(Promulgated by the State Council on September 20, 1983 and amended by the State Council on January 15, 1986 and on December 21, 1987)
Chapter 1. General Provisions
Article 1. These Regulations are specially formulated in order to facilitate the smooth implementation of the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures (hereinafter referred to as the Law on Chinese-Foreign Equity Joint Ventures).
Article 2. Chinese-foreign equity joint ventures (hereinafter referred to as joint ventures) established in China in accordance with the Law on Chinese-Foreign Equity Joint Ventures are Chinese legal persons and are subject to the jurisdiction and receive the protection of Chinese law.
Article 3. Joint ventures established in China shall be able to promote the development of China's economy and the raising of scientific and technical levels, benefitting socialist modernization and construction. The main industries in which it is permitted to establish joint ventures are:
1. energy development, the building materials industry, the chemical industry and the metallurgical industry;
2. the machine manufacturing industry, the instruments and meters industry and the offshore petroleum exploitation equipment manufacturing industry;
3. the electronics industry, the computer industry, and the communications equipment manufacturing industry;
4. light industry, the textile industry, the foodstuffs industry, the medicine and medical apparatus industry, and the packaging industry;
5. agriculture, animal husbandry and aquaculture; and
6. the tourist and service industries.
Article 4. Joint ventures for which establishment is applied shall put stress on economic results and shall meet one or several of the following requirements:
1. they shall adopt advanced technical equipment and scientific management methods, enabling them to increase the variety of products, raise the quality and quantity of products, and conserve energy and materials;
2. they shall be of benefit to the technical reform of enterprises, enabling them to achieve quickly apparent results and large returns with small investment;
3. they shall be able to expand the export of products, increasing foreign exchange income; or
4. they shall be able to train technical personnel and managerial personnel.
Article 5. Joint ventures for which establishment is applied are not to be approved if one of the following circumstances is involved:
1. detriment to China's sovereignty;
2. violation of Chinese law;
3. nonconformity with the requirements of the development of China's national economy;
4. causing of environmental pollution; or
5. the agreement, contract or articles of association signed are obviously unfair, harming the rights and interests of one joint venture party.
Article 6. Unless there are other stipulations, the government department in charge of the Chinese joint venture party is to be the department in charge of the joint venture (hereinafter referred to as the department in charge of the enterprise). When a joint venture has two or more Chinese joint venture parties and these are under different departments or regions, the relevant departments or regions shall have discussions and determine one department in charge of the enterprise.
The department in charge of the enterprise is responsible for guidance of, assistance to and supervision over the joint venture.
Article 7. Joint ventures have the right to conduct operations and management autonomously within the scope of the stipulations of Chinese laws and regulations and of joint venture agreements, contracts and articles of associations. The various relevant departments shall provide support and assistance.
Chapter 2. Establishment and Registration
Article 8. The establishment of joint ventures in China must be examined and approved by the Ministry of Foreign Economic Relations and Trade of the People's Republic of China (hereinafter referred to as the Ministry of Foreign Economic Relations and Trade*). The Ministry of Foreign Economic Relations and Trade is to issue a certificate of approval after approval.
In any cases where the following conditions exist, the Ministry of Foreign Economic Relations and Trade must entrust the People's Government of the relevant province, autonomous region, or directly-administered municipality or the relevant ministry or bureau of the State Council (hereinafter referred to as the entrusted organs) with examination and approval:
1. the total amount of investment is within the sum stipulated by the State Council and the source of capital of the Chinese joint venture party has already been ascertained; or
2. the additional allocation of raw materials by the state is not required and the national balance in such areas as fuel, power, transportation and foreign trade export quotas is not affected.
The entrusted organ, after approving the establishment of a joint venture, shall report to the Ministry of Foreign Economic Relations and Trade for the record, and the certificate of approval is to be issued by the Ministry of Foreign Economic Relations and Trade.
(The Ministry of Foreign Economic Relations and Trade and the entrusted organs are hereinafter collectively referred to as the examination and approval authorities.)
