PRC,
Sino-foreign Equity Joint Venture Law (2nd Revision)
(Passed
on 1 July 1979 by the 1st Session of 5th NPC; first
amendment made by the Decision Regarding the Revision of <PRC,
Sino-foreign Equity Joint Venture Law>, adopted at the 3rd
Session of the 7th NPC on 4 April 1990; second amendment
made by the Decision Regarding the Revision of <PRC,
Sino-foreign Equity Joint Venture Law>, adopted at the 4th
Session of the 9th NPC on 15 March 2001.)
Article 1:
In order to expand international economic co-operation and
technological exchange, the People's Republic of China shall
permit foreign companies, enterprises, other economic
organizations or individuals (hereafter "foreign parties"),
after approval by the Chinese government, to organize within
the territory of the People's Republic of China joint
ventures with Chinese companies, enterprises or other
economic organizations (hereafter "Chinese investors") on
the principles of equality and mutual benefit.
Article 2:
The Chinese government shall protect, in accordance with the
law, the investment by a foreign party in a joint venture
and the profits due it pursuant to the agreements, contracts
and articles of association authorized by the Chinese
government as well as its other lawful rights and interests.
A joint venture shall
observe the laws and regulations of the People's Republic of
China in all its activities.
The state shall not
nationalize or expropriate joint ventures. Under special
circumstances, in accordance with the public interest, a
joint venture may be expropriated according to the procedure
prescribed by law, in which case appropriate compensation
shall be given.
Article 3:
Joint venture agreements, contracts and articles of
association concluded by the parties to a joint venture
shall be reported to the state foreign economic relations
and trade administrative department (hereafter, the
"approval authority") for examination and approval. The
approval authority shall decide, within 30 days, whether or
not to approve a joint venture. Once approved, a joint
venture shall be registered with the state industry and
commerce administrative department, a business licence shall
be obtained and operations shall begin.
Article 4:
A joint venture shall take the form of a limited liability
company.
The proportion of the
investment contributed by the foreign party in the
registered capital of a joint venture shall in general not
be less than 25 per cent.
The profits, risks and
losses of a joint venture shall be shared by the parties to
the venture in proportion to their contributions to the
registered capital.
A party may only assign its
share in the registered capital with the agreement of the
other parties to the venture.
Article 5:
Each party to a joint venture may contribute cash, material
objects, industrial property rights, etc, as its investment
in the venture.
The technology or equipment
contributed by a foreign party as investment shall be truly
advanced and appropriate to China's needs. Compensation
shall be paid where losses are caused by fraud through the
intentional provision of outdated equipment or technology.
The investment contributed
by a Chinese investor may include the right to use a site
provided for the joint venture during the term of its
operation. Where the right to use a site does not constitute
a part of the investment by the Chinese investor, the joint
venture shall pay fees to the Chinese government for use of
the site.
The various contributions
referred to in this Article shall be specified in the
contract concerning a 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 consultation.
Article 6:
A joint venture shall establish a board of directors. The
size and composition of the board of directors shall be
determined through negotiations between the parties to the
joint venture, and shall be stipulated in the contract and
articles of association. Members of the board of directors
shall be appointed and replaced by the parties to the joint
venture. The chairman of the board and the vice-chairman of
the board shall be determined through negotiation between
the parties to the joint venture or elected by the board of
directors. Where the post of chairman of the board is
assumed by the Chinese party or the foreign party to the
joint venture, [a member of] the other party shall assume
the post of vice-chairman. The board of directors shall make
major decisions concerning the joint venture based on the
principles of equality and mutual benefit.
The powers and functions of
the board of directors shall be to discuss and decide in
accordance with the provisions of the articles of
association of the joint venture, all major problems
concerning the venture, namely, development plans,
production and business plans, the budget, distribution of
profits, manpower and pay scale plans, the termination of
business and the appointment or recruitment of the general
manager, the deputy general manager, the chief engineer, the
chief accountant and the auditor as well as their functions
and powers and their remuneration, etc.
The general manager and
deputy general manager shall be chosen from the parties to
the joint venture.
