LAWS, RULES AND REGULATIONS FOR FOREIGN INVESTMENTS IN CHINA
Foreign Investors in Hong Kong
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Foreign Investors in China
The Wholly Owned
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Law of the People's Republic of China on Chinese-Foreign Equity
Joint Ventures (Adopted on July 1, 1979 at the Second Session of the Fifth
National People's Congress, and amended by by the 4th Session of the
Standing Committee of the 9th National People's Congress on March
15,2000)
Article 1. The People's Republic of China, in order to expand
international economic cooperation and technological exchange,
permits foreign companies, enterprises and other economic
organizations or individuals (hereinafter referred to as the
"foreign party") to jointly establish and operate equity joint
ventures within the territory of the People's Republic of China with
Chinese companies, enterprises or other economic organizations
(hereinafter referred to as the "Chinese party") based on the
principle of equality and mutual benefit, and upon the approval of
the Chinese Government.
Article 2. The Chinese Government shall protect in accordance with
the law the investments of the foreign party, the profits due to it
and its other lawful rights and interests in an equity joint venture
under the agreement, contract and articles of association approved
by the Chinese Government.
All the activities of an equity joint venture shall comply with the
provisions of the laws and regulations of the People's Republic of
China.
The state will not nationalize or expropriate equity joint ventures;
under special circumstances, based on the requirements of social and
public interests, equity joint ventures may be expropriated in
accordance with legal procedures, and corresponding compensation
shall be provided.
Article 3. The agreement, contract and articles of association of an
equity joint venture signed by the parties to the venture shall be
submitted to the state department in charge of foreign economic
relations and trade (hereinafter referred to as "the examination and
approval authority") for examination and approval. The examination
and approval authority shall decide within three months to approve
or disapprove. After an equity joint venture has been approved, it
shall register with the state department in charge of administration
of industry and commerce, obtain its business licence, and commence
business operations.
Article 4. The form of an equity joint venture shall be a limited
liability company.
The proportion of the foreign party's contribution to the registered
capital of an equity joint venture shall in general not be less than
25 percent.
The parties to the venture shall share profits and bear risks and
losses in proportion to their respective contributions to the
registered capital.
The transfer of a party's contribution to the registered capital
must be agreed upon by each party to the venture.
Article 5. The parties to an equity joint venture may make their
investments in cash, in kind, in industrial property rights, etc.
The technology and equipment contributed by a foreign party as its
investment must be advanced technology and equipment which is truly
suited to the needs of China. In case of losses caused by deception
through the intentional provision of outdated technology and
equipment, compensation shall be paid for such losses.
The investment of a Chinese party may include providing the right to
use a site during the term of operation of the equity joint venture.
If the right to use a site is not a part of the investment by a
Chinese party, the venture shall pay the Chinese Government a fee
for its use.
The various investments mentioned above shall be specified in the
contract and articles of association of the equity joint venture,
and the value of each contribution (except for the site) shall be
appraised and determined through discussions between the parties to
the venture.
Article 6. An equity joint venture shall establish a board of
directors with a size and composition stipulated in the contract and
the articles of association after consultation between the parties
to the venture; and each party to the venture shall appoint and
replace its own director(s). The chairman and the vice-chairman of
the board shall be determined through consultation between the
parties to the venture or elected by the board. Where a director
appointed by the Chinese party or the foreign party serves as
chairman, a director appointed by the other party shall serve as
vice-chairman. The board of directors shall decide important issues
concerning the equity joint venture based on the principle of
equality and mutual benefit.
The function and powers of the board of directors shall be to
discuss and decide, pursuant to the provisions of the articles of
association of the equity joint venture, all important issues
concerning the venture, namely: the development plan of the
enterprise, production and business programs, the budget,
distribution of profits, plans concerning labor and wages, the
termination of business, and the appointment or hiring of the
general manager, the deputy general manager(s), the chief engineer,
the chief accountant and the auditor, as well as their functions and
powers and their remuneration, etc.
The positions of general manager and deputy general manager(s) (or
the factory manager and deputy factory manager(s)) shall be assumed
by nominees of the respective parties to the venture.
The employment, dismissal, remuneration, welfare, labor protection
and insurance of the employees of an equity joint venture shall be
stipulated according to laws in the agreement or contract between
employees and the venture.
