| Important
Notice:
This English document is coming from "LAWS AND
REGULATIONS OF THE
PEOPLE'S REPUBLIC OF CHINA GOVERNING FOREIGN-RELATED
MATTERS" (1991.7)
which is compiled by the Brueau of Legislative Affairs
of the State
Council of the People's Republic of China, and is
published by the China
Legal System Publishing House.
In case of discrepancy, the original version in
Chinese shall prevail.
Whole Document
REGULATIONS FOR THE IMPLEMENTATION OF THE LAW OF THE
PEOPLE'S
REPUBLIC OF CHINA ON CHINESE-FOREIGN EQUITY JOINT
VENTURES
(Promulgated by the State Council on September 20,
1983)
Chapter I General Provisions
Article 1
These Regulations are formulated with a view to
facilitating the smooth
implementation of the Law of the People's Republic of
China on Chinese-
Foreign Equity Joint Ventures (hereinafter referred to
as the Law on
Chinese-Foreign Equity Joint Ventures).
Article 2
Chinese-foreign equity joint ventures (hereinafter
referred to as joint
ventures) established within China's territory in
accordance with the Law
on Chinese-foreign Equity Joint Ventures are legal
persons in China and
are subject to the jurisdiction of Chinese laws and
enjoy protection
thereof.
Article 3
Joint ventures established within China's territory
shall be able to
promote the development of China's economy and the
raising of scientific
and technological levels for the benefit of socialist
modernization. Joint
ventures permitted to be established are mainly in the
following
industries:
(1) energy development, the building material,
chemical and metallurgical
industries;
(2) machine manufacturing, instrument and meter
industries and offshore
oil exploitation equipment manufacturing;
(3) electronics and computer industries, and
communication equipment
manufacturing;
(4) light, textile, foodstuffs, medicine, medical
apparatus and packaging
industries;
(5) agriculture, animal husbandry and aquiculture;
(6) tourism and service trades.
Article 4
Joint ventures to be applied for their establishment
shall lay stress on
economic results and shall comply with one or several
of the following
requirements:
(1) they shall adopt advanced technical equipment and
scientific
managerial methods which help increase the variety,
improve the quality
and raise the output of products and save energy and
materials;
(2) they shall prove to be conducive to technical
renovation of
enterprises and be able to bring about quicker returns
and bigger profits
with less investment;
(3) they shall help expand exports and thereby
increase foreign currency
receipts;
(4) they shall help train technical and managerial
personnel.
Article 5
Application for establishing joint ventures shall not
be approved if they
involve any of the following circumstances:
(1) detriment to China's sovereignty;
(2) violation of 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 of the
parties.
Article 6
Unless otherwise stipulated, the government department
in charge of the
Chinese joint venturer in a joint venture shall be the
department in
charge of the joint venture (hereinafter referred to
as the department in
charge). If a joint venture has two or more Chinese
joint venturers which
are under different departments or from different
regions, the departments
and regions concerned shall, through consultation,
designate a department
in charge.
Departments in charge are responsible for providing
guidance and
assistance and exercising supervision over the joint
ventures.
Article 7
A joint venture has the right to independently conduct
business operations
and management within the scope as prescribed by
Chinese laws and
regulations, and by the agreement, contract and
articles of association of
the joint venture. The departments concerned shall
provide support and
assistance.
Chapter II Establishment and Registration
Article 8
The establishment of a joint venture in China is
subject to examination
and approval by the Ministry of Foreign Economic
Relations and Trade of
the People's Republic of China (hereinafter referred
to as the MOFERT).
Upon approval, an Approval Certificate shall be issued
by the MOFERT.
The MOFERT may entrust the people's governments in the
related provinces,
autonomous regions, and municipalities directly under
the Central
Government or relevant ministries or bureaus under the
State Council
(hereinafter referred to as the entrusted office) with
the power to
examine and approve the establishment of joint
ventures that comply with
the following conditions:
(1) the total amount of investment is within the limit
set by the State
Council and the source of capital of the Chinese
venturers has been
ascertained;
(2) no additional allocation of raw materials by the
State is required and
the national balance as to fuel, power transportation
and foreign trade
export quotas is not affected. The entrusted office,
after approving the
establishment of a joint venture, shall report the
same to the MOFERT for
the record. An Approval Certificate shall be issued by
the MOFERT.
(The MOFERT and the entrusted office will hereinafter
be generally
referred to as the examining and approving
authorities.)
Article 9
The following procedures shall be followed in the
establishment of a joint
venture:
(1) it is the Chinese joint venturer in a joint
venture that shall submit
to its department in charge a project proposal and a
preliminary
feasibility study report of the joint venture to be
established with
foreign joint venturer. The proposal and the
preliminary feasibility study
report, upon examination and approval by the
department in charge, shall
be submitted to the examining and approving
authorities for final
approval. The parties to the venture shall then
conduct work centering
around the feasibility study, and then proceed on this
basis, to negotiate
and sign joint venture agreement, contract and
articles of association;
(2) when applying for the establishment of a joint
venture, the Chinese
joint venturer is responsible for the submission of
the following
documents to the examining and approving authorities:
(a) a written application for the establishment of the
joint venture;
(b) the feasibility study report jointly prepared by
the parties to the
venture; (c) joint venture agreement, contract and
articles of association
signed by representatives authorized by the parties to
the venture;
(d) list of candidates for chairman and vice-chairman
of board of
directors and directors nominated by the parties to
the venture;
(e) written opinions concerning the establishment of
the said venture of
the department in charge and the people's government
of the province,
autonomous region or municipality directly under the
Central Government
where the joint venture is located. The aforesaid
documents shall be
written in Chinese. Documents (b), (c) and (d) may be
written
simultaneously in a foreign language agreed upon by
the parties to the
joint venture. Both versions are equally authentic.
