TABLE OF CONTENTS

CHAPTER I GENERAL PROVISIONS
CHAPTER II ESTABLISHMENT, MODIFICATION AND TERMINATION OF THE ENTERPRISE
CHAPTER III RIGHTS AND OBLIGATIONS OF THE ENTERPRISE
CHAPTER IV FACTORY DIRECTOR
CHAPTER V STAFF AND WORKERS AND THE STAFF AND WORKERS' CONGRESS
CHAPTER VI RELATIONSHIP BETWEEN THE ENTERPRISES AND THE GOVERNMENT
CHAPTER VII LEGAL LIABILITY
CHAPTER VIII SUPPLEMENTARY PROVISIONS

CHAPTER I
GENERAL PROVISIONS

Article 1
This Law is formulated in accordance with the Constitution of the People's Republic of China with a view to ensure the consolidation and development of the economic sector under ownership by the whole people, to define the rights and obligations of industrial enterprises owned by the whole people, to safeguard their lawful rights interests, to enhance their vitality and to promote the socialist modernization.

Article 2
An industrial enterprise owned by the whole people (hereinafter referred to as the enterprise) shall be a socialist commodity production and operation unit that shall, in accordance with law, make its own managerial decisions, take full responsibility for its profits and losses and practice independent accounting.

The property of the enterprise shall be owned by the whole people, and shall be operated and managed by the enterprise with the authorization of the state in line with the principle of the separation of ownership and managerial authority. The enterprise shall enjoy the rights to possess, utilize and dispose of, according to law, the property that the state has authorized it to operate and manage.

The enterprise shall obtain the status of a legal person in accordance with law and bear civil liability with the property that the state has authorized it to operate and manage.

The enterprise may, in accordance with the decision of the competent department of the government, adopt contract, leasing or other forms of the system of managerial responsibility.

Article 3
The fundamental task of the enterprise shall be the development of commodity production, creation of wealth, increase of savings and satisfaction of society's growing material and cultural requirements by acting in line with state plans and market demands.

Article 4
While achieving socialist material growth, the enterprise must persistently promote socialist cultural and ideological progress and build up a contingent of well-educated and self-disciplined staff and workers with high ideals and moral integrity.

Article 5
The enterprise must deserve the laws and regulations and keep to the socialist orientation.

Article 6
The enterprise must effectively utilize the property which the state has authorized it to operate and manage and realize the multiplication of its assets; the enterprise must, according to law, pay taxes and fees and hand in profits.

Article 7
Theenterprise shall implement the system whereby the factory director (manager) assumes overall responsibility for the work of the enterprise.

The factory director shall exercise functions and powers according to law, which shall be protected by law.

Article 8
The grassroots organization of the Chinese Communist Party in the enterprise shall guarantee and supervise the implementation of the guiding principles and policies of the Party and the state in the enterprise.

Article 9
The state shall ensure that the staff and workers enjoy the status of the masters, and the legitimate rights and interests of the staff and workers shall be protected by law.

Article 10
The enterprise shall, through the staff and workers' congress and other forms, practice democratic management.

Article 11
The trade union in the enterprise shall represent and safeguard the interests of the staff and workers and conduct its work independently according to law. The trade union in the enterprise shall organize the staff and workers for participation in democratic management and democratic supervision.

The enterprise shall bring into full play the role of the young staff and workers, the women staff and workers and scientific and technical personnel.

Article 12
The enterprise must strengthen and improve its operation and management, implement the economic responsibility system, promote scientific and technological progress, practice economy, combat waste, improve economic results and further its own transformation and development.

Article 13
The enterprise shall implement the principle of distribution according to work. It may also adopt other forms of distribution within the scope prescribed by law.

Article 14
The property that the state has authorized the enterprise to operate and manage shall be protected by law and shall not be infringed upon.

Article 15
The legitimate rights and interests of the enterprise shall be protected by law and shall not be infringe upon.

CHAPTER II
Establishment, Modification & Termination of the Enterprise

Article 16
The establishment of the enterprise must conform to the law and the relevant provisions of the State Council, and the application for the establishment must be submitted to the government or the competent department of the government for examination and approval. The enterprise shall obtain the status of a legal person after it is approved by, registers itself with and receives a business license from the administrative authorities for industry and commerce. The enterprise shall carry out its productive and operational activities within the approved and registered scope of operation.

