| During
the negotiation of a joint venture or a cooperative venture, all agreements
and contracts should be in English and Chinese in order to facilitate
smooth negotiations. According to China's Foreign Economic Contract
Law it is permissible to sign contracts in Chinese or English or both
and to choose either language as the governing language should disputes
arise.
The contracts
necessary to set up any type of business operation in China, whether
it be an equity joint venture, a cooperative venture, or a wholly
foreign owned enterprise are all subject to jurisdiction within
China and use Chinese law as the governing law. Ancillary contracts
such as technology transfer contracts, trademark contracts, distribution
contracts, and supply and off-take contracts are not required to
use Chinese law as the governing law and in most cases use United
States law was the governing law in cases where the joint venture
is with an American company.
Contracts relating
to the establishment of foreign invested enterprises should include
a timetable and provisions for the capital contribution by the parties
involved. When the joint venture contract stipulates that capital
investment is to be made by installments, the first payment by the
parties involved must be paid within three months from the date
of issue of the joint venture business license and must constitute
at least fifteen percent of the respective capital contribution
of each party. In absence of a timetable, both parties must make
full contributions within six months from the date of issue of the
business license.
Disputes involving
the partners of a joint venture or a cooperative venture can be
resolved by consultation and conciliation between the two parties,
through arbitration, or through judicial proceedings. It is common
practice to choose consultation and conciliation as the preferred
resolution method but to attach a clause that limits the duration
so that the Chinese cannot use this method to draw a dispute out
indefinitely. In cases where a dispute is unable to resolved within
the time limit the case is moved into arbitration or judicial proceedings.
Effective January
1, 1993, China acceded to the Convention for the Settlement of Investment
Disputes Between States and Nationals of Other States, permitting
foreign companies to seek arbitration of a dispute by the International
Enter for Settlement of Investment Disputes providing that both
parties consent in writing to arbitration.
Arbitration
is usually the preferred method for the resolution of any disputes
which cannot be resolved through consultation and conciliation in
China. The location of arbitration for all contracts including those
governed by Chinese law is not required to be in China. The China
International Economic and Trade Arbitration Commission of the China
Council for the Promotion of International Trade specializes in
arbitration matters but in cases where the Chinese partner will
agree, disputes can be resolved in the foreign party's home location
or another location considered neutral by both parties such as Hawaii
or Europe. A clause stipulating that any disputes that arise involving
a contract be settled through arbitration along with the location
of arbitration is usually included in all contracts signed in China
Arbitration
does not completely relieve the foreign parties from threat of judicial
proceedings in China. There have been cases where fraud charges
were brought against foreign companies in Chinese court regarding
the terms of a joint venture contract. The Chinese courts have ruled
that these cases are admissible since they do not concern dispute
resolution but rather involve fraud and in some cases the foreign
party has been fined or has had privileges guaranteed in the joint
venture contract revoked.
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