Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures
2009-November-24 Source: China.org.cn
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(Adopted at the Second Session of the Fifth National People's Congress on July 1, 1979 and promulgated by Order No.7 of the Chairman of the Standing Committee of the National People's Congress on July 8, 1979; amended according to the Decision on Amending the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures made at the Third Session of the Seventh National People's Congress on April 4, 1990, and amended for the second time according to the Decision on Amendment to the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures adopted at the Fourth Session of the Ninth National People's Congress on March 15, 2001)

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 organizations or individuals (hereinafter referred to as "foreign joint venturers") to establish equity joint ventures together with Chinese companies, enterprises or other economic organizations(hereinafter referred to as "Chinese joint venturers") within the territory of the People's Republic of China, on the principle of equality and mutual benefit, and subject to approval by the Chinese Government.

Article 2 The Chinese Government protects, according to law, the investment of foreign joint ventures, the profits due them and their other lawful rights and interests in an equity joint venture, pursuant to the agreement, contract and articles of association approved by the Chinese Government.

In its activities, an equity joint venture shall comply with the provisions of the laws and regulations of the People's Republic of China.

The State shall not nationalize or requisition any equity joint venture. Under special circumstances, when public interests require, equity joint ventures may be requisitioned by following legal procedures and appropriate compensation shall be made.

Article 3 The equity joint venture agreement, contract and articles of association signed by the parties to the venture shall be submitted to the State's competent department in charge of foreign economic relations and trade (hereinafter referred to as the examination and approval authorities) for examination and approval. The examination and approval authorities shall decide to approve or disapprove the venture within three months. When approved, the equity joint venture shall register with the State's competent department in charge of industry and commerce administration, acquire a business license and start operations.

Article 4 An equity joint venture shall take the form of a limited liability company.

The proportion of the foreign joint venturer's investment in an equity joint venture shall be, in general, not less than 25 percent of its registered capital.

The parties to the venture shall share the profits, risks and losses in proportion to their contributions to the registered capital.

If any of the joint venturers wishes to assign its registered capital, it must obtain the consent of the other parties to the venture.

Article 5 The parties to an equity joint venture may make their investment in cash, in kind or in industrial property rights, etc.

The technology and equipment contributed by a foreign joint venturer as its investment must be really advanced technology and equipment that suit China's needs. In case of losses caused by a foreign joint venturer in its practising deception through the intentional provision of outdated technology and equipment, it shall compensate for the losses.

A Chinese joint venturer's investment may include the right to the use of a site provided for the equity joint venture during the period of its operation. If the right to the use of the site is not taken as a part of the Chinese joint venturer's investment, the equity joint venture shall pay the Chinese Government for its use.

The above-mentioned investments shall be specified in the contract and articles of association of the equity joint venture, and their value (excluding that of the site) shall be assessed by all parties to the venture.

Article 6 An equity joint venture shall have a board of directors; the number of the directors thereof from each party and the composition of the board shall be stipulated in the contract and articles of association after consultation among the parties to the venture; such directors shall be appointed and replaced by the relevant parties. The chairman and the vice-chairman(vice-chairmen) shall be determined 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 (vice-chairmen). The board of directors shall decide on important issues concerning the joint venture on the principle of equality and mutual benefit.

The functions and powers of the board of directors are, as stipulated in the articles of association of the equity joint venture, to discuss and decide all major issues concerning the venture, namely, the venture's development plans, proposals for production and business operations, the budget for revenues and expenditures, the distribution of profits, the plans concerning manpower and wages, the termination of business, and the appointment or employment of the general manager, the vice-general manager(s), the chief engineer, the treasurer and the auditors, as well as the determination of their functions, powers and terms of employment, etc.

The offices of general manager and vice-general manager(s) (or factory manager and deputy manager(s)) shall be assumed by the respective parties to the venture.

The employment, discharge, remuneration, welfare benefits, occupational protection, labor insurance and other matters of the workers and staff members of an equity joint venture shall be stipulated in accordance with law in the contract concluded by the parties.

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Editor: Miranda
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