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Regulations for the Implementation of the Law on
Sino-foreign Equity Joint Ventures
Promulgated 20 September 1983 by the
State Council
Revised 15 January 1986 by the State Council
Revised 21 December 1987 by the State Council
Revised 22 July 2001 by the State Council in accordance with
the Decision of the State Council to Revise the Law of the
People's Republic of China on Sino-foreign Equity Joint
Ventures)
TABLE OF CONTENTS
Chapter I General
Principles
Chapter II Establishment and Registration
Chapter III Form of Organization and Registered Capital
Chapter IV Methods of Contributing Investment
Chapter V Board of Directors and Management Office
Chapter VI Introduction of Technology
Chapter VII Right to the Use of Site and Its Fee
Chapter VIII Purchasing and Selling
Chapter IX Taxes
Chapter X Foreign Exchange Control
Chapter XI Financial Affairs and Accounting
Chapter XII Staff and Workers
Chapter XIII Trade Unions
Chapter XIV Duration, Dissolution and Liquidation
Chapter XV Settlement of Disputes
Chapter XVI Supplementary Provisions
CHAPTER I
General Principles
Article 1
These Regulations are formulated in order to facilitate the
implementation of the Law of the People's Republic of China
on Sino-foreign Equity Joint Ventures (hereinafter referred
to as the Law on Sino-foreign Joint Ventures)
Article 2
Sino-foreign equity joint ventures (hereinafter referred to
as joint ventures) established within China's territory in
accordance with the Law on Sino-foreign Joint Ventures are
Chinese legal persons and are subject to the jurisdiction
and protection of the Chinese law.
Article 3
Joint ventures established within China's territory must be
able to promote the development of China's economy and the
improvement of the science and technology for the benefit of
socialist modernization
Businesses and industries
in which the establishment of joint ventures is encouraged,
prohibited or restricted by the State shall be decided in
accordance with provisions of the State in the Regulations
on Foreign Investment Guidelines and the Guideline Catalogue
of Foreign Investment Industries.
Article 4
Applications to establish joint ventures shall not be
granted approval if the project involves any of the
following conditions:
(1) detriment to China's
sovereignty
(2) violation of the Chinese law
(3) nonconformity with the requirements of the development
of China's national economy
(4) environmental pollution
(5) obvious inequity in the agreements, contracts and
articles of association signed impairing the rights and
interests of one party
Article 5
A joint venture has the right to do business independently
within the scope of the provisions of Chinese laws,
administrative regulations, and the agreement, contract and
articles of association of the joint venture. The relevant
departments and authorities concerned shall provide support
and assistance.
CHAPTER II
Establishment & Registration
Article 6
The establishment of a joint venture in China shall be
subject to examination and approval by the Ministry of
Foreign Trade and Economic Cooperation of the People's
Republic of China (hereinafter referred to as MOFTEC). After
approval, a certificate of approval shall be issued by
MOFTEC.
The State Council shall
delegate to the people's governments in provinces,
autonomous regions and centrally administered municipalities
and relevant departments under the State Council the power
to examine and approve the establishment of joint ventures
that meet the following conditions:
(1) the total amount of
investment is within the limit of the investment examination
and approval power as stipulated by the State Council, and
the source of capital of the Chinese parties has been
ascertained
(2) no additional allocations of raw materials by the State
are required and the national balance of fuel, power,
transportation and foreign trade export quotas, etc. is not
affected
Joint ventures established
in accordance with provisions of the proceeding paragraph
shall be reported to MOFTEC for the record.
MOFTEC and the State
Council authorized people's governments in provinces,
autonomous regions and centrally administered municipalities
and relevant departments under the State Council shall
hereinafter be referred to as the examination and approval
authority.
Article 7
When applying for establishing a joint venture, the foreign
and Chinese parties shall jointly submit the following
documents to the examination and approval authority:
(1) an application for the
establishment of a joint venture
(2) the feasibility study report jointly prepared by the
parties to the joint venture
(3) joint venture agreement, contract and articles of
association signed by representatives authorized by the
parties to the venture
(4) list of candidates for chairperson, vice-chairperson and
directors nominated by the parties to the venture (5) other
documents required by the examination and approval authority
The documents listed in the
proceeding paragraph shall be written in Chinese. Documents
(2), (3) and (4) may be written simultaneously in a foreign
language agreed upon by the parties to the joint venture.
Both versions shall have equal validity.