Article 9. The establishment of joint ventures is to be handled in accordance with the following procedures:
1. The Chinese joint venture party is to submit to its department in charge a project proposal on the intended establishment of a joint venture with a foreign joint venture party and a preliminary feasibility study report. Only after the said proposal and preliminary feasibility study report have been examined and agreed to by the department in charge and passed on to the examination and approval authority and approved, can the joint venture parties conduct various work centered on a feasibility study, and, on this basis, discuss and sign the joint venture agreement, contract and articles of association.
2. When applying for the establishment of a joint venture, the Chinese joint venture party is to be responsible for the delivery of the following official documents to the examination and approval authority:
i. application for the establishment of a joint venture;
ii. the feasibility study report jointly prepared by the joint venture parties;
iii. the joint venture agreement, contract and articles of association signed by authorized representatives of the joint venture parties;
iv. the list of persons appointed by the joint venture parties as chairman, vice-chairman and directors of the joint venture; and
v. signed opinions of the department in charge of the Chinese joint venture party and the People's Government of the province, autonomous region or directly-administered municipality where the joint venture is located with regard to the establishment of the joint venture in question.
The above documents must be written in the Chinese language. The documents in (ii), (iii) and (iv) may be written concurrently in a foreign language decided on by the joint venture parties. The documents written in both languages are to have equal validity.
Article 10. The examination and approval authority shall, within three months of the date of receipt of all the documents stipulated in Article 9(2) of these Regulations, decide whether or not to approve them. If the examination and approval authority discovers that there are improper points in the above documents, it shall demand amendment within a limited time, failing which it is not to grant approval.
Article 11. Applicants shall, within one month after receipt of the certificate of approval, undertake registration procedures with the bureau of administration for industry and commerce of the province, autonomous region or directly-administered municipality where the joint venture is located (hereinafter referred to as the registration control organ) on the strength of the certificate of approval, in accordance with the stipulations of the Measures of the People's Republic of China for the Control of Registration of Chinese-Foreign Equity Joint Ventures. The date of issue of the business license of a joint venture is the date of establishment of the said joint venture.
Article 12. A foreign investor interested in establishing a joint venture in China but having no specific cooperating partner on the Chinese side may submit a preliminary plan for the joint venture project and entrust the China International Trust and Investment Corporation or the trust and investment organ of the relevant province, autonomous region or directly-administered municipality and relevant government department or people's organizations with the introduction of a cooperating partner.
Article 13. The joint venture agreement mentioned in this Chapter refers to a document concluded by the joint venture parties upon arrival at identical opinions on certain main points and principles regarding the establishment of a joint venture.
The joint venture contract refers to a document concluded by the joint venture parties upon arrival at identical opinions on the rights and obligations relationship for the establishment of a joint venture.
The joint venture articles of association refers to a document that, in accordance with the principles stipulated in the joint venture contract and upon full agreement by the joint venture parties, stipulates such items as the purpose, organizational principles and operational and managerial methods of the joint venture.
If there is conflict between the joint venture agreement and the joint venture contract, the joint venture contract is to govern.
Upon agreement by the joint venture parties, they may also conclude only a joint venture contract and articles of association and not conclude a joint venture agreement.
Article 14. Joint venture contracts shall include the following main contents:
1. the names, countries of registration and legal addresses of joint venture parties, and the names, positions and nationalities of their legal representatives;
2. the name, legal address, purpose and scope and scale of operations of the joint venture;
3. the total amount of investment and the registered capital of the joint venture, the amounts of capital contribution by the joint venture parties, the ratio of capital contributions, the forms of capital contribution, the time limit for paying in capital contributions, and stipulations on shortfalls in paying in and assignment of amounts of capital contribution;
4. the ratio of distribution of profits to and bearing of losses by the joint venture parties;
5. the composition of the board of directors of the joint venture, the distribution of the numbers of directors, and the responsibilities, limits of authority and method of employment of the general manager, deputy general managers and other high-level management personnel;
6. the main production equipment and production technology to be adopted and their sources;
7. the means of purchase of raw materials and of sale of products, and the ratio of products to be sold inside and outside of China;
8. arrangements for receipts and disbursements of foreign exchange funds;
9. principles for the handling of finance, accounting and auditing;
10. stipulations regarding such matters as labor management, wages, welfare, and labor insurance;
11. the term, dissolution, and the liquidation procedures of the joint venture;
12. responsibilities for violation of the contract;
13. means and procedures for the resolution of disputes between the joint venture parties; and
14. the language adopted for the contract text and the conditions for effectiveness of the contract.