Article 17
An enterprise must meet the following qualifications for its establishment:

(1) its products are needed by society
(2) it has access to the required energy sources, raw and processed materials, and communication and transportation facilities
(3) it possesses a name of its own and premises for production and operation
(4) it possesses funds in conformity with state provisions
(5) it possesses its own organizational structure
(6) it has a definite scope of operation
(7) other qualifications as provided by the laws and regulations

Article 18
The merger of enterprises or the division of an enterprise shall be subject to approval by the guvernment or the competent department of the government in accordance with the provisions of the laws and administrative rules and regulations.

Article 19
An enterprise shall be terminated for any of the following reasons:

(1) being abolished due its violation of the laws and regulations
(2) being dissolved by decision of the competent department of the government in accordance with the provisions of the laws and regulations
(3) being declared bankrupt in accordance with law
(4) other reasons

Article 20
When an enterprise is merged with another enterprise or other enterprises or when it is divided or terminated, its property must be protected and its claim and debts shall be liquidated according to law.

Article 21
The modification of registered items such as the merger of enterprises and the division or termination of the enterprise, and the scope of operation shall be subject to approval by and registration with the administrative authorities for industry and commerce.

CHAPTER III
RIGHTS & OBLIGATIONS OF AN ENTERPRISE

Article 22
The enterprise shall, under the guidance of the state plans, have the right to arrange on its own the production of products needed by society or the provision of services for society.

Article 23
The enterprise shall have the right to accept or reject production assignments given by any department or unit outside the mandatory plans.

Article 24
The enterprise shall have the right to sell its products on its own, except as otherwise stipulated by the State Council.

Article 25
The enterprise shall have the right to choose the suppliers for itself and purchase from them materials needed for production.

Article 26
The enterprise shall have the right to negotiate and sign contracts with foreign parties in accordance with the provisions of the State Council.

Article 27
The enterprise shall have the right withdraw and use, according to the provisions of the State Council, the foreign exchange revenues its retains as its share.

Article 28
The enterprise shall have the right to budget and use its retained funds in accordance with the provisions of the State Council.

Article 29
The enterprise shall have the right, in accordance with the provisions of the State Council, to lease out or transfer against compensation the fixed assets that the state authorized it to operate and manage, but the proceeds therefrom must be used for the renewal of equipment and technical transformation.

Article 30
The enterprise shall have the right to determine such forms of wages and mechods of bonus distribution as are appropriate to its specific conditions.

Article 31
The enterprise shall have the right to employ or dismiss its staff members and workers in accordance with the provisions of the State Council.

Article 32
The enterprise shall have the right to decide on its organizational structure and the size of its personnel.

Article 33
The enterprise shall have the right to reject the exaction of its manpower, materials and financial resources in the form of apportionment by any state organ or unit. Except as otherwise stipulated by the laws and regulations, any demand made on the enterprise by any state organ or unit in any form for the provision of manpower, materials and financial resources shall be exaction by apportionment.

Article 34
The enterprise shall have the right, in accordance with law and provisions of the State Council, to engage in joint operations with other enterprises or institutions, to invent in other enterprises or institutions and to hold shares in other enterprises. The enterprise shall have the right to issue bonds in accordance with the provisions of the State Council.

Article 35
The enterprise must fulfil the mandatory plans.

The enterprise must perform the contracts concluded according to law.

Article 36
The enterprise must ensure the normal maintenance of its fixed assets and upgrade and renew its equipment.

Article 37
The enterprise must observe state provisions concerning finance, labor and wages, price control, etc., and accept supervision by the financial, auditing, labor and wage, price and other administrative authorities.

Article 38
The enterprise must guarantee the quality of its products and services and be responsible to users and consumers.

Article 39
The enterprise must raise labor efficiency, economize the use of energy and of raw and processed materials and strive to reduce costs.

Article 40
The enterprise must strengthen its security work, maintain the order of production and protect state property.

