LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON CHINESE-FOREIGN CON-TRACTUAL JOINT VENTURES
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
LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON CHINESE-FOREIGN CON-
TRACTUAL JOINT VENTURES
(Adopted at the First Session of the Seventh National People's
Congress and promulgated by Order No. 4 of the President of the People's
Republic of China on April 13, 1988, and effective as of the date of
promulgation)
Article 1
This Law is formulated to expand economic cooperation and technological
exchange with foreign countries and to promote the joint establishment, on
the principle of equality and mutual benefit, by foreign enterprises and
other economic organizations or individuals (hereinafter referred to as
the foreign party) and Chinese enterprises or other economic organizations
(hereinafter referred to as the Chinese party) of Chinese-foreign
contractual joint ventures (hereinafter referred to as contractual joint
ventures) within the territory of the People's Republic of China.
Article 2
In establishing a contractual joint venture, the Chinese and foreign
parties shall, in accordance with the provisions of this Law, prescribe in
their contractual joint venture contract such matters as the investment or
conditions for cooperation, the distribution of earnings or products, the
sharing of risks and losses, the manners of operation and management and
the ownership of the property at the time of the termination of the
contractual joint venture.
A contractual joint venture which meets the conditions for being
considered a legal person under Chinese law, shall acquire the status of a
Chinese legal person in accordance with law.
Article 3
The state shall, according to law, protect the lawful rights and interests
of the contractual joint ventures and of the Chinese and foreign parties.
A contractual joint venture must abide by Chinese laws and regulations and
must not injure the public interests of China.
The relevant state authorities shall exercise supervision over the
contractual joint ventures according to law.
Article 4
The state shall encourage the establishment of productive contractual
joint ventures that are export-oriented or technologically advanced.
Article 5
For the purpose of applying for the establishment of a contractual joint
venture, such documents as the agreement, the contract and the articles of
association signed by the Chinese and foreign parties shall be submitted
for examination and approval to the department in charge of foreign
economic relations and trade under the State Council or to the department
or local government authorized by the State Council (hereinafter referred
to as the examination and approval authority). The examination and
approval authority shall, within 45 days of receiving the application,
decide whether or not to grant approval.
Article 6
When the application for the establishment of a contractual joint venture
is approved, the parties shall, within 30 days of receiving the
certificate of approval, apply to the administrative authorities for
industry and commerce for registration and obtain a business license. The
date of issuance of the business license of a contractual joint venture
shall be the date of its establishment.
A contractual joint venture shall, within 30 days of its establishment,
carry out tax registration with the tax authorities.
Article 7
If the Chinese and foreign parties, during the period of operation of
their contractual joint venture, agree through consultation to make major
modifications to the contractual joint venture contract, they shall report
to the examination and approval authority for approval, if the
modifications include items involving statutory industry and commerce
registration or tax registration, they shall register the modifications
with the administrative authorities for industry and commerce and with the
tax authorities.
Article 8
The investment or conditions for cooperation contributed by the Chinese
and foreign parties may be provided in cash or in kind, or may include the
right to the use of land, industrial property rights, non-patent
technology or other property rights.
Article 9
The Chinese and foreign parties shall, in accordance with the provisions
of the laws and regulations and the agreements in the contractual joint
venture contract, duly fulfil their obligations of contributing full
investment and providing the conditions for cooperation. In case of
failure to do so within the prescribed time, the administrative
authorities for industry and commerce shall set another time limit for the
fulfillment of such obligations; if such obligations are still not
fulfilled by the new time limit, the matter shall be handled by the
examination and approval authority and the administrative authorities for
industry and commerce according to relevant state provisions.
The investments or conditions for cooperation provided by the Chinese and
foreign parties shall be verified by an accountant registered in China or
the relevant authorities, who shall provide a certificate after
verification.
Article 10
If a Chinese or foreign party wishes to make an assignment of all or part
of its rights and obligations prescribed in the contractual joint venture
contract, it must obtain the consent of the other party or parties and
report to the examination and approval authority for approval.
Article 11
A contractual joint venture shall conduct its operational and managerial
activities in accordance with the approved contract and articles of
association for the contractual joint venture. The right of a contractual
joint venture to make its own operational and managerial decisions shall
not be interfered with.
Article 12
A contractual joint venture shall establish a board of directors or a
joint managerial institution which shall, according to the contract or the
articles of association for the contractual joint venture, decide on the
major issues concerning the venture. If the Chinese or foreign party
assumes the chairmanship of the board of directors or the directorship of
the joint managerial institution, the other party shall assume the vice-
chairmanship of the board or the deputy directorship of the joint
managerial institution. The board of directors or the joint managerial
institution may decide on the appointment or employment of a general
manager, who shall take charge of the daily operation and management of
the contractual joint venture. The general manager shall be accountable to
the board of directors or the joint managerial institution. If a
contractual joint venture, after its establishment, chooses to entrust a
third party with its operation and management, it must obtain the
unanimous consent of the board of directors or the joint managerial
institution, report to the examination and approval authority for
approval, and register the change with the administrative authorities for
industry and commerce.
Article 13
The employment, dismissal, remuneration, welfare, labour protection and
labour insurance, etc. of the staff members and workers of a contractual
joint venture shall be specified in contracts concluded in accordance with
law.