Appendices to joint venture contracts are to have equal validity with the joint venture contract.
Article 15. The conclusion, validity, interpretation, and implementation of joint venture contracts and the resolution of disputes thereunder shall all be governed by Chinese law.
Article 16. Joint venture articles of associations shall include the following main contents:
1. the name and legal address of the joint venture;
2. the joint venture's purpose, business scope and term;
3. the names, countries of registration and legal addresses of the joint venture parties, and the names, positions and nationalities of their legal representatives;
4. the total amount of investment and the registered capital of the joint venture, the amounts of capital contribution by the joint venture parties, the ratio of capital contributions, stipulations on the assignment of amounts of capital contribution, the ratio of distribution of profits to and bearing of losses by the joint venture parties;
5. the composition, authority and rules of procedure of the board of directors, the terms of office of the directors, and the responsibilities of the chairman of the board of directors and vice-chairman of the board of directors;
6. the setting up of management organs, administrative rules, the responsibilities and method of appointment and dismissal of the general manager, deputy general managers and other high-level managerial personnel;
7. principles of the finance, accounting and auditing systems;
8. dissolution and liquidation; and
9. procedures for amendment of the articles of association.
Article 17. Joint venture agreements, contracts and articles of associations are to take effect after approval by the examination and approval authorities. The same applies in the event of amendments.
Article 18. The examination and approval authorities and the registration control organs are responsible for supervising and inspecting the implementation of joint venture contracts and articles of association.
Chapter 3. Form of Organization and Registered Capital
Article 19. Joint ventures are limited liability companies.
The liability of joint venture parties to a joint venture is limited to the amounts of capital contribution subscribed by each.
Article 20. The total amount of investment of a joint venture (including loans) refers to the total of the basic construction funds and production circulating funds needed to be injected in accordance with the scale of production stipulated in the joint venture contract and articles of association.
Article 21. The registered capital of a joint venture refers to the total amount of capital registered at the registered and control organ for the establishment of the joint venture, and shall be the total of the amounts of capital contribution subscribed by the joint venture parties.
The registered capital of joint ventures shall generally be expressed in Renminbi. It may also be expressed in a foreign currency agreed upon by the joint venture parties.
Article 22. Joint ventures must not reduce their registered capital during their terms.
Article 23. When one joint venture party is to assign all or part of its amount of capital contribution to a third party, it must have the agreement of the other joint venture party, and the approval of the examination and approval authority.
When one joint venture party is to assign all or part of its amount of capital contribution, the other joint venture party has a preemptive right of purchase.
The conditions under which one joint venture party assigns its amount of capital contribution to a third party must not be more preferential than the conditions for assignment to the other joint venture party.
Assignments in violation of the above stipulations are invalid.
Article 24. The increase, assignment or disposition by other means of the registered capital of joint ventures shall be passed by a meeting of the board of directors and reported to the original examination and approval organ for approval. Alteration of registration procedures are to be undertaken at the original registration control organ.
Chapter 4. Forms of Capital Contribution
Article 25. Joint venture parties may use currency for capital contributions or may also use such items as buildings, factories, machinery, equipment or other materials, industrial property rights, proprietary technology, and rights to the use of sites, as valued, for capital contributions. In cases where buildings, factories, machinery, equipment or other materials, industrial property rights or proprietary technology are used as capital contributions, their valuation is to be discussed and determined by the joint venture parties in accordance with the principles of fairness and reasonableness, or a third party agreed upon by the joint venture parties is to be retained to make an assessment.
Article 26. Foreign currency contributed by foreign joint venture parties as a capital contribution is to be converted into Renminbi in accordance with the posted exchange rate announced by the State Administration of Foreign Exchange Control of the People's Republic of China (hereinafter referred to as the State Administration of Foreign Exchange Control) on the day of its payment or is to be cross converted into the agreed foreign currency.
If it is required to convert the Renminbi cash contributed by Chinese joint venture parties as a capital contribution into foreign currency, it is to be converted in accordance with the posted exchange rate announced by the State Administration of Foreign Exchange Control on the day of the payment.