Article 10
Upon receipt of the documents stipulated in Article 9
(2), the examining
and approving authorities shall, within 3 months,
decide whether to
approve or disapprove them. Should anything
inappropriate be found in any
of the aforementioned documents, the examining and
approving authorities
shall demand an amendment within a limited time.
Otherwise, no approval
shall be granted.
Article 11
The applicant shall, within one month as of the
receipt of the Approval
Certificate, register with the administrative
department for industry and
commerce of the province, autonomous region or
municipality directly under
the Central Government in accordance with the
provisions of the Measures
of the People's Republic of China for the
Administration of the
Registration of Chinese-Foreign Equity Joint Ventures
(hereinafter
referred to as registration administration office).
The date of the
issuance of its business licence is the date of the
formal establishment
of the joint venture.
Article 12
Any foreign investor who intends to establish a joint
venture in China but
is unable to find a specific co-operator in China may
submit a preliminary
plan for the joint venture project and entrust the
China International
Trust and Investment Corporation (CITIC) or a trust
and investment
corporation of a trust and investment corporation of a
province,
autonomous region or municipality directly under the
Central Government,
or a relevant government department or a
non-governmental organization, to
recommend Chinese co-operators.
Article 13
The "joint venture agreement" mentioned in
this Chapter refers to the
document agreed upon by the parties to the joint
venture on some major
points and principles governing the establishment of
the joint venture.
"Joint venture contract" refers to the
document agreed upon and concluded
by the parties to the joint venture on their mutual
rights and
obligations.
"Articles of association" refers to the
document agreed upon by the
parties to the joint venture specifying the purpose,
organizational
principles and method of management of the joint
venture in compliance
with the principles of the joint venture contract.
Where the joint venture
agreement comes into conflict with the contract, the
latter shall prevail.
The parties to the joint venture may agree to sign the
contract and
articles of association only, without signing an
agreement.
Article 14
A 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, positions
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, amount, proportion and forms of investment to
be contributed by
each party to the joint venture, the time limit for
contributing
investment, stipulations concerning incomplete
contributions, and
assignments of investments;
(4) the proportion of profit to be shared 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 high-ranking
managerial 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, and the ratio of products sold within
Chinese territory to those
sold abroad;
(8) arrangements for receipts and expenditures in
foreign currency;
(9) principles governing the handling of finance,
accounting and auditing;
(10) stipulations concerning labour management, wages,
welfare, and labour
insurance;
(11) the duration of the joint venture, its
dissolution and the procedures
for liquidation;
(12) the liabilities for breach of contract;
(13) ways and procedures for settling disputes between
the parties to the
joint venture;
(14) the language(s) used for the contract and the
conditions for putting
the contract into force.
The annex to the contract of a joint venture shall be
equally authentic as
the contract itself.
Article 15
Chinese laws shall apply to the conclusion, validity,
interpretation and
execution of a joint venture contract, as well as to
the settlement of
disputes.
Article 16
The Articles of association of a joint venture 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, countries of registration and legal
addresses of parties to
the joint venture, and the names, positions and
nationalities of the legal
representatives thereof;
(4) the total amount of investment, registered capital
of the joint
venture, each party's investment proportion,
stipulations concerning the
assignment of investment, the proportions of profit
distribution and
losses to be borne by parties to the joint venture;
(5) the composition of the board of directors, its
responsibilities,
powers and rules of procedure, the term of office of
the directors, and
the responsibilities of its chairman and
vice-chairman;
(6) the setting up of management organizations, rules
for handling routine
affairs, the responsibilities of the general manager,
deputy general
manager and other high-ranking managerial personnel,
and the method of
their appointment and dismissal;
(7) principles governing financial, accounting and
auditing systems;
(8) dissolution and liquidation;
(9) procedures for amendment of the articles of
association.
Article 17
The agreement, contract and articles of association
shall come into force
upon approval by the examining and approving
authorities. The same applies
to amendments thereof.
Article 18
The examining and approval authorities and the
registration administration
office are responsible for supervising and checking on
the execution of
the joint venture contracts and articles of
association.
Chapter III Form of Organization and Registered
Capital
Article 19
A joint venture is a limited liability company.
Each party to the joint venture is liable to the joint
venture within the
limit of the capital subscribed by it.
Article 20
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 21
The registered capital of a joint venture refers to
the total amount of
investment registered at the registration
administration office for the
establishment of the joint venture. It shall be the
total amount of
investment subscribed by parties to the joint venture.