Where any contents are
found to be inappropriate in the submitted documents, the
examination and approval authority shall demand an amendment
to it within a limited time.
Article 8
Upon receipt of all the documents stipulated in Article 7 of
these Regulations, the examination and approval authority
shall, within three (3) months, decide whether to approve or
disapprove them.
Article 9
The applicant shall, within one (1) month after receipt of
the certificate of approval, carry out registration
procedures with the administrative authority of industry and
commerce (hereinafter referred to as the registration
administration organ) The date on which the business license
of a joint venture is issued shall be regarded as the date
of formal establishment of the joint venture
Article 10
The "joint venture agreement" mentioned in these Regulations
refers to a document agreed upon by the parties to the joint
venture on .some main points and principles governing the
establishment of a joint venture; "joint venture contract"
refers to a document agreed upon and concluded by the
parties to the joint venture on their rights and
obligations; "articles of association" refers to a document
agreed upon by the parties to the joint venture defining the
purposes, organizational principles and method of management
of a joint venture in compliance with the principles of the
joint venture contract. If the joint venture agreement
conflicts with the contract, the contract shall prevail.
If the parties to the joint
venture agree to sign only a contract and articles of
association, the agreement may be omitted.
Article 11
The joint venture contract shall include the following main
items:
(1) the names, the
countries of registration, the legal addresses of parties to
the joint venture, and the names, professions and
nationalities of the legal representatives thereof
(2) name of the joint venture, its legal address, purpose
and the scope and scale of business
(3) total amount of investment and registered capital of the
joint venture, investment contributed by the parties to the
joint venture, each party's investment proportion, forms of
investment, the time limit for contributing investment,
stipulations concerning incomplete contributions, and
assignment of investment
(4) the ratio of profit distribution and losses to be borne
by each party
(5) the composition of the board of directors, the
distribution of the number of directors. and the
responsibilities, powers and means of employment of the
general manager, deputy general manager and other senior
management personnel
(6) the main production equipment and technology to be
adopted and their source of supply
(7) the ways and means of purchasing raw materials and
selling finished products
(8) principles governing the handling of finance, accounting
and auditing
(9) stipulations concerning labor management, wages, welfare
and labor insurance
(10) the duration of the joint venture. its dissolution and
the procedure for liquidation
(11) the liabilities for breach of contract
(12) ways and procedures for settling disputes between the
parties to the joint venture
(13) the language used for the contract and the conditions
for putting the contract into effect
The annex to the contract
of a joint venture shall have equal validity with the
contract itself.
Article 12
The formation of a joint venture contract, its validity,
interpretation, execution and the settlement of disputes
under it shall be governed by the Chinese law.
Article 13
Articles of association shall include the following main
items:
(1) the name of the joint
venture and its legal address
(2) the purpose, business scope and duration of the joint
venture
(3) the names, the countries of registration and the legal
addresses of parties to the joint venture, and the names,
professions and nationalities of the legal representatives
thereof
(4) total amount of investment and registered capital of the
joint venture, investment contributed by the parties to the
joint venture, each party's investment proportion,
stipulations concerning the assignment of investment, the
ratio of profit distribution and losses to be borne by
parties to the joint venture
(5) the composition of the board of directors, its
re3ponsibilities, powers and rules of procedure, the term of
office of the directors, and the responsibilities of its
chairperson and vice chairperson
(6) the setting up of management organizations, rules for
handling routine affairs, the responsibilities of the
general manager, deputy general manager and other senior
management personnel, and the method of their appointment
and dismissal
(7) principles governing finance, accounting and auditing
(8) dissolution and liquidation
(9) procedures for amendment of the articles of association
Article 14
The agreement, contract and articles of association shall
come into force after being approved by the examination and
approval authority. The same applies in the event of
amendments.
Article 15
The examination and approval authority and the registration
and administration office are responsible for supervising
and inspecting the execution of the joint venture contracts
and articles of association.
CHAPTER III
Forms of Organization & Registered Capital
Article 16
A joint venture is a limited liability company.
Each party to the joint
venture assumes the liability of the joint venture within
the limits of the capital subscribed by the party.
Article 17
The total amount of investment (including loans) of a joint
venture refers to the sum of capital construction funds and
the circulating funds needed for the joint venture's
production scale as stipulated in the contract and the
articles of association of the joint venture.
Article 18
The registered capital of a joint venture is the total
capital registered at the registration and administration
office for the establishment of the joint venture. It shall
be the capital subscribed by all parties to the joint
venture.
