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(Adopted
at the Second Session of the Fifth National People's Congress on
July 1, 1979, and revised in accordance with the Decision of the
National People's Congress Regarding the Revision of the Law of
the People's Republic of China in Chinese-Foreign Equity Joint Ventures
adopted at the Third Session of the Seventh National People's Congress
on April 4, 1990)
Article
1
With
a view to expanding international economic cooperation and technological
exchange, the People's Republic of China shall permit foreign companies,
enterprises, other economic organizations or individuals (hereinafter
referred to as 'foreign joint ventures') to establish equity joint
ventures together with Chinese companies, enterprises or other economic
organizations (hereinafter referred to as 'Chinese joint ventures')
within the territory of the People's Republic of China, on the principle
of equality and mutual benefit, and subject to approval by the Chinese
Government.
Article
2
The
Chinese Government shall protect, according to the law, the investment
of foreign joint ventures, the profits due them and other lawful
rights and interests in an equity joint ventures, pursuant to the
agreement, contract and articles of association approved by the
Chinese Government. All activities of an equity joint venture shall
comply with the provisions of the laws, decrees and pertinent regulations
of the People's Republic of China. The state shall not nationalize
or requisition any equity joint venture. Under special circumstances,
when public interest requires, equity joint ventures may be requisitioned
by I following legal procedures and appropriate compensation shall
be made.
Article
3
The
equity joint venture agreement, contract and articles of association
signed by the parties to the venture shall be submitted to the state's
competent department in charge of foreign economic relations and
trade (hereinafter referred to as the examination and approval authorities)
for examination and approval. The examination and approval authorities
shall decide to approve or disapprove the venture within three months,
when approved, the equity joint venture shall register with the
state's competent department in charge of industry and commerce
administration, acquire a business license and start operations.
Article
4
An
equity joint venture shall take the form of a limited liability
company. The proportion of the foreign joint venture's investment
in an equity joint venture shall be, in general, not less than 25
percent of its registered capital.
The
parties to the venture shall share the profits, risks and losses
in proportion to their contributions to the: registered capital.
If any of the joint ventures wishes to assign its registered capital,
it must obtain the consent of the other parties to the venture.
Article
5
The
parties to an equity joint venture may make their investment in
cash, in kind or in industrial property rights, etc.
The
technology and equipment contributed by a foreign joint venture
as its investment must be really advanced technology and equipment
that suit China's needs. In case of losses caused by a foreign joint
venture in its practicing deception through the intentional provision
of outdated technology and equipment, it shall compensate for the
losses. A Chinese joint venture's investment may include the right
to the use of a site provided for the equity joint venture during
the period of its operation. If the right to the use of the site
is not taken as a part of the Chinese joint venture's investment,
the equity joint venture shall pay the Chinese Government for its
use.
The
above-mentioned investments shall be specified in the contract and
articles of association of the equity joint venture, and their value
(excluding that of the site) shall be assessed by all parties to
the venture.
Article
6
An
equity joint venture shall have a board of directors; the number
of the directors there of from each party and the composition of
the board shall be stipulated in the contract and articles of association
after consultation among the parties to the venture; such directors
shall be appointed and replaced by the relevant parties. The chairman
and the vice-chairman (vice-chairmen) shall be determined through
consultation by the parties to the venture or elected by the board
of directors. If the Chinese side or the foreign side assumes the
office of the chairman, the other side shall assume the office(s)
of the vice -chairman (vice-chairmen). The board of directors shall
decide on important issues concerning the joint venture on the principle
of equality and mutual benefit.
The
functions and powers of the board of directors are, as stipulated
in the articles of association of the equity joint venture, to discuss
and decide all major issues concerning the venture, namely, the
venture's development plans, proposals for production and business
operations, the budget for revenues and expenditures, the distribution
of profits, the plans concerning manpower and wages, the termination
of business, and the appointment of employment of the general manager,
the vice- general manager(s), the chief engineer, the treasurer
and the auditors, as well as the determination of their functions,
powers and terms of employment, etc. The offices of general manager
and vice-general manager(s) of factory manager and deputy manager(s)
shall be assumed by the respective parties to the venture. The employment
and discharge of the workers and staff members of an equity joint
venture shall be stipulated in accordance with the law in the agreement
and contract concluded by the parties to the venture.