Article 41
The enterprise must implement the system of safe production, improve labor conditions, do good work in labor protection and environmental protection, and carry on production in a safe and civilized manner.

Article 42
The enterprise shall strengthen ideological and political education, legal education, national defense education, scientific and cultural education as well as technical and vocational training so as to raise the quality of its staff and workers.

Article 43
The enterprise shall support its staff and workers in scientific research, invention and creation and activities for technical innovation, for making rationalization proposals and for socialist labor emulation, and reward them for such endeavors.

CHAPTER IV
FACTORY DIRECTOR

Article 44
Except as otherwise stipulated by the State Council, the selection of the factory director shall be made by the competent department of the government in the light of the specific conditions of the enterprise by one of the following methods:

(1) appointment by the competent department of the government or choice of an applicant on a competitive basis by the same department
(2) election by the staff and workers' congress of the enterprise. With respect to the person to be appointed or the applicants to be chosen as factory director by the competent department of the government, the opinions of the staff and workers shall be solicited, with respect to the person elected as factory derector by the staff and workers' congress of the enterprise, and his appointment shall be reported to the competent department of the government for approval.

Article 45
The factory director shall be the legal representative of the enterprise.

The enterprise shall establish a system of production, operation and management headed by the factory director. The factory director shall occupy the central position in the enterprise and assume overall responsibility for building up a materially developed and culturally and ideologically advanced enterprise.

The factory director shall exercise leadership in the production, operation and management of the enterprise by exercising the following functions and powers:

(1) to decide on the various plans of the enterprise or report them for examination and approval in accordance with law and the provisions of the State Council.
(2) to decide on the administrative setup of the enterprise
(3) to propose to the competent department of the government the appointment or removal, employment or dismissal of leading administrative cadres at the level of a vice-derector of the factory, except as otherwise stipulated by law and the provisions of the State Council
(4) to appoint or remove, employ or dismiss the intermediate level leading administrative cadres of the enterprise, except as otherwise stipulated by law
(5) to propose plans for wage adjustment and bonus distribution and important rules and regulations, and refer them to the staff and workers' congress for examination and approval; to propose programmes for the use of the welfare fund and make suggestions regarding such other matters as are important for the well-being and benefits of the staff and workers, and to refer them to the staff and workers' congress for deliberation and decision
(6) to reward or punish the staff members and workers according to law; to submit to the competent department of the government proposals for rewarding or punishing leading administrative cadres at the level of a vice-director of the factory

Article 46
The factory director must rely on the staff members and workers for the fulfillment of the obligations of the enterprise prescribed in this Law, support the work of the staff and workers' congress, the trade union and other public organizations, and implement the decisions made according to law by the staff and workers' congress.

Article 47
The enterprise shall establish a management committee or some other forms or organization to assist the factory director in making decisions on important issues of the enterprise. The management committee, with the factory director as its chairman, shall be composed of leading persons in charge of various aspects of the enterprise and representatives of the staff and workers.

The important issues as mentioned in the preceding paragraph shall include:

(1) the policy of operation, long-term and annual plans, programmes for capital construction and major technical transformation, plans for the training of the staff and workers, plans for wage adjustment, programmes for the distribution and use of the retained funds and programmes for contract and leasing systems of managerial responsibility
(2) the size of the personnel of the enterprise whose wages are counted as cost of the enterprise and the establishment and adjustment of administrative organs
(3) programmes for the formulation, revision and abrogation of major rules and regulations

Proposals for discussion of the foregoing important issues shall all be made by the factory director.

Article 48
Factory directors who have made outstanding achievements in leading the enterprise in fulfilling their plans, raising products or services quality, improving economic results or promoting cultural and ideological progress shall be rewarded by the competent department of the government.

CHAPTER V
Staff and Workers & Staff and Workers' Congress

Article 49
The staff and workers of the enterprise shall have the right to participate in its democratic management; the right to put forward opinions and suggestions concerning its production and work; the right to enjoy, according to law, labor protection, labor insurance, rest and vacation; and the right to report the true situation to state organs and make criticisms and charges against the leading cadres of the enterprise.

Women staff and workers shall have the right to enjoy a special labor protection and labor insurance in accordance with the provisions of the State Council.