The registered capital
shall generally be expressed in Renminbi, or may be in a
foreign currency agreed upon by the parties to the joint
venture
Article 19
A joint venture shall not reduce its registered capital
during the term of the joint venture. Where there is a real
need for reduction of the registered capital due to changes
in the total amount of investment, the scale of production
and operation or other circumstances, the reduction shall be
approved by the examination and approval authority.
Article 20
If one party to the joint venture intends to assign all or
part of his investment subscribed to a third party, consent
shall be obtained from the other parties to the joint
venture, and approval from the examination and approval
authority is required.
When one party assigns all
or part of his investment to a third party, the other
parties shall have a priority purchase right.
When one party ~ns his
investment subscribed to a third party, the conditions given
shall not be more favorable than those give~ the other
parties to the joint venture.
No assignment shall have
effect should there be any violation of the above
stipulations.
Article 21
Any increase or reduction of the registered capital of a
joint venture shall be approved by a meeting of the board of
directors and submitted to the examination and approval
authority for approval. Registration procedures for changes
shall be undertaken with the original registration and
administration office.
CHAPTER IV
Methods of Contributing Investment
Article 22
Each party to a joint venture may contribute cash or
buildings, factory premises, machinery, equipment or other
materials, industrial property, proprietary technologies, or
site use rights as investment, the value of which shall be
ascertained. If the investment is in the form of buildings,
factory premises, machinery, equipment or other materials,
industrial property or proprietary technologies, the value
shall be assessed through consultation by the parties to the
joint venture on the basis of fairness and reasonableness,
or shall be assessed by a third party agreed upon by parties
to the joint venture.
Article 23
The foreign exchange contributed by the foreign party shall
be converted into Renminbi according to the standard
exchange rate announced by the People's Bank of China on the
day of its submission or be cross exchanged into a
predetermined foreign currency.
Where the cash Renminbi
contributed by the Chinese party is converted into foreign
currency, it shall be converted according to the standard
exchange rate announced by the People's Bank of China on the
day of the submission of the funds.
Article 24
The machinery, equipment and other materials contributed by
the foreign party shall be those necessary for the
production of the joint venture.
The price of the machinery,
equipment and other materials referred in the proceeding
paragraph shall not be higher than the current international
market price for similar equipment or materials.
Article 25
The industrial property or proprietary technologies
contributed by the foreign party as investment shall meet
one of the following conditions:
(1) capable of improving
markedly the performance and quality of existing products
and raising productivity
(2) capable of notable savings in raw materials, fuel or
power
Article 26
Foreign parties who contribute industrial property or
proprietary technologies as investment shall present
relevant documentation on the industrial property or
proprietary technologies, including photocopies of the
patent certificates or trademark registration certificates,
statements of validity, their technical characteristics.
practical value, the basis for calculating the price and the
price agreement signed with the Chinese partners All these
shall serve as an annex to the contract.
Article 27
The machinery, equipment or other materials, industrial
property or proprietary technologies contributed by foreign
parties as investment shall be subject to the examination
and approval authority for approval.
Article 28
The parties to the joint venture shall pay in full the
investment subscribed according to the time limit stipulated
in the contract. Delay in payment or partial delay in
payment shall be subject to a payment of interest in arrears
or a compensation for the loss as defined in the contract.
Article 29
After the investment is paid up by the parties to the joint
venture, a Chinese registered accountant shall verify it and
provide a certificate of verification, based on which the
joint venture shall issue an investment certificate. An
investment certificate shall include the following items:
name of the joint venture; date, month and year of the
establishment of the joint venture; names of the parties and
the investment contributed; date, month and year of the
contribution of the investment; and date, month and year of
issuance of the investment certificate.
CHAPTER V
Board of Directors & Management Office
Article 30
The highest authority of the joint venture shall be its
board of directors. It shall decide all major issues
concerning the joint venture.
Article 31
The board of directors shall consist of no less than three
(3) members. The distribution of the number of directors
shall be ascertained through consultation by the parties to
the joint venture with reference to the proportion of
investment contributed.
The term of office for the
directors is four (4) years. Their term of office may be
renewed with the consent of the parties to the joint
venture.
Article 32
The board of directors shall convene at least once every
year. The meeting shall be called and presided over by the
chairperson of the board.
Where the chairperson is
unable to call the meeting, he/she shall authorize the
vice-chairperson or other director to call and preside over
the meeting. The chairperson may convene an interim meeting
based on a proposal made by more than one-third of the
directors.