Article 27. The machinery, equipment or other materials contributed by foreign joint venture parties as capital contributions must meet all the following conditions:
1. they must be indispensable to the joint venture's production;
2. they must be items that China cannot produce, or, although China can produce them, the prices are overly high or the items are unable to guarantee the meeting of requirements with respect to technical function and time of supply; and
3. the valuation must not be higher than the current international market price for similar machinery, equipment or other materials.
Article 28. The industrial property rights or proprietary technology contributed by foreign joint venture parties as capital contributions must meet one of the following conditions:
1. they must enable the production of new products that China urgently needs or products suitable for export;
2. they must enable the making of marked improvements in the function and quality of existing products and the raising of productivity; or
3. they must enable marked conservation of raw materials, fuel or power.
Article 29. Foreign joint venture parties who contribute industrial property rights or proprietary technology as capital contributions shall present relevant documentation on the said industrial property rights or proprietary technology, including such relevant documents as photocopies of the patent certificates or trademark registration certificates, documents indicating the state of validity, technical characteristics, practical value, the basis for calculating the valuation and the valuation agreement signed with the Chinese joint venture party, with these documents to serve as appendices to the joint venture contract.
Article 30. Machinery, equipment or other materials, industrial property rights or proprietary technology contributed by foreign joint venture parties as capital contributions shall be examined and agreed to by the department in charge of the Chinese joint venture party and submitted to the examination and approval organ for approval.
Article 31. Joint venture parties shall pay in the amounts of their respective capital contributions in full in accordance with the time limit stipulated in the contract. In cases of overdue payment or incomplete payment, interest for the delay or compensation for losses shall be paid in accordance with the stipulations of the contract.
Article 32. After the joint venture parties have paid in the amounts of their capital contributions, these shall be verified by a Chinese registered accountant, who is to issue a report of verification of capital, on the basis of which the joint venture is afterward to issue certificates of capital contribution. Certificates of capital contribution are to state the following items: the name of the joint venture, the day, month and year of the establishment of the joint venture, the names of the joint venturing entities or individuals, the amounts of their capital contributions and the day, month and year of the capital contributions, and the day, month and year of issuance of the certificates of capital contribution.
Chapter 5. Board of directors and Management Organs
Article 33. The board of directors is the highest organ of authority of a joint venture. It decides all major questions of the joint venture.
Article 34. The board of directors must have no fewer than three members. The distribution of the numbers of directors is to be determined by discussion between the joint venture parties by reference to the ratio of capital contributions.
The directors are to be appointed by the joint venture parties. The chairman of the board of directors is to be appointed by the Chinese joint venture party and the vice-chairman of the board of directors is to be appointed by the foreign joint venture party.
The term of office for directors is four years; they may have their terms consecutively renewed through reappointment by the joint venture parties.
Article 35. A board of directors meeting is to be convened at least once each year. The chairman of the board of directors is to be responsible for calling and presiding over the meeting. When the chairman of the board of directors is unable to call the meeting, he is to entrust the vice-chairman of the board of directors or other director to call and preside over the board of directors meeting. The chairman of the board of directors may convene an interim board of directors meeting upon proposal by more than one-third of the directors.
A board of directors meeting shall only be held if over two-thirds of the directors are in attendance. When a director is unable to attend, he may issue a proxy entrusting another to represent him in attendance and vote for him.
Board of directors meetings shall generally be held at the location of the joint venture's legal address.
Article 36. Resolutions on the following items may be made only after being unanimously passed by the directors in attendance at a board meeting:
1. amendment of the joint venture articles of association;
2. termination and dissolution of the joint venture;
3. increase or assignment of the registered capital of the joint venture; or
4. merger of the joint venture with another economic organization.
Resolutions on other items may be made according to the rules of procedure stated in the joint venture articles of association.
Article 37. The chairman of the board of directors is the legal representative of a joint venture. When the chairman of the board of directors is unable to perform his responsibilities, he shall authorize the vice-chairman of the board of directors or other director to represent the joint venture.
Article 38. Joint ventures are to establish management organs, to be responsible for daily operational and managerial work of the joint venture. Management organs are to have a general manager and several deputy general managers. The deputy managers assist the general manager in his work.