Matters concerning the
employment, discharge, remuneration, benefits, labour
protection, labour insurance, etc. of the workers and staff
of a joint venture shall be stipulated in accordance with
the law through the conclusion of a contract.
Article 7:
Workers and staff of a joint venture may, in accordance with
the law, establish trade union organizations to conduct
trade union activities and safeguard the lawful rights and
interests of workers and staff.
A joint venture shall
provide its trade union necessary conditions for the union's
activities.
Article 8:
The net profit of a joint venture shall be distributed to
the parties to the venture in proportion to their respective
shares in the registered capital after the payment of joint
venture income tax in accordance to the tax laws of the
People's Republic of China and after deductions for the
reserve fund, the bonus and welfare fund for workers and
staff and the expansion fund of the venture as stipulated in
the articles of association of the joint venture.
A joint venture may, in
accordance with relevant tax laws and administrative
regulations of the state, enjoy preferential tax reductions
or exemptions.
A foreign party that
re-invests its share of the net profit within Chinese
territory may apply for the reimbursement of a part of the
income taxes already paid.
Article 9:
A joint venture shall, on the strength of its business
licence, open a foreign exchange account with a bank or
other financial institution permitted by the state foreign
exchange control authority to engage in foreign exchange
transactions.
A joint venture shall
conduct its foreign exchange transactions in accordance with
the regulations of the People's Republic of China for the
administration of foreign exchange.
A joint venture may, in its
business activities, directly borrow funds from foreign
banks.
Any insurance policy taken
out by a joint venture shall be taken out with an insurance
company within China.
Article 10:
Materials, such as raw materials and fuel, which are
required under the approved scope of operation of a joint
venture, may be purchased on the domestic market or
international market according to the principles of fairness
and reasonableness.
A joint venture is
encouraged to sell its products outside China. It may
distribute its export products on foreign markets directly
or through relevant agencies or China's foreign trade
organizations. Its products may also be distributed on the
Chinese market.
When necessary, a joint
venture may establish branch organizations outside China.
Article 11:
A foreign joint venture party may, using the currencies
stipulated in the joint venture contract and in accordance
with foreign exchange administration regulations, remit
abroad the net share of profits distributed to it after
performance of its obligations as stipulated by the law,
agreements and contracts, and the funds distributed to it
following the expiry or suspension of a joint venture and
other funds.
A foreign party shall be
encouraged to deposit the foreign exchange that it is
entitled to remit abroad in the Bank of China.
Article 12:
The wage income and other lawful income of expatriate
employees of joint ventures, after the payment of individual
income tax in accordance with PRC tax law, may be remitted
abroad in accordance with foreign exchange administration
regulations.
Article 13:
A joint venture's term of operation shall be stipulated in
accordance with the type of industry, and individual
circumstances. For joint ventures in some industries, the
period of operation shall be fixed, and for joint ventures
in other industries a period of operation may or may not be
fixed. Where the period of operation is stipulated for a
joint venture and the parties agree to extend the period of
operation, they shall, six months prior to the expiry of the
operation period, apply to the approval authority. The
approval authority shall decide whether or not to approve
the extension within one month of the date of receiving the
extension application.
Article 14:
The joint venture contract may be terminated upon agreement
by the parties to the joint venture, pursuant to approval by
the approval authority and registration with the state
industry and commerce administration department where heavy
losses occur in a joint venture, where one party fails to
perform its duties under the contract or the articles of
association, or where there occurs an event of force
majeure and in other situations. Where economic losses
are caused by breach of contract, the party in breach of
contract shall be liable for such losses.
Article 15:
Disputes between the parties to a joint venture that its
board of directors fails to resolve through consultation may
be resolved through conciliation or arbitration by an
arbitral body in China or through arbitration by an arbitral
body agreed upon by the parties.
If the parties to the equity
joint venture have not made an arbitration clause in their
contract or have not subsequently reached an arbitration
agreement in writing, they may institute lawsuits in a
people's court.
Article 16:
This Law shall be implemented from the date of promulgation.