A board meeting requires a
quorum of over two-thirds of the directors. Where the
director is unable to attend, he/she shall present a proxy
authorizing someone else to represent him/her and vote for
him/her.
A board meeting shall
generally be held at the location of the joint venture's
legal address.
Article 33
Decisions on the following matters shall be made only after
being unanimously agreed upon by the directors present at
the board meeting:
(1) amendment of the
articles of association of the joint venture
(2) termination and dissolution of the joint venture
(3) increase or reduction of the registered capital of the
joint venture
(4) merger or division of the joint venture
Decisions on other matters
shall be made according to the rules of procedure stipulated
in the articles of association.
Article 34
The chairperson of the board is the legal representative of
the joint venture. Where the chairperson is unable to
exercise his/her responsibilities. he/she shall authorize
the vice-chairperson of the board or other director to
represent the joint venture
Article 35
A joint venture shall establish a business management office
that shall be responsible for daily business management. The
business management office shall have a general manager and
several deputy general managers who shall assist the general
manager in his/her work.
Article 36
The general manager shall carry out the decisions of the
board meeting, organize and be responsible for the daily
management of the joint venture. The general manager shall,
within his/her authority empowered by the board, represent
the joint venture externally, and shall have the right to
appoint and dismiss his/her subordinates, and exercise other
responsibilities and power as authorized by the board within
the joint venture.
Article 37
The general manager and deputy general managers shall be
appointed by the board of directors of the joint venture.
These positions may be held either by Chinese citizens or
foreign citizens.
At the invitation of the
board of directors, the chairperson, vice-chairperson or
other directors of the board may concurrently be the general
manager, deputy general managers or other senior management
personnel of the joint venture.
In handling major issues,
the general manager shall consult with the deputy general
managers.
The general manager or
deputy general managers shall not hold posts concurrently as
general manager or deputy general managers of other economic
organizations. They shall not have any connections with
other economic organizations in commercial competition with
their own joint venture.
Article 38
Where the general manager, deputy general managers or other
senior management personnel practice favoritism or seriously
abuse their power, the board of directors shall have the
power to dismiss them at any time.
Article 39
Where a joint venture needs to establish branch offices
(including sales offices) outside China or in HongKong or
Macao, it must report to the Ministry of Foreign Trade and
Economic Cooperation for approval.
CHAPTER VI
Introduction of Technology
Article 40
The introduction of technology mentioned in this chapter
refers to the necessary technology obtained by the joint
venture by means of technology transfer from a third party
or parties to the joint venture.
Article 41
The technology acquired by the joint venture shall be
appropriate and advanced and enable the venture's products
to display conspicuous social and economic results
domestically or to be competitive on the international
market.
Article 42
The right of the joint venture to do business independently
shall be maintained when making technology transfer
agreements, and relevant documentation shall be provided by
the technology exporting party in accordance with the
provisions of Article 26 of these Regulations.
Article 43
The technology transfer agreements signed by a joint venture
shall be submitted for approval to the examination and
approval authority
Technology transfer
agreements shall comply with the following stipulations:
(1) the fees for use of
technology shall be fair and reasonable
(2) unless otherwise agreed upon by both parties, the
technology exporting party shall not put any restrictions on
the quantity, price or region of sale of the products that
are to be exported by the technology importing party
(3) the term for a technology transfer agreement is
generally no longer than ten years
(4) after the expiry of a technology transfer agreement, the
technology importing party shall have the right to use the
technology continuously
(5) conditions for mutual exchange of information on the
improvement of technology by both parties of the technology
transfer agreement shall be reciprocal
(6) the technology importing party shall have the right to
buy the equipment, parts and raw materials needed from
sources they deem suitable
(7) no unreasonably restrictive clauses prohibited by the
Chinese law and regulations shall be included
CHAPTER VII
Right to the Use of Site and Its Fee
Article 44
Joint ventures shall implement the principle of efficiency
in the use of land. Any joint venture requiring the use of a
site shall file an application with local departments of the
municipal (county) government in charge of land and obtain
the right to use a site only after securing approval and
signing a contract. The size, location, purpose and contract
period and fee for the right to use a site (hereinafter
referred to as site use fee), rights and obligations of the
parties to a joint venture and fines for breach of contract
should be stipulated in explicit terms in the contract.