Article 14
The staff and workers of a contractual joint venture shall, in accordance
with law, establish their trade union organization to carry out trade
union activities and protect their lawful rights and interests.
A contractual joint venture shall provide the necessary conditions for the
venture's trade union to carry out its activities.
Article 15
A contractual joint venture must establish its account books within the
territory of China, file its accounting statements according to relevant
provisions and accept supervision by the financial and tax authorities.
If a contractual joint venture, in violation of the provisions prescribed
in the preceding paragraph, does not establish its account books within
the territory of China, the financial and tax authorities may impose a
fine on it, and the administrative authorities for industry and commerce
may order it to suspend its business operations or may revoke its business
license.
Article 16
A contractual joint venture shall, by presenting its business license,
open a foreign exchange account with a bank or any other financial
institution which is permitted by the exchange control authorities of the
state to conduct transactions in foreign exchange. A contractual joint
venture shall handle its foreign exchange transactions in accordance with
the provisions of the state on foreign exchange control.
Article 17
A contractual joint venture may obtain loans from financial institutions
within the territory of China and may also obtain loans outside the
territory of China. Loans to be used by the Chinese and foreign parties
as investment or conditions for cooperation, and their guarantees, shall
be provided by each party on its own.
Article 18
The various kinds of insurance coverage of a contractual joint venture
shall be furnished by insurance institutions within the territory of
China.
Article 19
A contractual joint venture may, within its approved scope of operation,
import materials it needs and export products it produces. A contractual
joint venture may purchase, on both the domestic market and the world
market, the raw and processed materials, fuels, etc. within its approved
scope of operation.
Article 20
A contractual joint venture shall achieve on its own the balance of its
foreign exchange receipts and expenditures. If a contractual joint venture
is unable to achieve the balance of its foreign exchange receipts and
expenditures on its own, it may, in accordance with state provisions,
apply to the relevant authorities for assistance.
Article 21
A contractual joint venture shall, in accordance with state provisions on
tax, pay taxes and may enjoy the preferential treatment of tax reduction
or exemption.
Article 22
The Chinese and foreign parties shall share earnings or products,
undertake risks and losses in accordance with the agreements prescribed in
the contractual joint venture contract.
If, upon the expiration of the period of a venture's operation, all the
fixed assets of the contractual joint venture, as agreed upon by the
Chinese and foreign parties in the contractual joint venture contract, are
to belong to the Chinese party, the Chinese and foreign parties may
prescribe in the contractual joint venture contract the ways for the
foreign party to recover its investment ahead of time during the period of
the venture's operation. If the foreign party, as agreed upon in the
contractual joint venture contract, is to recover its investment prior to
the payment of income tax, it must apply to the financial and tax
authorities, which shall examine and approve the application in accordance
with state provisions concerning taxes.
If, according to the provisions of the preceding paragraph, the foreign
party is to recover its investment ahead of time during the period of the
venture's operation, the Chinese and foreign parties shall, as stipulated
by the relevant laws and agreed in the contractual joint venture contract,
be liable for the debts of the venture.
Article 23
After the foreign party has fulfilled its obligations under the law and
the contractual joint venture contract, the profits it receives as its
share, its other legitimate income and the funds it receives as its share
upon the termination of the venture, may be remitted abroad according to
law.
The wages, salaries or other legitimate income earned by the foreign staff
and workers of contractual joint ventures, after the payment of the
individual income tax according to law, may be remitted abroad.
Article 24
Upon the expiration or termination in advance of the term of a contractual
joint venture, its assets, claims and debts shall be liquidated according
to legal procedures. The Chinese and foreign parties shall, in accordance
with the agreement specified in the contractual joint venture contract,
determine the ownership of the venture's property. A contractual joint
venture shall, upon the expiration or termination in advance of its term,
cancel its registration with the administrative authorities for industry
and commerce and the tax authorities.
Article 25
The period of operation of a contractual joint venture shall be determined
through consultation by the Chinese and foreign parties and shall be
clearly specified in the contractual joint venture contract. If the
Chinese and foreign parties agree to extend the period of operation, they
shall apply to the examination and approval authority 180 days prior to
the expiration of the venture's term. The examination and approval
authority shall decide whether or not to grant approval within 30 days of
receiving the application.
Article 26
Any dispute between the Chinese and foreign parties arising from the
execution of the contract or the articles of association for a contractual
joint venture shall be settled through consultation or mediation. In case
of a dispute which the Chinese or the foreign party is unwilling to settle
through consultation or mediation, or of a dispute which they have failed
to settle through consultation or mediation, the Chinese and foreign
parties may submit it to a Chinese arbitration agency or any other
arbitration agency for arbitration in accordance with the arbitration
clause in the contractual joint venture contract or a written agreement on
arbitration concluded afterwards. The Chinese or foreign party may bring
a suit in a Chinese court, if no arbitration clause is provided in the
contractual joint venture contract and if no written agreement is
concluded afterwards.
Article 27
The detailed rules for the implementation of this Law shall be formulated
by the department in charge of foreign economic relations and trade under
the State Council and reported to the State Council for approval before
implementation.
Article 28
This Law shall come into force as of the date of its promulgation.
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