The registered capital shall generally be represented
in Renminbi, or may
be in a foreign currency agreed upon by the parties to
the joint venture.
Article 22
A joint venture shall not reduce its registered
capital during the term of
the joint venture.
Article 23
If one party to the joint venture intends to assign
all or part of its
investment subscribed to a third party, consent shall
be obtained from the
other party to the joint venture, and approval from
the examining and
approving authorities is required. When one party
assigns all or part of
its investment to a third party, the other party has
preemptive right.
When one party assigns its investment subscribed to a
third party, the
terms of assignment shall not be more favourable than
those to the other
party to the joint venture.
No assignment shall be effective should there be any
violation of the
above stipulations.
Article 24
Any increase, assignment or other disposal of the
registered capital of a
joint venture shall be approved at a meeting of the
board of directors and
submitted to the original examining and approving
authorities for
approval. Registration procedures for changes shall be
handled at the
original registration administration office.
Chapter IV Ways of Contributing Investment
Article 25
Each joint venturer may invest in cash or may
contribute buildings,
factory premises, equipment or other materials,
industrial property,
preprietary technology, or right to the use of a site,
appraised at
appropriate prices, as investment. If the investment
is in the form of
buildings, premises, equipment or other materials,
industrial property or
proprietary technology, the prices shall be determined
through
consultation by the parties to the joint venture on
the basis of fairness
and reasonableness, or they shall be evaluated by a
third party accepted
and invited by the parties to the joint venture.
Article 26
The foreign currency contributed by the foreign joint
venturer shall be
converted into Renminbi according to the exchange rate
quoted by the State
Administration of Foreign Exchange Control of the
People's Republic of
China (hereinafter referred to as the State
Administration of Foreign
Exchange Control) on the day of its submission or be
cross exchanged into
the foreign currency as agreed upon.
Should the cash Renminbi contributed by the Chinese
joint venturer be
converted into foreign currency, it shall be converted
according to the
exchange rate quoted by the State Administration of
Foreign Exchange
Control on the day of its submission.
Article 27
The machinery, equipment and other materials
contributed as investment by
the foreign joint venturer shall meet the following
conditions:
(1) they are indispensable to the production of the
joint venture;
(2) China is unable to manufacture them, or can
manufacture them only at
too high a price, or their technical performance and
time of availability
cannot meet the requirement;
(3) the price fixed shall not be higher than the
current international
market price for similar equipment or materials.
Article 28
The industrial property or proprietary technology
contributed by the
foreign joint venturer as investment shall meet one of
the following
conditions:
(1) capable of manufacturing new products urgently
needed in China or
products suitable for export;
(2) capable of markedly improving the performance,
quality of existing
products and raising productivity;
(3) capable of notably saving raw materials, fuel or
power.
Article 29
Foreign joint ventures who contribute industrial
property or proprietary
technology as investment shall present relevant
documentation on the
industrial property or proprietary technology,
including protocopies 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
joint ventures. All these shall serve as an annex to
the contract.
Article 30
The machinery, equipment or other materials,
industrial property or
proprietary technology contributed by foreign joint
venturer as investment
shall be examined and approved by the department in
charge of the Chinese
joint venturer and then submitted to the examining and
approving
authorities for further approval.
Article 31
The parties to the joint venture shall pay in all 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
investment on arrears or a compensation for the loss
as defined in the
contract.
Article 32
After the investment is paid by the parties to the
joint venture, a
Chinese registered accountant shall verify it and
provide a certificate of
verification, in accordance with which the joint
venture shall issue to
them investment certificates, which include the
following items: name of
the joint venture; date, month and year of the
establishment of the joint
venture; names of the joint venturers and the
investment contributed;
date, month and year of the contribution of the
investment; and date,
month and year of the issuance of investment
certificates.
Chapter V Board of Directors and Management Structure
Article 33
The highest authority of the joint venture shall be
its board of
directors, which shall decide all major issues
concerning the joint
venture.
Article 34 [*1]
The board of directors shall consist of no less than
three members. The
distribution of the number of directors shall be
determined through
consultation by the parties to the joint venture with
reference to the
proportions of investment contributed. The directors
shall be appointed
by the parties to the joint venture. The chairman of
the board shall be
appointed by the Chinese joint venturer and its
vice-chairman by the
foreign joint venturer.
The term of office for the directors is four years.
Their term of office
may be renewed with the re-appointment by the parties
to the joint
venture.
Article 35
The board of directors shall convene at least one
meeting every year. The
meeting shall be called and presided over by the
chairman of the board.
Should the chairman be unable to call the meeting, he
shall authorize the
vice-chairman or a director to call and preside over
the meeting. The
chairman may convene an interim meeting on the
suggestion of more than
one-third of the directors.
A board meeting requires a quorum of over two-thirds
of the directors.
Should a director be unable to attend, he may make a
proxy authorizing
someone else to represent him and vote in his stead.
A board meeting shall usually be held at the location
of the joint
venture's legal address.
Article 36
Decisions on the following items shall be made only
after being
unanimously agreed upon by the directors present at
the board meeting:
(1) amendment to the articles of association of the
joint venture;
(2) suspension or dissolution of the joint venture;
(3) increase in or assignment of the registered
capital of the joint
venture;
(4) merger of the joint venture with other economic
organization.