Article 45
If the Chinese party already has the right to the use of
site for the joint venture, the Chinese party may use it as
part of its investment. The monetary equivalent of this
investment should be the same as the site use fee otherwise
paid for acquiring such site.
Article 46
The standard for a site use fee shall be stipulated by the
people's government of a province, autonomous region or
centrally administered municipality where the joint venture
is located according to such factors as the purpose of use,
geographic and environmental conditions, expenses for
requisition, demolishing and resettlement and the joint
venture's requirements with regard to infrastructure, and
shall be filed ~ the Ministry of Foreign Trade and Economic
Cooperation and the state department responsible for land
administration.
Article 47
Joint ventures engaged in agriculture and animal husbandry
may, with the consent of the people's government of the
local province, autonomous region or centrally administered
municipality, pay a percentage of the joint venture's
business income as site use fees to the local department
responsible for land administration.
Projects of a developmental
nature in economically undeveloped areas may receive special
preferential treatment in respect of site use fees with the
consent of the local people's government.
Article 48
The rates for site use fees shall not be subject to
adjustment in the first five (5) years beginning from the
day the land is used. After that the interval of adjustment
shall not be less than three (3) years according to the
development and changes in geographic and environmental
conditions.
Site use fees as part of
the investment by the Chinese party shall not be subject to
adjustment during the contract period.
Article 49
The fee for the right to the use of site obtained by a joint
venture according to Article 44 of these Regulations shall
be paid annually from the day to begin use of the land
stipulated in the contract. For the first calendar year, the
venture shall pay a half-year fee if it has used the land
for over six months; if less than six months, the site use
fee shall be exempt. During the contract period, if the
rates of site use fees are adjusted, the joint venture shall
pay it according to the new rates from the year of
adjustment.
Article 50
Joint ventures, in addition to obtaining site use right
according to the provisions of this chapter. may also
acquire site use right in accordance with relevant
provisions of the State.
CHAPTER VIII
Purchasing & Selling
Article 51
In its purchase of required machinery, equipment, raw
materials, fuel, parts, means of transport and items for
office use, etc. (hereinafter referred to as materials), a
joint venture has the right to decide whether to buy them in
China or from abroad.
Article 52
The amount of materials needed for office and daily life for
joint ventures purchased in China is not subject to
restriction.
Article 53
The Chinese Government encourages joint ventures to sell
their products on the international market.
Article 54
A joint venture has the right to export its products by
itself or entrust sales agencies of the foreign party or
Chinese foreign trade corporations with sales on a
commission or distribution basis.
Article 55
Within the scope of operations stipulated in the contract, a
joint venture may import machinery, equipment, parts, raw
materials and fuel needed for its production. A joint
venture shall make a plan every year for items for which
import licenses are required by state regulations, and apply
for them every six months. For machinery, equipment and
other objects that a foreign party has contributed as part
of its investment, the, foreign party can apply directly for
import licenses with documents approved by the examination
and approval authority. For materials to be imported
exceeding the stipulated scope of the contracts, separate
application for import licenses according to state
regulations is required.
A joint venture has the
right to export its products by itself; for those products
for which export licenses are required by state regulations,
the joint venture shall apply for them every six months on
the basis of its annual export plan.
Article 56
With respect to prices for materials in China and fees
charged for services such as water, electricity, gas, heat,
transportation of goods, labor, engineering design,
consultation, advertisements, joint ventures shall be
treated equally with other domestic enterprises.
Article 57
A joint venture and other Chinese economic organizations
shall, in their economic exchanges, undertake economic
responsibilities and settle disputes over contracts in
accordance with the relevant laws and the contract concluded
between both parties.
Article 58
A joint venture shall provide statistic data and submit
statistic forms in accordance with the Law of the People's
Republic of China on Statistics and other state provisions
on the statistics collection in relation to the utilization
of foreign investment.
CHAPTER IX
TAXES
Article 59
Joint ventures shall pay taxes according to the stipulations
of relevant laws of the People's Republic of China.
Article 60
Staff members and workers employed by joint ventures shall
pay individual income tax according to the Individual Income
Tax Law of the People's Republic of China
Article 61
Taxes on the following imports by a joint venture shall be
reduced or exempted in accordance with the relevant
provisions of the Chinese tax law'.