Article 7. Employees of an equity joint venture, in accordance with
laws to set up labor union to protect employees' lawful rights by
conducting union's activities.
An equity joint venture shall provide the labor union with necessary
conditions.
Article 8. From the gross profit earned by an equity joint venture,
after payment of the venture's income tax in accordance with the
provisions of the tax laws of the People's Republic of China,
deductions shall be made for the reserve fund, the bonus and welfare
fund for staff and workers, and the enterprise development fund as
stipulated in the articles of association of the venture and the net
profit shall be distributed to the parties to the venture in
proportion to their respective contributions to the registered
capital.
An equity joint venture may enjoy preferential treatment in the form
of tax reductions and exemptions in accordance with provisions of
state laws and administrative regulations relating to taxation.
When a foreign party uses its share of the net profit as
reinvestment within the territory of China, it may apply for a
refund of part of the income tax already paid.
Article 9. An equity joint venture shall, on the basis of its
business license, open a foreign exchange account with a bank or
another financial institution which is permitted by the state
foreign exchange control authority to engage in foreign exchange
business.
Matters concerning the foreign exchange of an equity joint venture
shall be handled in conformity with the foreign exchange control
regulations of the People's Republic of China.
An equity joint venture may, in the course of its business
activities, raise funds directly from foreign banks.
The various items of insurance of an equity joint venture shall be
obtained from insurance companies in the territories of China.
Article 10. For the raw and processed materials, fuel, auxiliary
equipment, etc. needed by an equity joint venture in the approved
business scope thereof, shall be purchased in China or on the
international market pursuant to the principle of fairness.
An equity joint venture shall be encouraged to sell its products
outside the territory of China. Export products may be sold on
foreign markets by an equity joint venture directly or by entrusted
institutions related to it, and they may also be sold through
China's foreign trade institutions. The products of an equity joint
venture may also be sold on the Chinese market.
When necessary, an equity joint venture may set up branch
institutions outside China.
Article 11. The net profit received by a foreign party after
fulfilment of its obligations at law and under the provisions of
agreements and contracts, the funds received by it upon the
expiration or termination of an equity joint venture as well as
other funds may be remitted abroad in accordance with foreign
exchange control regulations in the currency stipulated in the joint
venture contract.
The foreign party shall be encouraged to deposit in the Bank of
China the foreign exchange which may be remitted abroad.
Article 12.The wage income and other legitimate income of foreign
staff and workers of an equity joint venture may be remitted abroad
in accordance with foreign exchange control regulations after
payment of individual income tax under the tax laws of the People's
Republic of China.
Article 13.The term of operation of equity joint ventures may be
agreed upon differently according to different lines of business and
different circumstances. The term of operation of equity joint
ventures engaged in some lines of business shall be fixed while the
term of operation of equity joint ventures engaged in other lines of
business may or may not be fixed. Where the parties to an equity
joint venture with a fixed term of operation agree to extend the
term of operation, they shall submit an application to the
examination and approval authority not later than six months prior
to the expiration of the operation term. The examination and
approval authority shall decide, within one month of receipt of the
application, to approve or disapprove.
Article 14.If serious losses are incurred by an equity joint
venture, or one party fails to fulfil its obligations under the
contract and the articles of association, or an event of force
majeure occurs, etc., the contract may be terminated after
consultation and agreement between the parties to the venture,
subject to approval by the examination and approval authority and to
registration with the state department in charge of administration
of industry and commerce. In case of losses caused by breach of
contract, economic responsibility shall be borne by the breaching
party.
Article 15.When a dispute arises between the parties to a venture
and the board of directors is unable to resolve it through
consultation, the dispute shall be settled through conciliation or
arbitration conducted by an arbitral institution of China, or
through arbitration by another arbitral institution agreed upon by
the parties to the venture.
The partied to an joint venture may submit the disputes to the
People's court, if the parties neither stipulated any arbitrations
clause in the joint venture contract nor reach such written
arbitration clause after the occurrence of disputes.
Article 16.This law shall come into force on the date of its
promulgation.
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Room 1106, Futura Plaza, 111 How Ming Street, Kwun Tong, Hong Kong
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