Decision on other matters may be made according to the
rules of procedure
stipulated in the articles of association.
Article 37
The chairman of the board is the legal representative
of the joint
venture. Should the chairman be unable to perform his
duties, he shall
authorize the vice-chairman of the board or a director
to represent the
joint venture.
Article 38
A joint venture shall establish a management office
which shall be
responsible for the day-to-day management and
operations. The management
office shall have a general manager and several deputy
general managers
who assist the general manager in his work.
Article 39
The general manager shall carry out the decisions of
the board meeting and
organize and conduct the day-to-day management and
operations of the joint
venture. Within the scope of authorization by the
board, the general
manager shall, externally, represent the joint
venture, and internally,
have the right to appoint and dismiss his subordinates
and exercise other
powers as authorized by the board.
Article 40
The general manager and deputy general managers shall
be engaged by the
board of directors of the joint venture. These
positions may be held
either by Chinese or foreign citizens.
At the instance of the board of directors, the
chairman, vice-chairman or
other directors of the board may concurrently be the
general manager,
deputy general managers or other high-ranking
managerial 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 get involved in
other economic
organizations' commercial competition against their
own joint venture.
Article 41
In case of graft or serious dereliction of duty on the
part of the general
manager, deputy general managers or other high-ranking
managerial
personnel, they may be dismissed at any time by a
decision of the board of
directors.
Article 42
Establishment of branch offices (including sales
offices) outside China or
in regions of Hong Kong or Macao is subject to
approval by the MOFERT.
Chapter VI Introduction of Technology
Article 43
The introduction of technology mentioned in this
Chapter refers to the
acquisition of necessary technology by the joint
venture by means of
technology transfer from a third party or a joint
venturer.
Article 44
The technology to be introduced to the joint venture
shall be appropriate
and advanced and enable the venture's products to
display conspicuous
social economic results domestically or to be
competitive on the
international market.
Article 45
The right of the joint venture to do business
independently shall be
maintained when concluding such technology transfer
agreements, and
relevant documentations shall be provided by the
technology exporting
party with reference to the provisions of Article 29
of these Regulations.
Article 46
The technology transfer agreements concluded by a
joint venture shall be
examined and agreed to by the department in charge of
the joint venture
and then submitted for approval to the examining and
approving
authorities.
Technology transfer agreements shall comply with the
following
stipulations:
(1) Fees for the use of technology shall be fair and
reasonable. Payments
are generally made in royalties, and the royalty rate
shall not be higher
than the obtaining standard international rate, which
shall be calculated
on the basis of net sales of the products turned out
with the relevant
technology or in other reasonable ways agreed upon by
both parties.
(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 not longer
than 10 years.
(4) After the expiration of a technology transfer
agreement, the
technology importing party shall have the right to
continue to use the
technology.
(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 irrational restrictive clauses prohibited under
Chinese law and
regulations shall be included.
Chapter VII Right to the Use of Site and Fees
Article 47
Joint ventures shall practise economy in the use of
land for their
premises. 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
after securing approval
and signing a contract. The acreage, 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 two contracting
parties and penalty
provisions for breach of contract shall be stipulated
in explicit terms in
the contract.
Article 48
If the Chinese joint venturer already has the right to
the use of site for
the joint venture, it may use the right as part of its
investment. The
monetary equivalent of this investment shall be the
same as the site use
fee otherwise paid for acquiring a site of similar
conditions.
Article 49
The standards for site use fee shall be set by the
people's governments of
the province, autonomous region or municipality
directly under the Central
Government where the joint venture is located in the
light of the purpose
of use, geographic and environmental conditions,
expenses for requisition,
demolition and resettlement and the joint venture's
requirements for
infrastructure, and filed with the MOFERT and the
state department in
charge of land for the record.
Article 50
Joint ventures engaged in agriculture and animal
husbandry may, with the
consent of the people's governments of the province,
autonomous region or
municipality directly under the Central Government,
pay a percentage of
the joint venture's revenues from its business
operations as site use fees
to the local department in charge of land. Projects of
a development
nature in economically under-developed areas may
receive special
preferential treatment in respect of site use fees
with the consent of the
local people's government.
Article 51
The rates of site use fees shall not be subject to
adjustment in the first
5 years beginning from the day the land is used. After
that, the interval
in between the necessary adjustments to be made
according to the
development of the economy, changes in supply and
demand, and changes in
geographic and environmental conditions shall not be
less than three
years.
Site use fee as part of the investment by the Chinese
joint venture shall
not be subject to adjustment during the contract
period.
Article 52
The fee for the right to the use of a site obtained by
a joint venture
according to Article 47 of these Regulations shall be
paid annually from
the day to use the land stipulated in the contract.
For the first calender
year, the venture will pay a half-year fee if it has
used the land for
over 6 months; if less than 6 months, the site use fee
shall be exempted.
During the contract period, if the rate of site use
fee is adjusted, the
joint venture shall pay it according to the new rate
from the year of
adjustment.
Article 53
Joint ventures that have permission to use a site
shall only have the
right to the use of it but no ownership. Assignment of
the right to use
land is forbidden.