Article
7
The
new profit of an equity joint venture shall be distributed among
the parties to the venture in proportion to their respective contributions
to the registered capital, after payment out of its gross profit
of the equity joint venture income tax, pursuant to the provisions
of the tax laws of the People's Republic of China, and after deduction
from the gross profit of a reserve fund, a bonus and welfare fund
for workers and staff members and a venture expansion fund, as stipulated
in the venture' s articles of association. An equity joint venture
may, in accordance with provisions of the relevant laws and administrative
rules and regulations of the state on taxation, enjoy preferential
treatment for reduction of or exemption from taxes.
A
foreign joint venture that reinvests its share of the net profit
within the territory of China may apply for partial refund of the
income tax already paid.
Article
8
An
equity joint venture shall, on the strength of its business license,
open of foreign exchange account with a back or any other financial
institution which is permitted by the state agency for foreign exchange
control to handle foreign exchange transactions. An equity joint
ventures shall handle its foreign exchange transactions in accordance
with the regulations of foreign exchange control of the People's
Republic of China. An equity joint venture may, in its business
operations, directly raise funds from foreign banks.
The
various kinds of insurance coverage of an equity joint venture shall
be furnished by Chinese insurance companies.
Article
9
The
production and business operating plans of an equity joint venture
shall be submitted to the competent authorities for record and shall
be implemented through economic contracts. In its purchase of required
raw and semi-proceeded materials, fuels, auxiliary equipment, etc.,
and equity joint venture should give first priority the purchases
in China. It may also make such purchases directly on the world
market with foreign exchange raised by itself. An equity joint venture
shall be encouraged to market its products outside China. It may
sell its export products on foreign markets directly or through
associated agencies or China's foreign trade agencies. Its products
may also be sold on the Chinese market. When necessary, an equity
joint venture may set up branches and sub-branches outside China.
Article
10
The
net profit which a foreign joint venture receives as its share after
performing its obligations under the laws, and the agreements or
the contract, the funds it receives upon the expiration of the venture'
term of operation or its early termination, and its other funds
may be remitted abroad in accordance with foreign exchange control
regulations and in the currency or currencies specified in the contract
concerning the equity joint venture.
A
foreign joint venture shall be encouraged to deposit in the Bank
of China the foreign exchange which it is entitled to remit abroad.
Article
11
The
wages, salaries or other legitimate income earned by a foreign worker
or staff member of an equity joint venture, after payment of the
individual income tax under the tax laws of the People's Republic
of China, may be remitted abroad in accordance with foreign exchange
control regulations.
Article
12
Based
on different lines of trade and different circumstances, arrangements
for the duration of equity joint ventures may be made differently
through agreement by the parties to the venture. Equity joint ventures
engaged in certain lines of trade shall specify their duration in
the contracts, while equity joint ventures engaged in certain other
lines of trade may choose to or not to specify their duration in
the contracts. Where an equity joint venture has had its duration
specified and the parties to the venture agree to extend the duration,
the venture shall file an application for the purpose with the examination
and approval authorities six months before its expiration. The examination
and approval authorities shall within one month after receipt of
the application, decide on its approval or disapproval.
Article
13
In
case of heavy losses, failure of a party to perform its obligations
under the contract and the articles of association, or force majeure
etc., the parties to the joint venture may terminate the contract
through their consultation and agreement, subject to approval by
the examination and approval authorities and to registration with
the state's competent department in charge of industry and commerce
administration. In cases of losses caused by a breach of contract,
the financial responsibility shall be borne by the party that has
breached the contract.
Article
14
Disputes
arising between the parties to an equity joint venture which the
board of directors has failed to settle through consultation may
be settled through mediation or arbitration by an arbitration agency
of China or through arbitration by another arbitration agency agreed
upon by the parties.
Article
15
This
Law shall enter into force as of the date of promulgation. The power
to amend this Law is vested in the National People's Congress.
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