(1) machinery, equipment,
parts and other materials ("other materials" here and
hereinafter mean required materials for the joint venture's
construction on the factory site and for the installation
and reinforcement of machines,) which are part of the
foreign party's share of investment according to the
provisions of contract
(2) machinery, equipment, parts and other materials imported
with funds which are part of the joint venture's total
investment
(3) machinery, equipment, parts and other materials imported
by the joint venture with additional capital under the
approval of the examination and approval authority, and for
which China cannot guarantee production and supply
(4) raw materials, auxiliary materials, components, parts
and packaging materials imported by the joint venture for
production of export goods
Taxes shall be paid or
added according to regulations when the above-mentioned
duty-free materials are approved for sale inside China or
used for the production of items to be sold on the Chinese
domestic market.
Article 62
Except for those export items restricted by the State, taxes
on export products of a joint venture shall be reduced,
exempted or refunded in accordance with the relevant
provisions of the Chinese tax law
CHAPTER X
Foreign Exchange Control
Article 63
All matters concerning foreign exchange for joint ventures
shall be handled according to the Rules of the People's
Republic of China on Foreign Exchange Control and relevant
provisions of administrative measures.
Article 64
With a business license, a joint venture may open foreign
exchange accounts and Renminbi accounts with hanks inside
China. The bank handling the accounts of the joint venture
shall exercise supervision of receipts and expenditures.
Article 65
A joint venture shall obtain permission from the State
Administration of Foreign Exchange or one of its branches to
open a foreign exchange deposit account with an overseas
bank or one in Hong Kong or Macao, and report to the State
Administration of Foreign Exchange or one of its branches
its foreign exchange receipts and expenditures, and provide
account balance sheets.
Article 66
Branches and divisions set up by a joint venture in foreign
countries or in Hong Kong or Macao shall submit its annual
statement of assets and liabilities and annual profit report
to the State Administration of Foreign Exchange or one of
its branches through the joint venture.
Article 67
A joint venture may, in accordance with its operation needs,
apply to a financial institution inside China for foreign
exchange loans and Renminbi loans. It may also borrow
foreign exchange from banks abroad or in Hong Kong or Macao
in accordance with the relevant provisions of the State, and
carry out procedures for registration or filing for record
with the State Administration of Foreign Exchange or one of
its branches.
Article 68
After foreign staff and workers and staff and workers from
Hong Kong and Macao have paid income tax on their salaries
and other legitimate incomes in accordance with the law.
they may remit outside China the remaining foreign exchange
after deduction of their living expenses in China, in
accordance with relevant provisions of the State.
CHAPTER XI
Financial Affairs & Accounting
Article 69
Procedures for handling financial affairs and accounting of
a joint venture shall be formulated in accordance with
China's relevant laws and procedures on financial affairs
and accounting, and in consideration of the conditions of
the joint venture, and then be filed with local financial
departments and tax authorities for the record.
Article 70
A joint venture shall employ a chief accountant to assist
the general manager in handling the financial affairs of the
enterprise. If necessary a deputy chief accountant may also
be appointed.
Article 71
A joint venture shall (a small venture need not) appoint an
auditor to be responsible for checking financial receipts,
payments and accounts, and to submit reports to the board of
directors and the general manager.
Article 72
The fiscal year of a joint venture shall coincide with the
calendar year, i.e. from January 1 to December 31 on the
Gregorian calendar.
Article 73
The accounting of a joint venture shall adopt the
internationally accepted accrual basis and debit and credit
accounting system in their work. All vouchers account books,
statistical statements and reports prepared by the
enterprise shall be written in Chinese. A foreign language
may also be used concurrently with mutual consent.
Article 74
In principal, a joint venture shall adopt Renminbi as the
standard currency. In keeping accounts, however, another
currency may also be used through consultation by the
parties concerned.
Article 75
In addition to the use of standard currency to record
accounts, joint ventures shall record accounts in currencies
actually used in payments and receipts, if such currencies
in cash, bank deposits, funds of other currencies,
creditor's rights, debts, gains, expenses, etc. are
inconsistent with the standard currency in recording
accounts.
Where foreign currency is
used as the standard currency in accounting, the joint
venture shall convert the said currency into Renminbi in its
financial accounting reports.
Where funds are converted
to the currency of a particular account, the difference
caused by differing exchange rates shall be recorded as
profit or loss on exchange. Recorded fluctuations in
exchange rates and the book amounts of the various related
foreign currency accounts shall undergo accounting treatment
during the year-end closure of accounts in accordance with
China's relevant laws and its financial accounting system.