Article 50
The staff and workers should approach their work as the masters of the country that they are, observe labor discipline and rules and regulations, and fulfil their tasks in production and work.

Article 51
The staff and workers' congress shall be the basic form for the practice of democratic management in the enterprise and the organ for the staff and workers to exercise their powers of democratic management.

The working organ of the staff and workers' congress shall be trade union committee of the enterprise. The trade union committee of the enterprise shall be responsible for the day-to-day work of the staff and workers' congress.

Article 52
The staff and workers' congress shall exercise the following functions and powers:

(1) to hear and deliberate the factory director's reports on the policy of operation, long-term and annual plans, programmes for capital construction and major technical transformation, plans for the training of the staff and workers, programmes for the distribution and use of the retained funds and programmes for contract and leasing systems of managerial responsibility, and to put forward opinions and suggestions
(2) to examine and endorse or to reject the enterprise's programmes for wage adjustment, programmes for bonus distribution, measures for labor protection, measures for awards and penalties and other important rules and regulations
(3) to deliberate and decide on the programmes for the use of the staff and workers' welfare fund, programmes for the allocation of the staff and workers' housing and other important matters concerning the well-being and benefits of the staff and workers
(4) to evaluate and supervise the leading administrative cadres at various levels of the enterprise and put forward suggestions for rewarding or punishing them and for their appointment or removal
(5) to elect, by decision of the competent department of the government, the factory director and report to such department for approval

Article 53
Democratic management shall be practiced in workshops through the general meetings of the staff and workers, through the staff and workers representative groups or through other forms; the workers shall participate directly in the democratic management of shifts and groups.

Article 54
The staff and workers' congress shall support the factory director in exercising his functions and powers according to law and shall educate the staff and workers for the fulfillment of their obligations specified in this Law.

CHAPTER VI
Relationship Between the Enterprises & the Government

Article 55
The government or the competent department of the government shall, in accordance with the provisions of the State Council, issue unified mandatory plans to the enterprises, ensure the supply of materials which are subject to planned allocation and needed by the enterprises for the fulfillment of mandatory plans, examine and approve plans submitted by the enterprises for capital construction and major technical transformation, appoint or remove, reward or punish factory directors, appoint or remove, reward or punish leading administrative cadres at the level of a vice-director of a factory, as proposed by factory directors, and examine and train leading administrative cadres at the factory level.

Article 56
The relevant departments of the government shall, in conformity with the objective that the state regulates the market and the market guides the enterprises, provide services for the enterprises and exercise administration and supervision over the enterprises in line with their respective functions and in accordance with the provisions of the laws and regulations.

These departments shall:

(1) formulate and adjust industrial policies, and guide the enterprises in working out their development plans
(2) provide advice and information for the enterprises to make their operational decisions
(3) coordinate the relations between the enterprises and other units
(4) safeguard the normal production order of the enterprises, and protect from infringement the state property operated and managed by the enterprise
(5) gradually improve the public facilities related to the enterprise

Article 57
The local governments or above the country level in the locality of a enterprise shall provide it with the needed materials which are subject to local planning and control, coordinate the relations between the enterprises and other units in the locality, and strive to run well the public welfare undertakings related to the enterprises.

Article 58
No state organ or unit shall be permitted to encroach on the right that the enterprise enjoys according to law to make its own decisions in operation and management, or to exact manpower, materials or financial resources from the enterprise by way of apportionment, or to demand the establishment of an organ by the enterprise or to determine the size of the personnel of an organ.

CHAPTER VII
LEGAL LIABILITY

Article 59
Whoever has conducted productive and operational activities in the name of an enterprise in violation of the provisions of Article 16 of this Law, without prior examination and approval by the government or the competent department of the government without approval by and registration with the administrative authorities for industry and commerce, shall be ordered to suspend his business operations, and his illegal earnings shall be confiscated.

An enterprise that practices fraud in dealing with the registration authorities and conceals the true situation from them shall be given a warning or punished with a fine; where the circumstances are serious, its business license shall be revoked.