Chapter VIII Planning, Purchasing and Selling
Article 54
A joint venture shall work out a capital construction
plan (including
labour force required for the construction, building
materials, water,
power and gas supply) according to the approved
feasibility study report,
and the plan shall be included in the capital
construction plan of the
department in charge of the joint venture, which shall
give priority in
arranging supplies and ensured the execution of the
plan.
Article 55
Funds earmarked for capital construction of a joint
venture shall be put
under unified management of the bank where the venture
has opened an
account.
Article 56
A joint venture shall work out a production and
operating plan in
accordance with the scope of operation and scale of
production stipulated
in the contract. The plan shall be carried out with
the approval of the
board of directors and filed with the department in
charge of the joint
venture for the record.
Departments in charge of the joint ventures and
planning administration
departments at all levels shall not prescribe
mandatory production and
operation plans for joint ventures.
Article 57
In its purchase of required machinery, equipment, raw
materials, fuel,
parts, means of transport and office equipment, etc.
(hereinafter referred
to as materials), a joint venture has the right to
decide whether it buys
them in China or from abroad. However, where the terms
are the same, it
shall give first priority to purchasing them in China.
Article 58
Joint ventures can purchase materials in China through
the following
channels:
(1) those under planned distribution shall be brought
into the supply plan
of the departments in charge of joint ventures and
supplied by materials
and commercial departments or production enterprises
according to
contracts;
(2) those handled by materials and commercial
departments shall be
purchased from these departments;
(3) those freely circulating on the market shall be
purchased from
production enterprises or their sale or commission
agencies;
(4) those export items handled by foreign trade
corporations shall be
purchased from the appropriate foreign trade
corporations.
Article 59
The materials needed for office and daily use for
joint ventures can be
purchased in China without quantity restrictions.
Article 60
The Chinese Government encourages joint ventures to
sell their products on
the international market.
Article 61
Products of joint ventures that are urgently needed or
to be imported by
China can be mainly sold on the Chinese market.
Article 62
A joint venture has the right to export its products
itself or entrust the
sale-agencies of the foreign joint venturer or Chinese
foreign trade
corporations with sales on a commission or
distribution.
Article 63
Within the scope of business 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 on
which import licenses are required by the stipulation
of the State, and
apply for them every 6 months. For machines, equipment
and other objects a
foreign joint venturer has contributed as part of its
investment, import
licenses can be applied for directly with the
documents approved by the
examining and approving authorities. For materials the
import of which is
beyond the stipulated scope of the contract, separate
applications for
import licenses according to State regulations are
required.
A joint venture has the right to export its products
by itself, whereas
for those products which require export licenses under
the stipulation of
the State, the joint venture shall make an export plan
every business year
and apply for the needed licenses every 6 months.
Article 64
A joint venture may sell its products on the Chinese
market in the
following ways:
(1) For those items under planned distribution, the
departments in charge
of joint ventures will bring them into the
distribution plan of the
materials administration departments, which sell them
to designated users
according to plan.
(2) For those items handled by materials and
commercial departments, the
materials and commercial departments will place orders
with the joint
ventures.
(3) For the excess of those purchased by plan of the
above two categories,
the joint venture has the right to sell them by itself
or entrust sales to
the relevant units.
(4) For products of a joint venture that Chinese
foreign trade companies
need to import, the joint venture may sell them to
these trade companies
and shall be paid in foreign currency.
Article 65
Materials purchased and services needed in China by
joint ventures shall
be priced according to the following stipulations:
(1) The six raw materials - gold, silver, platinum,
petroleum, coal and
timber - that are used directly in production for
export shall be priced
according to the international market prices provided
by the State
Administration of Foreign Exchange Control or foreign
currency or
Renminbi.
(2) When purchasing export or import commodities
handled by Chinese
foreign trade companies, the suppliers and buyers
shall negotiate the
price, with reference to the prices on the
international market, and
foreign currency shall be paid.
(3) The prices for purchasing coal used as fuel and
oil for motor
vehicles, which are needed for manufacturing products
to be sold
domestically, as well as materials other than those
listed in (1) and (2)
of this Article, and the fees charged for water,
electricity, gas, heat,
goods transportation, services, engineering,
consultancy service and
advertisement, etc. provided to joint ventures, shall
be treated equally
with state-owned enterprises and paid in Renminbi.
Article 66
Prices of products of a joint venture for sale on the
Chinese domestic
market, except those items approved by the price
control department for
appraisal of prices with reference to the prices on
the international
market, shall correspond with State-set prices, be
priced according to
equality and paid in Renminbi. Prices fixed by a joint
venture for its
products shall be filed with departments in charge of
joint ventures and
of price control for the record.
Prices of export products of a joint venture will be
fixed by the joint
venture itself and shall be filed with departments in
charge of joint
ventures and of price control for the record.
Article 67
A joint venture, in its economic exchanges with
another Chinese economic
organization, shall undertake economic
responsibilities and settle
disputes over contract in accordance with relevant
laws and the contract
concluded between the two parties.
