Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures

(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. 

Article 7  The workers and staff members of an equity joint
venture shall, in accordance with law, establish a trade union to
carry out trade union activities and safeguard their lawful rights
and interests.  

The equity joint venture shall provide the necessary conditions
for the trade union to conduct activities. 

Article 8  The net profit of an equity joint venture shall
be distributed among the parties to the venture in proportion to
their respective contributions to the registered capital, after
payment out of its gross profit of the equity joint venture income
tax, pursuant to the provisions of the tax laws of the People’s
Republic of China, and after deductions from the gross profit of a
reserve fund, a bonus and welfare fund for workers and staff
members and a venture expansion fund, as stipulated in the
venture’s articles of association. 

An equity joint venture may, in accordance with the provisions
of the relevant laws and administrative regulations of the State on
taxation, enjoy preferential treatment of tax reductions or
exemptions. 

A foreign joint venturer that reinvests its share of the net
profit within Chinese territory may apply for a partial refund of
the income tax already paid. 

Article 9  An equity joint venture shall, on the strength
of its business license, open a foreign exchange account with a
bank or any other financial institution which is permitted by the
State agency for foreign exchange control to handle foreign
exchange transactions. 

An equity joint venture shall handle its foreign exchange
transactions in accordance with the regulations on foreign exchange
control of the People’s Republic of China. 

An equity joint venture may, in its business operations,
directly raise funds from foreign banks. 

The various kinds of insurance coverage of an equity joint
venture shall be furnished by insurance companies established
within the territory of China. 

Article 10  An equity joint venture may, in adherence to
the principles of fairness and rationality, purchase on both the
Chinese and the world market the raw and semi-processed materials,
fuels and other materials it needs within the approved scope of
operation. 

An equity joint venture shall be encouraged to market its
products outside China. It may sell its export products on foreign
markets directly or through associated agencies or China’s foreign
trade agencies. Its products may also be sold on the Chinese
market. 

When necessary, an equity joint venture may set up branches and
subbranches outside China. 

Article 11  The net profit which a foreign joint venturer
receives as its share after performing its obligations under the
laws, and the agreements or the contract, the funds it receives
upon the expiration of the venture’s term of operation or the
suspension thereof, and its other funds may be remitted abroad in
accordance with foreign exchange control regulations and in the
currency or currencies specified in the contract concerning the
equity joint venture. 

A foreign joint venturer shall be encouraged to deposit in the
Bank of China the foreign exchange which it is entitled to remit
abroad. 

Article 12  The wages, salaries or other legitimate income
earned by a foreign worker or staff member of an equity joint
venture, after payment of the individual income tax under the tax
laws of the People’s Republic of China, may be remitted abroad in
accordance with foreign exchange control regulations. 

Article 13  Based on different lines of trade and different
circumstances, arrangements for the duration of equity joint
ventures may be made differently through agreement by the parties
to the venture. Equity joint ventures engaged in certain lines of
trade shall specify their duration in the contracts, while equity
joint ventures engaged in certain other lines of trade may choose
to or not to specify their duration in the contracts. Where an
equity joint venture has had its duration specified and the parties
to the venture agree to extend the duration, the venture shall file
an application for the purpose with the examination and approval
authorities six months before its expiration. The examination and
approval authorities shall, within one month after receipt of the
application, decide on its approval or disapproval. 

Article 14  In case of heavy losses, or failure of a party
to perform its obligations under the contract and the articles of
association, or force majeure, etc., the parties to the joint
venture may, subject to their agreement through consultation,
approval of their report by the examination and approval
authorities and registration with the State’s competent department
in charge of industry and commerce administration, terminate the
contract. In case of losses caused by a breach of contract, the
party that has breached the contract shall bear the economic
responsibilities. 

Article 15  Disputes arising between the parties to an
equity joint venture which the board of directors has failed to
settle through consultation may be settled through conciliation or
arbitration by an arbitration agency of China or through
arbitration by another arbitration agency agreed upon by the
parties. 

Where the parties to an equity joint venture fail to stipulate
an arbitration clause in the contract or does not reach a written
arbitration agreement afterwards, they may bring a lawsuit to the
People’s Court. 

Article 16  This Law shall go into effect as of the date of
promulgation.

(Legislative Affairs Commission of the Standing Committee of the
National People’s Congress)