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(Adopted
at the second session of the Fifth National People's Congress on July 1, 1979,
and Amended in accordance with " The decision on Amendment to The Law of
the People's Republic of China on 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 permits foreign companies, enterprises, other economic entities or individuals
(hereinafter referred to as foreign parties) to incorporate themselves, within
the territory of the People's Republic of China, into equity joint ventures with
Chinese companies, enterprises or other economic entities (hereinafter referred
to as Chinese parties) on the principle of equality and mutual benefit and subject
to authorization by the Chinese Government.
Article
2
The Chinese Government protects, by the legislation in force, the investments
of foreign parties, the profits due to them and their other lawful rights and
interests in equity joint ventures, pursuant to the agreements, contracts and
article of association approved by the Chinese Government.
All
the activities of an equity joint venture shall be governed by the laws, decrees
and pertinent rules and regulations of the People's Republic of China.
The
State will not nationalize or expropriate any equity joint venture. Under special
circumstances, based on the need of the social public interests, equity joint
ventures may be expropriated under legal procedures and against appropriate compensation.
Article
3
All parties to an equity joint venture shall submit their agreements,
contracts and articles of association to the State's Competent Department of Foreign
Relations and Trade (simplified as the examination and approval authority hereinafter)
for examination and approval. The examination and approval authority shall decide
whether to approve or disapprove them within 3 months. Once approved, the equity
joint venture shall register with the concerned department of the State Administration
for Industry and Commerce, and start operation after receiving its business license.
Article
4
An equity joint venture shall take the form of a limited liability company.
In
the registered capital of an equity joint venture, the proportion of the investment
contributed by the foreign parties shall in general not be less than 25 percent.
The
profits, risks and losses of an equity joint venture shall be shared by the parties
to the venture in proportion to their contributions to the registered capital.
The
transfer of one party's share in the registered capital shall be effected only
with the consent of the other parties to the venture.
Article
5
Each party to an equity joint venture may contribute cash, capital goods,
industrial property rights, etc. as its investment in the venture.
The
technology or equipment contributed by any foreign party as investment shall be
truly advanced and appropriate to China's needs. In cases of losses caused by
deception through the intentional provision of outdated equipment or technology,
compensation shall be paid for such losses.
The
investment contributed by a Chinese party may include the right to the use of
a site provided for the equity joint venture during the period of its operation.
In case such a contribution does not constitute a part of the investment from
the Chinese party, the venture shall pay the Chinese Government a fee for its
use.
The various contributions referred to in the
present Article shall be specified in the contracts concerning the equity joint
venture or in its articles of association, and the value of each contribution
(excluding that of the site) shall be ascertained by the parties to the venture
through joint assessment.
Article 6
An
equity joint venture shall have a board of directors with a composition stipulated
in the contract and the articles of association after consultation between the
parties to the venture; each director shall be appointed and replaced by his own
side. The chairman and the vice-chairmen shall be chosen 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 or vice-chairmen. The board of directors
shall decide on important problems concerning the equity joint venture on the
principle of equality and mutual benefit.
The board
of directors is empowered to discuss and take action on, pursuant to the provisions
of the articles of association of the equity joint venture, all fundamental issues
concerning the venture, namely, expansion projects, production and business programmes,
the budget, distribution of profits, plans concerning manpower and pay scales,
the termination of business, the appointment or hiring of the president, the vice-president
(s), the chief engineer, the treasurer and the auditors as well as their functions
and powers and their remuneration, etc.
The president
and vice-president (s) (or the general manager and assistant general manager (s)
in a factory) shall be chosen from the various parties to the equity joint venture.
Procedures
concerning the employment and discharge of the workers and staff members of an
equity joint venture shall be stipulated according to law in the agreement or
contract concluded between the parties to the venture.
Article
7
The net profits of an equity joint venture shall be distributed among
the parties to the venture in proportion to their respective shares in the registered
capital after the payment of an equity joint venture income tax on its gross profit
pursuant to the tax laws of the people's Republic of China and after the deductions
therefrom as stipulated in the articles of association of the venture for the
serve funds, the bonus and welfare funds for the workers and staff members and
the expansion funds of the venture.
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
party who re-invests any part of his share of the net profit within Chinese territory
may apply for the restitution of a part of the income taxes paid.
Article
8
An equity joint venture shall, on the strength of its business licence,
open a foreign exchange account with a bank or and other financial institution
which is permitted by the State agency for foreign exchange control to handle
foreign exchange transactions.
An equity joint venture
shall conduct its foreign exchange transactions in accordance with the Foreign
Exchange Regulations of the People's Republic of China.
An
equity joint venture may, in its business operations, obtain funds from foreign
banks directly.
The insurances appropriate to an
joint venture shall be furnished by Chinese insurance companies.
Article
9
The production and business programmes of an equity joint venture shall
be filed with the authorities concerned and shall be implemented through business
contracts.
In its purchase of required raw and semi-processed
materials, fuels, auxiliary equipment, etc. , an equity joint venture shall give
first priority to Chinese sources, but may also acquire them directly from the
international market with its own foreign exchange funds.
An
equity joint venture is encouraged to market its products outside China. It may
distribute its export products on foreign markets through direct channels or its
associated agencies or China's foreign trade establishments. Its products may
also be distributed on the Chinese market.
Whenever
necessary, an equity joint venture may set up affiliated agencies outside China.
Article
10
The net profit which a foreign party receives as his share after performing
his obligations under the pertinent laws and agreements and contracts, the funds
he receives at the time when the equity joint venture terminates or winds up its
operations and his other funds may be remitted abroad in accordance with the foreign
exchange regulations and in the currency ( .ies) specified in the contracts concerning
the ventures.
A foreign party is encouraged to deposit
in the Bank of China any part of foreign exchange which he is entitled to remit
abroad.
Article 11
The wages, salaries
or other legitimate income of the foreign employees of an equity joint venture,
after payment of the personal income tax under the tax laws of the People's Republic
of China, may be remitted abroad in accordance with the foreign exchange regulations.
Article
12
The operation periods of equity joint ventures may be handled differently
according to their particular lines of business and circumstances. Equity joint
ventures engaged in a certain line of business shall specify in the contracts
their operation periods, while equity joint ventures engaged in another line of
business may choose whether or not to specify their operation periods. In the
case of an equity joint venture with its operation period specified, if the parties
to the venture agree to extend the operation period, the venture may send an application
to the examining and approval authority 6 months before the expiration of the
operation period. The examination and approval authority shall, within 1 month
of receipt of the application, decide whether to approve or disapprove it.
Article
13
If there occur heavy losses, the failure of a party to perform its
obligations under the contract and the articles of association or force majeure,
etc. , the equity joint venture may terminate the contract through consultation
and agreement by the parties, and subject to approval by the examination and approval
authority and to registration with the State's Competent Department 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 fails
to settle through consultation may be settled through conciliation or arbitration
by an arbitral body of China or through arbitration by an arbitral body agreed
upon by the parties.
Article 15
The present
law comes into force as of the date of its promulgation. The right to amendment
is vested in the National People's Congress.
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