Article 68
A joint venture shall fill in statistical forms on
production, supply and
marketing in accordance with relevant regulations, and
file them with the
departments in charge, statistics departments and
other departments
concerned for the record.
Chapter IX Taxes
Article 69
Joint ventures shall pay taxes according to the
stipulations of relevant
laws of the People's Republic of China.
Article 70
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 71
Joint ventures shall be exempt from Customs duties and
consolidated
industrial and commercial tax on the following
imported materials:
(1) machinery, equipment, parts and other materials
(materials here and
hereinafter mean required materials for the joint
venture's construction
on the factory site and for installation and
reinforcement of machines)
which are part of the foreign joint venture's share of
investment
according to the provisions of the contract;
(2) machinery, equipment, parts and components, and
other materials
imported with funds from the joint venture's total
investment;
(3) machinery, equipment, parts and components, and
other materials
imported by the joint venture with the additional
capital and with the
approving authorities, of which China cannot guarantee
production and
supply;
(4) raw materials, auxiliary materials, components,
parts and packaging
materials imported by the joint venture for the
production of export
goods.
Duties and taxes shall be paid or paid retroactively
according to
regulations when the above-mentioned duty-tax-free
materials are approved
for sale inside China or diverted to the production of
items to be sold on
the Chinese domestic market.
Article 72
Except those export items restricted by the State,
products of a joint
venture for export shall be exempt from consolidated
industrial and
commercial tax, subject to the approval by the
Ministry of Finance of the
People's Republic of China.
A joint venture may apply for reduction of or
exemption from consolidated
industrial and commercial tax for a certain period of
time for products
that are sold on the domestic market when it has
difficulty to pay such
tax in its initial period of production.
Chapter X Foreign Exchange Control
Article 73
All matters concerning foreign exchange for joint
ventures shall be
handled according to the Interim Regulations on
Foreign Exchange Control
of the People's Republic of China and relevant
regulations.
Article 74
On the strength of the business license issued by the
State Administration
for Industry and Commerce of the People's Republic of
China, a joint
venture may open foreign exchange deposit accounts and
Renminbi deposit
accounts with the Bank of China, or any other
designated bank. The bank
handling the accounts of the joint venture shall
monitor its receipts and
expenditures.
All foreign exchange incomes of a joint venture must
be deposited in the
foreign exchange deposit account in the bank where an
account has been
opened; all payments by the joint venture in foreign
exchange are to be
effected from its foreign exchange deposit account.
The deposit interest
rate shall be set according to the announced rates by
the Bank of China.
Article 75
A joint venture shall in general maintain a balance
between its foreign
exchange receipts and expenditures. When a joint
venture whose products
are mainly sold on the domestic market under its
approved feasibility
study report and contract sustains an imbalance of its
foreign exchange
receipts and expenditures, the imbalance shall be
remedied by the people's
government of a relevant province, autonomous region
or municipality
directly under the Central Government or the
department in charge under
the State Council from their own foreign exchange
reserves. If the
imbalance defies solution through such adjustment, it
shall be solved
through inclusion into the plan after the examination
and approval by the
MOFERT in conjunction with the State Planning
Commission of the People's
Republic of China.
Article 76
A joint venture shall get permission from the State
Administration of
Foreign Exchange Control 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
Control or one of
its branches its foreign exchange receipts and
expenditures, and provide
bank statements.
Article 77
Any branch office set up by a joint venture in a
foreign country or in
Hong Kong or Macao shall open an account with the Bank
of China wherever
there is a branch of the bank. The branch office shall
submit its annual
statement of assets and liabilities and annual profit
report to the State
Administration of Foreign Exchange Control or one of
its branches through
the joint venture.
Article 78
A joint venture may apply to the Bank of China for
foreign currency loans
and Renminbi loans according to business needs and
according to the
Provisional Regulations for Providing Loans by the
Bank of China to
Chinese-Foreign Equity Joint Ventures. Interest rates
on loans to joint
ventures are as announced by the Bank of China. A
joint venture may also
borrow foreign exchange as capital from banks abroad
or in Hong Kong or
Macao, but shall file a report with the State
Administration of Foreign
Exchange Control or one of its branches for the
record.
Article 79
After foreign staff and workers or staff and workers
from Hong Kong or
Macao have paid income tax on their salaries and other
legitimate incomes
according to law, they may apply to the Bank of China
for permission to
remit out all the remaining foreign exchange after
deduction of their
living expenses in China.
Chapter XI Financial Affairs and Accounting
Article 80
The financial and accounting systems of a joint
venture shall be
instituted 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 the local
financial
departments and tax authorities for the record.
Article 81
A joint venture shall employ a chief accountant to
assist the general
manager in handling the financial affairs of the
enterprises. If
necessary, a deputy chief accountant may be appointed.
Article 82
A joint venture shall (unless it is a small venture)
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 83
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 84
The accounting of a joint venture shall adopt the
internationally used
accrual basis and debit and credit accounting system
in their work. All
vouchers, account books, statistic statements and
reports prepared by the
enterprise shall be written in Chinese, or
concurrently in a foreign
language agreed upon by the parties.
Article 85
Joint ventures shall, in principle, adopt Renminbi as
the standard
accounting currency, however, a foreign currency may
also be used as the
standard accounting currency, if so agreed upon by the
parties concerned.