The administrative punishment prescribed in this Article shall be decided upon by the administrative authorities for industry and commerce at or above the country level. If the party in question refuses to accept the decision on punishment in the form of a fine, the suspension of operations, the confiscation of illegal earnings or the revocation of the business license, it may file a suit in a court within 15 days of receiving the notification on the decision; if no suit is filed by the time limit and the decision is not complied with, the authorities that made the decision on punishment may apply to the court for compulsory enforcement.

Article 60
An enterprise that produces and sells sub-standard products and thereby causes property damage or physical injury to users and consumers shall be liable for damages; if a crime is constituted, the person or persons directly responsible shall be investigated for criminal responsibility according to law.

An enterprise whose product quality does not conform to the terms agreed upon in the economic contract shall be liable for breach of contract.

Article 61
If a decision of the government or the relevant department of the government violates the provisions of Article 58 of this Law, the enterprise shall have the right to apply to the authorities that made the decision for rescission. If no rescission is granted, the enterprise shall have the right to appeal to the authorities at the level next higher to the authorities that made the decision or to a supervisory department of the government. The authorities that accept the appeal shall make a ruling and notify the enterprise of it within 30 days of receiving the appeal.

Article 62
Any leading cadre of the enterprise, who violates the lawful rights and interests of the staff and workers by abusing his power, where the circumstances are serious, shall be given an administrative sanction by the competent department of the government; any leading cadre of the enterprise who retaliates against and frames up charges against staff members or workers by abusing his power and using his public office for private ends shall be investigated for criminal responsibility in accordance with the provisions of Article 46 of the Criminal Law of the People's Republic of China.

Article 63
Any leading cadre of the enterprise or of the relevant department of the government who, due to faults in his work, causes relatively heavy losses to the enterprise and the state, shall be given an administrative sanction by the competent department of the government or the relevant state organ at a higher level.

Any leading cadre of the enterprise or of the relevant department of the government who, due to neglect of duty, causes the property of the enterprise or the interests of the state and the people to suffer heavy losses, shall be investigated for criminal responsibility in accordance with the provisions of Article 187 of the Criminal Law of the People's Republic of China.

Article 64
Whoever obstructs, without resorting to violence or threat, the enterprise leaders from carrying out their functions according to law, shall be punished by the public security organ in the locality of the enterprise in accordance with the provisons of Article 19 of the Regulations of the People's Republic of China on Administrative Penalities for Public Security; whoever by means of violence or threat obstructs the enterprise leaders from carrying out their functions according to law shall be investigated for criminal responsibility in accordance with the provisions of Article 157 of the Criminal Law of the People's Republic of China.

Whoever distrubs the order of the enterprise, thereby making it impossible for production, business operations and work to go on smoothly, but has not caused serious losses, shall be punished by the public security organ in the locality of the enterprise in accordance with the provisions of Article 19 of the Regulations of the People's Republic of China on Administrative Penalties for Public Security; if the circumstances are so serious that production, business operations and work cannot be carried on and serious losses are caused, the responsible person shall be investigated for criminal responsibility in accordance with the provisions of Article 158 of the People's Republic of China.

CHAPTER VIII
SUPPLEMENTARY PROVISIONS

Article 65
The principles for this Law shall be applicable to enterprises owned by whole people in communication and transprotation, the postal and telecommunications service, geological exploration, construction and installation, commerce, foreign trade, materials supply, agriculture, forestry and water conservation.

Article 66
If the enterprise implements the contract and leasing systems of managerial responsibility, the party awarding the contract and the contractor, the lessor and the lessee, with regard to their respective rights and obligations, shall implement the relevant provisions of the State Council, apart from abiding by the provisions of this Law.

With respect to the system of leadership in jointly operated enterprises, large-scale associate enterprises and stock enterprises, the relevant provisions of the State Council shall be implemented.

Article 67
The State Council shall, in accordance with this Law, formulate rules for implementation.

Article 68
The standing committees of the people's congresses of the autonomous regions may, in accordance with the principles of this Law and the Law of the People's Republic of China on Regional National Autonomy and in the light of the special features of their respective localities, formulate rules for the implementation and report them to the Standing Committee of the National People's Congress for the record.

Article 69
This Law shall come into force as of August 1, 1988.