Law of the People’s Republic of China on Foreign-Capital Enterprises

(Approved by the Fourth Session of the Sixth National People’s
Congress on April 12, 1986, revised in accordance with the Decision
to Revise the Foreign Capital Enterprises Law of the People’s
Republic of China made at the 18th meeting of the Standing
Committee of the Ninth National People’s Congress on October 31,
2000, promulgated by Order No.41 of the President of the People’s
Republic of China to go into effect on the day it is
promulgated)

Article 1 In order to expand economic cooperation and technical
exchanges with foreign countries and promote the development of
China’s national economy, the People’s Republic of China permits
foreign enterprises, other economic organizations and individuals
(hereinafter referred as foreign investors) to establish foreign
capital enterprises in the territory of the People’s Republic of
China and protects the lawful rights and interests of foreign
capital enterprises.

Article 2 The foreign capital enterprises mentioned in this Law
refers to enterprises established in the territory of China with
all their capital exclusively invested by foreign investors in
accordance with relevant Chinese laws, not including branches of
foreign enterprises and other economic organizations which are
located in the territory of China.

Article 3 The establishment of foreign capital enterprises must
be conducive to the development of the national economy of China.
China encourages the establishment of foreign capital enterprises
which produce to export trade or which are equipped with advanced
technology.

The industries in which the establishment of foreign capital
enterprises is forbidden or restricted are to be stipulated by the
State Council.

Article 4 The investment in China, the benefits obtained and
other lawful rights and interests of foreign investors are
protected by Chinese laws.

Foreign capital enterprises must obey the laws and regulations
of China, and shall not harm the social and public interests of
China.

Article 5 The state shall not implement nationalization or
requisition of foreign capital enterprises. Under special
circumstances, when public interest requires, enterprises with
foreign capital may be requisitioned by legal procedures and
appropriate compensation shall be made.

Article 6 The application for establishing a foreign capital
enterprise shall be approved by the department under the State
Council in charge of foreign economic relations and trade, or by
other agencies authorized by the State Council. The examination and
approval organ shall make a decision to approve or reject the
application within 90 days after receiving it.

Article 7 After the application for establishing a foreign
capital enterprise is approved, the foreign investor(s) shall apply
for registration and receive the business license with the
industrial and commercial administrative organ within 30 days after
receiving the approval certificate. The date on which the business
license is issued is the date the enterprise is established.

Article 8 Foreign capital enterprises which accord with the
regulations of Chinese laws on the qualification of legal persons
shall acquire the status of Chinese legal persons.

Article 9 Foreign capital enterprises shall invest in Chinese
territory within the time limit set by the examination and approval
organs; the industrial and commercial administrative organs have
the right to revoke the business license if no investment is made
within the time limit.

The industrial and commercial administration management organs
will check and supervise the investment data of foreign capital
enterprises.

Article 10 The liquidation or merger of foreign capital
enterprises and other important changes shall be reported to the
examination and approval organs for approval beforehand, and the
enterprises shall register any such changes with the industrial and
commercial administrative organs.

Article 11 Foreign enterprises may carry out their business
management activities in accordance with the approved articles of
association without any interference.

Article 12 When employing Chinese workers and staff, foreign
capital enterprises shall sign contracts with them and specify the
conditions of employment, dismissal, remuneration, welfare, labor
protection, labor insurance and other issues in accordance with
law.

Article 13 Employees of foreign capital enterprises may set up
trade union organizations, carry out union activities and protect
their lawful rights and interests in accordance with law.

The foreign capital enterprises shall provide necessary
conditions for the activities of trade unions in the
enterprises.

Article 14 Foreign capital enterprises must set up account books
in China, conduct independent accounting, submit financial reports
and statements in accordance with regulations and accept the
supervision of financial and taxation authorities.

If a foreign capital enterprise fails to set up an account book
in China, financial and taxation authorities have the right to
impose a fine, and the industrial and commercial administrative
organs may order it to cease operation or even revoke its business
license.

Article 15 A foreign capital enterprise may purchase the
necessary raw materials, fuels and other materials within the
approved business range in the domestic or international markets,
in accordance with the principles of being fair and reasonable.

Article 16 The various kinds of insurance coverage of foreign
capital enterprises shall be furnished by insurance organs in
China.

Article 17 Foreign capital enterprises must pay taxes and enjoy
preferential treatment such as tax reduction or exemption in
accordance with relevant regulations.

If a foreign capital enterprise invests its after-tax profits in
China, it may apply, according to state regulations, for an income
tax refund of a part of the income tax already paid on the
reinvestment amount.

Article 18 Foreign exchange transactions of foreign capital
enterprises shall be governed by state regulations on foreign
exchange control.

Foreign capital enterprises shall open accounts with the Bank of
China or other banks designated by the State Administration of
Foreign Exchange.

Article 19 The foreign investor may remit abroad profits that
are lawfully earned and other lawful earnings and any fund
remaining after the enterprise is liquidated.

The salary and other lawful income of foreign employees of
foreign capital enterprises may be remitted abroad after income tax
is paid, according to law.

Article 20 The business operation time limit of a foreign
capital enterprise shall be applied by the foreign investor and
approved by the examination and approval organ. If an extension is
needed when the time limit expires, the investor may apply to the
examination and approval organs for the extension 180 days before
the expiration of the time limit. The examination and approval
organs shall make a decision to approve or reject the application
within 30 days after receiving it.

Article 21 When terminating its operation, a foreign capital
enterprise shall promptly issue a public notice and proceed with
liquidation, in accordance with relevant legal procedures.

Before the liquidation is finished, foreign investor may not
dispose of the enterprise’s assets, except for the purpose of
carrying out the liquidation.

Article 22 When a foreign capital enterprise is to be
terminated, the enterprise shall nullify its registration with the
relevant industrial and commercial administrative organ and
surrender the business license.

Article 23 The department of economic relations and trade of the
State Council shall draw up the rules for the implementation of
this Law, which shall come into effect after being approved by the
State Council.

Article 24 This Law shall go into effect on the day it is
promulgated.

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