Article 86
In addition to the use of a standard accounting
currency, joint ventures
shall record accounts in currencies actually used in
payments and
receipts, if such currencies in cash, bank deposits,
funds of other
currencies, assets and liabilities, gains, expenses,
etc. are inconsistent
with the standard accounting currency.
Joint ventures using a foreign currency in accounting
shall work out a
statement of accounts in Renminbi equivalents in
addition to those in the
foreign currency. Losses or gains in remittances
resulting from
differences in exchange rates shall be recorded as
current gains or losses
for the year in which they occur. No adjustments shall
be made to a
balance in a foreign currency account as the result of
a recorded
fluctuation in the exchange rate such a currency.
Article 87
Principles of profit distribution after payment of
taxes in accordance
with the Income Tax Law of the People's Republic of
China Concerning
Chinese-Foreign Equity Joint Ventures are as follows:
(1) Allocations for reserve funds, bonuses and welfare
funds for staff and
workers and expansion funds of the joint venture. The
proportion of
allocations is to be decided by the board of
directors.
(2) Reserve funds which can be used to make up for the
losses of the joint
venture, or with the consent of the examining and
approving authorities,
to increase the joint venture's capital for the
expansion of production.
(3) After the funds specified in (1) of this Article
have been deducted
and if the board of directors decides to distribute
the remaining profit,
it shall be distributed proportionately to each
party's investment.
Article 88
Profits may not be distributed before the losses of
the previous year have
been made up. Remaining profits from previous year (or
years) may be
distributed together with those of the current year.
Article 89
A joint venture shall submit quarterly and annual
fiscal reports to
parties to the joint venture, the local tax authority,
department in
charge of the joint venture and the financial
department at the same level
to those departments.
A copy of the annual fiscal report shall be submitted
to the original
examining and approving authorities.
Article 90
Only after being examined and certified by an
accountant registered in
China shall the following documents, certificates and
reports be
considered valid:
(1) certificates of investment from all the parties to
a joint venture
(lists of assessed value agreed upon and signed by the
parties to the
joint venture and relevant written agreements shall be
attached if
investment involves materials, site use rights,
industrial property and
proprietary technology);
(2) annual fiscal reports of the joint venture;
(3) fiscal reports on liquidation of the joint
venture.
Chapter XII Staff and Workers
Article 91
The employment, recruitment, dismissal and resignation
of staff and
workers of joint ventures, and their salary, welfare
benefits, labour
insurance, labour protection, labour discipline and
other matters shall be
handled according to the Regulations of the People's
Republic of China on
Labour Management in Chinese-Foreign Equity Joint
Ventures.
Article 92
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 93
The salary and bonus system of joint ventures shall be
in accord with the
principle of distribution to each according to his
work, and more pay for
more work.
Article 94
Salaries and remuneration of the general manager and
deputy general
manager(s), chief engineer, deputy chief engineer(s),
chief accountant and
deputy chief accountant, auditor and other
high-ranking managerial
personnel shall be decided upon by the board of
directors.
Chapter XIII Trade Union
Article 95
Staff and workers of a joint venture have the right to
set up grass-roots
trade unions 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 Statute of the
Trade Unions of China.
Article 96
Trade unions in joint ventures are representatives of
the interests of the
staff and workers. They have the power to sign, on
behalf of the staff and
workers, labour contracts with joint ventures and
supervise the execution
of these contracts.
Article 97
The basic tasks of the trade unions in joint ventures
are: to protect the
democratic rights and material interests of the staff
and workers
according to 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, art
and sports activities; and to educate staff and
workers to observe labour
discipline and strive to fulfil the economic tasks of
the enterprises.
Article 98
Trade union representatives have the right to attend,
without the right to
vote, meetings of the board of directors held to
discuss important issues
such as development plans, production and operational
activities of joint
ventures and to air the opinions and demands of staff
and workers.
Trade union representatives have the right to attend,
without the right to
vote, meetings of the board of directors held to
discuss and decide on
awards and penalties to staff and workers, salary and
wage system, welfare
benefits, labour protection and labour insurance, etc.
The board of
directors shall heed the opinions of the trade union
and win its co-
operation.
Article 99
A joint venture shall actively support the work of the
trade union, and,
in accordance with the stipulations of the Chinese
Trade Union Law,
provide housing and facilities for the trade union as
offices, meeting-
halls, and for organizing welfare, cultural and sports
activities. The
joint venture shall allot an amount of money totalling
2 per cent of all
the salaries of the joint venture's staff and workers
as trade union
funds, which the trade union of the joint venture
shall use according to
the relevant administration rules for trade union
funds formulated by the
All-China Federation of Trade Unions.
Chapter XIV Duration, Dissolution and Liquidation
Article 100
The duration of a joint venture shall be decided upon
through consultation
among all the parties to the joint venture according
to the actual
conditions of the particular lines of business and
projects. The duration
of a joint venture engaged in an ordinary project
shall, in principle, be
between 10 to 30 years. Duration for those engaged in
projects requiring
large amounts of investment, long construction cycles
and low profit rates
on the capital may be longer than 30 years.