Article 76
Principles of profit distribution after payment of taxes in
accordance with the Income Tax Law of the People's Republic
of China for Enterprises with Foreign In vestment and
Foreign Enterprises are as follows,
(1) allocations for reserve
funds, bonuses and welfare funds for staff and workers and
development funds of the joint venture and the proportion of
allocations are decided by the board of directors
(2) reserve funds can be used to make up the losses of the
joint venture, and with the consent of the examination and
approval authority, can also be used to increase the joint
venture's capital for production expansion
(3) after the funds described in (1) of this Article have
been deducted, if the board of directors decides to
distribute the remaining profit, it should be distributed
according to the proportion of each party's investment
Article 77
Profits cannot be distributed unless the losses of previous
years have been made up. Remaining profits from the previous
year (or years) can be distributed together with the profit
of the Current year.
Article 78
A joint venture shall submit quarterly and annual financial
reports to the parties to the joint venture, the local tax
authority and the financial department.
Article 79
Only after being examined and certified by an accountant
registered in China can the following documents,
certificates and reports be considered valid:
(1) certificates of
investment from all parties to a joint venture (lists of
assessed value and agreements signed by parties to the joint
venture shall be attached, where involving the use of
materials, site use rights, industrial property and
proprietary technologies as contributions)
(2) annual financial reports of the joint venture
(3) financial reports on liquidation of the joint venture
CHAPTER XII
Staff & Workers
Article 80
The employment, recruitment, dismissal and resignation of
staff and workers of joint ventures, and their salary,
welfare benefits, labor insurance, labor protection, labor
discipline and other matters shall be handled according to
the relevant provisions of the State on labor and social
security.
Article 81
Joint ventures shall make efforts to conduct professional
and technical training of their staff and workers and
establish a strict examination system so that they can meet
the requirements of production and managerial skills in a
modernized enterprise.
Article 82
The salary and bonus systems of joint ventures shall be in
accordance with the principle of distribution to each
according to his work, and more pay for more work.
Article 83
Salaries and remuneration of the general manager, deputy
general manager(s), chief engineer, deputy chief
engineer(s), chief accountant and deputy chief
accountant(s), auditor(s) and other senior officials shall
be decided upon by the board of directors.
CHAPTER XIII
Trade Unions
Article 84
Staff and workers of a joint venture have the right to set
up a grass-roots trade union and carry on trade union
activities in accordance with the Trade Union Law of the
People's Republic of China (hereinafter referred to as
Chinese Trade Union Law) and the Articles of Association of
Chinese Trade Unions.
Article 85
Trade unions in joint ventures are representatives of the
interests of the staff and workers. They have the power to
represent the staff and workers to sign labor contracts with
joint ventures and supervise the execution of these
contracts.
Article 86
The basic tasks of the trade unions in joint ventures are:
to protect the democratic rights and material interests of
the staff and workers in accordance with the law; to help
the joint ventures with the arrangement and rational use of
welfare and bonus funds; to organize political,
professional, scientific and technical studies, carry out
literary, artistic and sporting activities; and to educate
staff workers to observe labor discipline and strive to
fulfill the economic tasks of the enterprises.
Article 87
Trade union representatives have the right to attend as
non-voting members and to report the opinions and demands of
staff and workers to meetings of the board of directors held
to discuss important issues such as development plans,
production and operational activities of joint ventures.
Trade union representatives
have the right to attend as non-voting members meetings of
the board of directors held to discuss and decide on awards
and penalties to staff and workers, salary systems, welfare
benefits, labor protection and labor insurance, etc. The
board of directors shall heed the opinions of the trade
union and win its co-operation.
Article 88
A joint venture shall actively support the work of the trade
union, and, in accordance with stipulations of the Chinese
Trade Union Law, provide housing and facilities for the
trade union's office work, meetings, and welfare, cultural
and sports activities. The joint venture shall allot an
amount of money totaling two percent of all salaries of the
joint venture's staff and workers as trade union's funds,
which the trade union of the joint
venture shall use according
to the relevant managerial rules for trade union funds
formulated by the All China Federation of Trade Unions.
CHAPTER XIV
Duration, Dissolution & Liquidation
Article 89
The duration of a joint venture shall be determined in
accordance with the Provisional Regulations on the Duration
of Sino-foreign Equity Joint Enterprises.
