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(Adopted
by the Second Session of the Fifth National People's Congress on
July 1, 1979 and Promulgated on and Effective as of July 8, 1979)
Article
1
With
a view to expanding international economic co-operation and technical
exchange, the People's Republic of China permits foreign companies,
enterprises, other economic organizations or individuals (hereafter
referred to as "foreign joint venturers" ) to join with
Chinese companies, enterprises or other economic organizations (hereafter
referred to as "Chinese joint venturers") in establishing
joint ventures in the People's Republic of China in accordance with
the principle of equality and mutual benefit and subject to approval
by the Chinese Government.
Article
2
The
Chinese Government protects, in accordance with the law, the investment
of foreign joint venturers, the profits due them and their other
lawful rights and interests in a joint venture, pursuant to the
agreement, contract and articles of association approved by the
Chinese Government.
All
the activities of a joint venture shall comply with the provisions
of the laws, decrees and pertinent regulations of the People's Republic
of China.
Article
3
The
joint venture agreement, contract and articles of association signed
by the parties to the venture shall be submitted to the Foreign
Investment Commission of the People's Republic of China, and the
Commission shall, within three months, decide whether to approve
or disapprove them. After approval, the joint venture shall register
with the General Administration for Industry and Commerce of the
People's Republic of China, obtain a license to do business and
start operations.
Article
4
A
joint venture shall take the form of a limited liability company.
The
proportion of the investment contributed by the foreign joint venturer
(s) shall generally not be less than 25 per cent of the registered
capital of a joint venture.
The
parties to the venture shall share the profits, risks and losses
in proportion to their respective contributions to the registered
capital.
No
assignment of the registered capital of a joint venturer shall be
made without the consent of the other parties to the venture.
Article
5
Each
party to a joint venture may make its investment in cash, in kind
or in industrial property rights, etc.
The
technology and the equipment that serve as a foreign joint venturer's
investment must be advanced technology and equipment that actually
suit our country's needs. If the foreign joint venturer causes losses
by deception through the intentional use of backward technology
and equipment, it shall pay compensation for the losses.
The
investment of a Chinese joint venture may include the right to the
use of a site provided for the joint venture during the period of
its operation. If the right to the use of the site does not constitute
a part of a Chinese joint venturer's investment, the joint venture
shall pay the Chinese Government a fee for its use.
The
various investments referred to above shall be specified in the
joint venture contract and articles of association, and the value
of each (excluding that of the site) shall be jointly assessed by
the parties to the venture.
Article
6
A
joint venture shall have a board of directors, which shall have
its size and composition stipulated in the contract and the articles
of association after consultation between the parties to the venture,
and the directors shall be appointed and replaced by the parties
to the venture. The board of directors shall have a chairman, whose
office shall be assumed by the Chinese joint venture(s), and one
or two vice-chairmen, whose office(s) shall be assumed by the foreign
joint venture(s). In handing major problems, the board of directors
shall reach a decision through consultation by the parties to the
venture, in accordance with the principle of equality and mutual
benefit.
The
board of directors is empowered, pursuant to the provisions of the
articles of association of the joint venture, to discuss and decide
all major problems of the venture: expansion programs, proposals
for production and operating activities, the budget for revenues
and expenditures, distribution of profits, plans concerning manpower
and pay scales, the termination of business and the appointment
or employment of the president, the vice-president(s), the chief
engineer, the treasurer and the auditors, as well as their powers
and terms of employment, etc.
The
offices of president and vice-president(s) (or factory manager and
deputy manager(s)) shall be assumed by the respective parties to
the venture.
The
employment and dismissal of the staff and workers of a joint venture
shall be provided for in accordance with the law in the agreement
and contract of the parties to the venture.
Article
7
After
payment out of the gross profit earned by the joint venture of the
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
staff and workers, and a venture expansion fund, as provided in
the articles of association of the joint venture, the net profit
shall be distributed to the parties to the joint venture in proportion
to their respective contributions to the registered capital.
A
joint venture that possesses advanced technology by world standards
may apply for a reduction of or exemption from income tax for the
first two to three profit- making years.
A
foreign joint venturer that reinvests in China its share of the
net profit may apply for refund of a part of the income taxes already
paid.
Article
8
A
joint venture shall open an account with the Bank of China or a
bank approved by the Bank of China.
The
pertinent foreign exchange transactions of a joint venture shall
be conducted in accordance with the regulations on foreign exchange
control of the People's Republic of China.
In
its operating activities a joint venture may directly raise funds
from foreign banks.
The
various kinds of a insurance coverage of joint venture shall be
furnished by Chinese insurance companies.
Article
9
The
production and operating plans of a joint venture shall be filed
with the departments in charge and shall be implemented through
economic contracts.
In
its purchase of required raw and processed materials, fuels, parts
and auxiliary equipment, etc., a joint venture should give first
priority to purchases in China. It may also purchase them directly
from the international market with foreign exchange raised by itself.
A
joint venture is encouraged to market its products outside China.
Export products may be distributed to foreign markets through the
joint venture directly or through associated agencies, and they
may also be distributed through China's foreign trade agencies.
Products of the joint venture may also be distributed in the Chinese
market.
Whenever
necessary, a joint venture may establish branches outside China.
Article
10
The
net profit that a foreign joint venturer receives after fulfilling
its obligations under the laws and the agreement and the contract,
the funds it receives at the time of the joint venture's scheduled
expiration or early termination, and its other funds may be remitted
abroad through the Bank of China in accordance with the foreign
exchange regulations and in the currency specified in the joint
venture contract.
A
foreign joint venturer shall be encouraged to deposit in the Bank
of China foreign exchange that it is entitled to remit abroad.
Article
11
The
wages, salaries and other legitimate income earned by the foreign
staff and workers of a joint venture, after payment of the individual
income tax under the tax laws of the People's Republic of China,
may be remitted abroad through the Bank of China in accordance with
the foreign exchange regulations.
Article
12
The
contract period of a joint venture may be decided through consultation
by the parties to the venture according to its particular line of
business and circumstances. Upon the expiration of the joint venture
contract period, if the parties have agreed, the period may be extended,
subject to approval by the Foreign Investment Commission of the
People's Republic of China. An application for extension of the
contract shall be made six months before expiration of the contract.
Article
13
Before
the expiration of the joint venture contract period, in case of
heavy losses, failure of a party to fulfill the obligations prescribed
by the contract and the articles of association, force majeure,
etc., the contract may be terminated before the date of expiration
through consultation and agreement by the parties to the venture,
subject to approval by the Foreign Investment Commission of the
People's Republic of China and to registration with the General
Administration for Industry and Commerce. In cases of losses caused
by a breach of contract, the financial responsibility shall be borne
by the party that has violated the contract.
Article
14
Disputes
arising between the parties to a joint venture that the board of
directors cannot settle through consultation may be settled through
mediation or arbitration by a Chinese arbitration agency or through
arbitration by another arbitration agency agreed upon by the parties
to the venture.
Article
15
This
Law shall come into force on the day of its promulgation. The power
to amend this Law is vested in the National People's Congress.
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