Article 101
The duration of a joint venture shall be determined by
all the parties to
the joint venture in the agreement, contract and
activities of
association. The duration begins from the date when
the joint venture is
issued a business license.
When all parties to a joint venture agree to extend
the duration, the
joint venture shall file an application for extending
the duration signed
by representatives authorized by the parties with the
examining and
approving authorities 6 months before the date of
expiration of the
duration. The examining and approving authorities
shall give an official
written reply to the applicant within one month as of
the date of receipt
of the application. Upon approval of the extension of
the duration, the
joint venture concerned shall go through registration
formalities for the
alteration in accordance with the Measures of the
People's Republic of
China for the Registration Administration of
Chinese-Foreign Equity Joint
Ventures.
Article 102
A joint venture may be dissolved in the following
situations:
(1) termination of duration of the venture;
(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 fulfil its obligations
prescribed in the agreement,
contract and articles of association;
(4) inability to continue operations due to heavy
losses caused by force
majeure such as natural calamities and wars;
(5) failure to obtain the desired objectives of the
operation and no
prospects for future development;
(6) occurrence of other reasons for dissolution as
prescribed in the
contract and articles of association.
In cases described in (2), (3), (4), (5) and (6) of
this Article, the
board of directors shall make an application for
dissolution to the
examining and approving authorities for approval.
In the situation described in (3) of this Article, the
party which has
failed to fulfil its obligations prescribed in the
agreement, contract and
articles of association shall be liable for the losses
arising therefrom.
Article 103
Upon announcement of the dissolution of a joint
venture, its board of
directors shall work out procedures and principles
governing the
liquidation and nominate candidates for the
liquidation committee. It
shall report to the department in charge of the joint
venture for
examination, verification and supervision of its
liquidation.
Article 104
Members of a liquidation committee shall generally be
selected from among
the 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 invite accountants and lawyers registered
in China to do the
job. When the examining and approving authorities
deems necessary, it may
send personnel to supervise the process.
The liquidation expenses and remuneration for the
members of the
liquidation committee shall be given priority in the
disbursements from
the existing assets of the joint venture.
Article 105
The tasks of the liquidation committee are: to conduct
thorough
investigation of the property of the joint venture
concerned, its credits
and debts; to work out the statement of assets and
liabilities and an
inventory of its property; to put forward a basis on
which its 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 initiating
legal action or
responding thereto.
Article 106
A joint venture shall be liable for its debts with all
of its assets. The
remaining assets after the clearance of debts shall be
distributed among
the parties to the joint venture in proportion to each
party's investment
unless otherwise provided for in the agreement,
contract and articles of
association of the joint venture.
At the time when a joint venture is being dissolved,
the portion of its
net assets or remaining property that exceeds the
value added to its
registered capital is regarded as profit on which
income tax shall be
levied according to law. The foreign joint venturer
shall pay income tax
according to law on the portion of the net assets or
remaining property
due him that exceeds his investment when he remits it
abroad.
Article 107
On the 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
examining and approving
authorities, go through formalities for cancelling its
registration and
hand in its business license to the original
registration authorities.
Article 108
After the dissolution of a joint venture, its account
books and documents
shall be left in the custody of the former Chinese
joint venturer.
Chapter XV Settlement of Disputes
Article 109
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. If these means prove futile, the disputes
shall be subject to
arbitration or judicial settlement.
Article 110
Parties to a joint venture shall apply for arbitration
in accordance with
the relevant written agreement. They may submit the
disputes to the
Foreign Economic and Trade Arbitration Commission of
the China Council for
the Promotion of International Trade in accordance
with its arbitration
rules. With mutual consent of the parties concerned,
arbitration can also
be carried out by an arbitration agency in the country
where the
respondent is located or by one in a third country in
accordance with the
arbitration agency's rules.
Article 111
In the absence of a written agreement on arbitration
between the parties
to a joint venture, either party may bring a suit in a
Chinese people's
court.
Article 112
In the process of settling 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 113
The Chinese departments in charge of visas shall
provide facility by
simplifying procedures for staff and workers from
foreign countries or
from Hong Kong or Macao (including their family
members) who have frequent
needs of entry and exit into and out of the China.
Article 114
The departments in charge of joint ventures shall make
applications and go
through the formalities for Chinese staff and workers
going abroad for
studies, business negotiations or training.
Article 115
Staff and workers from foreign countries or from Hong
Kong or Macao
working for a joint venture may bring in needed means
of transport and
office equipment with payment of Customs duties and
consolidated
industrial and commercial taxes according to
regulations.
Article 116
Joint ventures set up in the special economic zones
shall comply with the
provisions otherwise provided, if any, in the laws and
regulations adopted
by the National People's Congress, its Standing
Committee or the State
Council.
Article 117
The power to interpret these Regulations is vested in
the Ministry of
Foreign Economic Relations and Trade.
Article 118
These Regulations shall go into force as of the date
of promulgation.
Note:
[*1] New provisions have been added to this Article.
Therefore, the
relevant provisions in the Law of the People's
Republic of China on
Chinese-Foreign Equity Joint Ventures amended on April
4, 1990 shall
prevail. - The Editor
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