or other economic organizations (hereinafter referred to as
'Chinese joint ventures') within the territory of the People's Republic of China, on the
principle of equality and mutual benefit, and subject to approval by the Chinese
Government. |
Article 2
| The Chinese Government shall protect, according to the law,
the investment of foreign joint ventures, the profits due them and other lawful rights and
interests in an equity joint ventures, pursuant to the agreement, contract and articles of
association approved by the Chinese Government. All activities of an equity joint venture
shall comply with the provisions of the laws, decrees and pertinent regulations of the
People's Republic of China. The state shall not nationalize or requisition any equity
joint venture. Under special circumstances, when public interest requires, equity joint
ventures may be requisitioned by I following legal procedures and appropriate compensation
shall be made. |
Article 3
| The equity joint venture agreement, contract and articles
of association signed by the parties to the venture shall be submitted to the state's
competent department in charge of foreign economic relations and trade (hereinafter
referred to as the examination and approval authorities) for examination and approval. The
examination and approval authorities shall decide to approve or disapprove the venture
within three months, when approved, the equity joint venture shall register with the
state's competent department in charge of industry and commerce administration, acquire a
business license and start operations. |
Article 4
| An equity joint venture shall take the form of a limited
liability company. The proportion of the foreign joint venture's investment in an equity
joint venture shall be, in general, not less than 25 percent of its registered capital.
The parties to the venture shall share the profits, risks and losses in proportion to
their contributions to the: registered capital. If any of the joint ventures wishes to
assign its registered capital, it must obtain the consent of the other parties to the
venture. |
Article 5
| The parties to an equity joint venture may make their
investment in cash, in kind or in industrial property rights, etc. The technology and
equipment contributed by a foreign joint venture as its investment must be really advanced
technology and equipment that suit China's needs. In case of losses caused by a foreign
joint venture in its practicing deception through the intentional provision of outdated
technology and equipment, it shall compensate for the losses. A Chinese joint venture's
investment may include the right to the use of a site provided for the equity joint
venture during the period of its operation. If the right to the use of the site is not
taken as a part of the Chinese joint venture's investment, the equity joint venture shall
pay the Chinese Government for its use. The above-mentioned investments shall be specified
in the contract and articles of association of the equity joint venture, and their value
(excluding that of the site) shall be assessed by all parties to the venture. |
Article 6
| An equity joint venture shall have a board of directors;
the number of the directors there of from each party and the composition of the board
shall be stipulated in the contract and articles of association after consultation among
the parties to the venture; such directors shall be appointed and replaced by the relevant
parties. The chairman and the vice-chairman (vice-chairmen) shall be determined 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 (vice-chairmen). The board of directors shall
decide on important issues concerning the joint venture on the principle of equality and
mutual benefit. The functions and powers of the board of directors are, as stipulated in
the articles of association of the equity joint venture, to discuss and decide all major
issues concerning the venture, namely, the venture's development plans, proposals for
production and business operations, the budget for revenues and expenditures, the
distribution of profits, the plans concerning manpower and wages, the termination of
business, and the appointment of employment of the general manager, the vice- general
manager(s), the chief engineer, the treasurer and the auditors, as well as the
determination of their functions, powers and terms of employment, etc. The offices of
general manager and vice-general manager(s) of factory manager and deputy manager(s) shall
be assumed by the respective parties to the venture. The employment and discharge of the
workers and staff members of an equity joint venture shall be stipulated in accordance
with the law in the agreement and contract concluded by the parties to the venture. |
Article 7
| The new profit of an equity joint venture shall be
distributed among the parties to the venture in proportion to their respective
contributions to the registered capital, after payment out of its gross profit of the
equity joint venture income tax, pursuant to the provisions of the tax laws of the
People's Republic of China, and after deduction from the gross profit of a reserve fund, a
bonus and welfare fund for workers and staff members and a venture expansion fund, as
stipulated in the venture' s articles of association. 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 joint venture that reinvests its share of the net profit within the
territory of China may apply for partial refund of the income tax already paid. |
Article 8
| An equity joint venture shall, on the strength of its
business license, open of foreign exchange account with a back or any other financial
institution which is permitted by the state agency for foreign exchange control to handle
foreign exchange transactions. An equity joint ventures shall handle its foreign exchange
transactions in accordance with the regulations of foreign exchange control of the
People's Republic of China. An equity joint venture may, in its business operations,
directly raise funds from foreign banks. The various kinds of insurance coverage of an
equity joint venture shall be furnished by Chinese insurance companies. |
Article 9
| The production and business operating plans of an equity
joint venture shall be submitted to the competent authorities for record and shall be
implemented through economic contracts. In its purchase of required raw and semi-proceeded
materials, fuels, auxiliary equipment, etc., and equity joint venture should give first
priority the purchases in China. It may also make such purchases directly on the world
market with foreign exchange raised by itself. An equity joint venture shall be encouraged
to market its products outside China. It may sell its export products on foreign markets
directly or through associated agencies or China's foreign trade agencies. Its products
may also be sold on the Chinese market. When necessary, an equity joint venture may set up
branches and sub-branches outside China. |
Article 10
| The net profit which a foreign joint venture receives as
its share after performing its obligations under the laws, and the agreements or the
contract, the funds it receives upon the expiration of the venture' term of operation or
its early termination, and its other funds may be remitted abroad in accordance with
foreign exchange control regulations and in the currency or currencies specified in the
contract concerning the equity joint venture. A foreign joint venture shall be encouraged
to deposit in the Bank of China the foreign exchange which it is entitled to remit abroad.
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Article 11
| The wages, salaries or other legitimate income earned by a
foreign worker or staff member of an equity joint venture, after payment of the individual
income tax under the tax laws of the People's Republic of China, may be remitted abroad in
accordance with foreign exchange control regulations. |
Article 12
| Based on different lines of trade and different
circumstances, arrangements for the duration of equity joint ventures may be made
differently through agreement by the parties to the venture. Equity joint ventures engaged
in certain lines of trade shall specify their duration in the contracts, while equity
joint ventures engaged in certain other lines of trade may choose to or not to specify
their duration in the contracts. Where an equity joint venture has had its duration
specified and the parties to the venture agree to extend the duration, the venture shall
file an application for the purpose with the examination and approval authorities six
months before its expiration. The examination and approval authorities shall within one
month after receipt of the application, decide on its approval or disapproval. |
Article 13
| In case of heavy losses, failure of a party to perform its
obligations under the contract and the articles of association, or force majeure etc., the
parties to the joint venture may terminate the contract through their consultation and
agreement, subject to approval by the examination and approval authorities and to
registration with the state's competent department in charge 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 has failed to settle through consultation may be
settled through mediation or arbitration by an arbitration agency of China or through
arbitration by another arbitration agency agreed upon by the parties. |
Article 15
| This Law shall enter into force as of the date of
promulgation. The power to amend this Law is vested in the National People's Congress. |
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