Article 90
A joint venture may be dissolved in the following
situations:
(1) expiry of duration
(2) inability to continue operations due to heavy losses
(3) inability to continue operations due to the failure of
one of the contracting parties to fulfill the obligations
prescribed by the agreement, contract or articles of
association
(4) inability to continue operations due to heavy losses
caused by force majeure soon as natural calamities and wars,
etc.
(5) inability to obtain the desired objectives of the
operation and at toe same time to see a future for
development
(6) occurrence of other reasons for dissolution prescribed
by the contract and articles of association
In cases described in (2),
(4), (5) and (6) of the proceeding paragraph, the board of
directors shall make an application for dissolution to the
examination and approval authority for approval; n situation
described in (3), the party that performs the contract shall
make an application and report it to the examination and
approval authority for approval.
In the situation described
in (3) of this article, the party which failed to fulfill
the obligations prescribed by the agreement, contract and
articles of association shall be liable for compensation for
the losses thus caused.
Article 91
A joint venture announcing its dissolution must undergo
liquidation procedures. The joint venture must form a
liquidation committee in accordance with the provisions of
the Measures on Liquidation Procedures for Foreign
Investment Enterprises. The liquidation committee is in
charge of the liquidation affairs.
Article 92
Members of a liquidation committee are usually selected from
among directors of a joint venture. In case the directors
cannot serve or are unsuitable to be members of the
liquidation committee. the joint venture may appoint
accountants and lawyers registered in China to the
committee. When the examination and approval authority deems
it necessary~ it may appoint personnel to supervise the
process.
The liquidation expenses and remuneration to members of the
liquidation committee shall be paid in priority from the
existing assets of the joint venture.
Article 93
The tasks of the liquidation committee are: to conduct a
thorough check of the property. of the joint venture
concerned, its creditors' rights and liabilities; to work
out the statement of assets and liabilities and a list of
property; to put forward a basis on which property is to be
evaluated and calculated; and to formulate a liquidation
plan. All these shall be carried out upon approval of the
board of directors.
During the process of liquidation, the liquidation committee
shall represent the joint venture concerned in litigation.
Article 94
A joint venture shall be liable to its debts with all of its
assets. The remaining property after the clearance of debts
shall be distributed among parties to the joint venture
according to the proportion of each party's investment
unless otherwise provided by agreement, contract and
articles of association of the joint venture.
At the time when a joint
venture is being dissolved, its net assets or the residual
amount of the remaining property subtracting the not
distributed profits, various funds and liquidation expenses,
that exceeds the actually paid up capital shall be regarded
as income derived from liquidation, and income tax shall be
levied according to law.
Article 95
On completion of the liquidation of a dissolved joint
venture, the liquidation committee shall submit a
liquidation report approved by a meeting of the board of
directors to the original examination and approval
authority, go through formalities for canceling its
registration and hand in its business license to the
original registration authority.
Article 96
After dissolution of a joint venture, its account books and
documents shall be left in the care of the Chinese party.
CHAPTER XV
Settlement of Disputes
Article 97
Disputes arising over the interpretation or execution of the
agreement, contract or articles of association between the
parties to the joint venture shall, if possible, be settled
through friendly consultation or mediation. Disputes that
cannot be settled through these means may be settled through
arbitration or judicial means.
Article 98
Parties to a joint venture may apply for arbitration in a
Chinese arbitration institution or another arbitration
institution in accordance with the relevant written
arbitration agreement.
Article 99
If there is no written arbitration agreement between the
parties to a joint venture, each side may file a Suit with a
Chinese people's court.
Article 100
During the process of solving disputes, except for matters
in dispute, parties to a joint venture shall continue to
carry out other provisions stipulated by the agreement,
contract and articles of association of the joint venture.
CHAPTER XVI
Supplementary Provisions
Article 101
The Chinese office in charge of visas shall give convenient
service by simplifying procedures for staff and workers from
foreign countries or from Hong Kong and Macao (including
the4r family members) who frequently cross Chinese borders.
Article 102
Chinese staff and workers in a joint venture who go abroad
for study tours, business negotiations or training shall
carry out procedures for exiting country (border) in
accordance with relevant provisions of the State.
Article 103
Staff and workers from foreign countries or from Hong Kong
and Macao working for a joint venture may bring in needed
means of transport and items for office use. They shall pay
taxes in accordance with the relevant provisions of Chinese
tax law.
Article 104
Joint ventures set up in the Special Economic Zones shall
abide by these provisions, unless laws and administrative
regulations stipulate otherwise.
Article 105
These Regulations shall come into force on the day of
promulgation.
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