Article 39. The general manager carries out the various resolutions of board of directors meetings and organizes and leads the daily operational and managerial work of a joint venture. The general manager, within the scope of authorization of the board of directors, is to represent the joint venture in external affairs and, internally, to appoint and dismiss subordinate personnel and exercise other responsibilities as authorized by the board of directors.
Article 40. The general manager and deputy general managers are to be retained by the board of directors of a joint venture. These positions may be held by Chinese citizens and may also be held by foreign citizens.
The chairman of the board of directors, the vice-chairman of the board of directors and the directors may be retained by the board of directors to act concurrently in the capacity of general manager, deputy general managers or other high-level managerial positions of a joint venture.
In handling major questions, the general manager shall discuss them with the deputy general managers.
The general manager or the deputy general managers must not concurrently act as general manager or deputy general managers of other economic organizations, and must not participate in commercial competition of other economic organizations with their own joint venture.
Article 41. In the case of engagement in malpractice for private gain or serious dereliction of duty on the part of the general manager, deputy general managers or other high-level managerial personnel, they may be dismissed at any time by resolution of the board of directors.
Article 42. When joint ventures need to establish branch organs (including sales organs) abroad or in the Hong Kong and Macao regions, they must report the matter to the Ministry of Foreign Economic Relations and Trade for approval.
Chapter 6. Importation of Technology
Article 43. The importation of technology mentioned in this chapter refers to a joint venture's acquisition of needed technology by means of technology transfer from a third party or a joint venture party.
Article 44. Technology imported by joint ventures shall be appropriate and advanced, enabling the resulting products to display marked social and economic results domestically or to have competitive capacity on the international market.
Article 45. In concluding technology transfer agreements, the rights of joint ventures to conduct operations and management independently must be maintained, and the technology exporter is to be required to provide relevant materials by reference to the stipulations of Article 29 of these Regulations.
Article 46. Technology transfer agreements concluded by joint ventures shall be examined and agreed to by the department in charge of the enterprise and reported to the examination and approval authority for approval.
Technology transfer agreements must meet the following stipulations:
1. the fees for the use of technology shall be fair and reasonable. Royalties shall generally be adopted as the form of payment. When royalties are adopted as the form of payment of fees for the use of technology, the royalty rate must not be higher than the common international level. Royalty rates shall be calculated on basis of the net sales amount of the products produced with the technology in question or other reasonable means agreed upon by the parties;
2. unless otherwise agreed upon by both parties, the technology exporter must not restrict the regions, quantities, and prices of the technology importer's export of the resulting products;
3. the term of technology transfer agreements is generally not to exceed ten years;
4. after the expiration of technology transfer agreements, the technology importer is to have the right to continue to use the technology in question;
5. the terms for mutual exchange of improvements in the technology shall be reciprocal for the parties concluding technology transfer agreements;
6. the technology importer is to have the right to purchase needed equipment, parts and raw materials from sources it considers suitable;
7. no unreasonable restrictive clauses prohibited by Chinese law and regulations must be included.
Chapter 7. Right to the Use of Sites and the Fees Therefor
Article 47. In using sites, joint ventures must implement the principle of conservation in the use of land. Joint ventures shall submit applications for their required sites to the municipal (county) level department in charge of land in the location of the joint venture and, after approval, obtain the right to use of a site by signing a contract. The contract shall state such items as the area, location, and use to be made of the site, the contract term and fee for the right to use of the site (hereinafter referred to as site use fee), the rights and obligations of the parties, and penalty provisions for violation of the contract.
Article 48. If a Chinese joint venture party already possesses the right to the use of the site required by the joint venture, the Chinese joint venture party may use it as a capital contribution to the joint venture. The amount of its valuation shall be equivalent to the use fee to be paid for obtaining the right to the use of a similar site.
Article 49. The standards for site use fees shall be stipulated by the People's Government of the province, autonomous region or directly-administered municipality where a site is located according to such factors as the use to be made of the site in question, geographic and environmental conditions, expenses for requisitioning the site, demolishing structures and resettlement arrangements, and the joint venture's requirements with regard to infrastructure, and the standards filed for the record with the Ministry of Foreign Economic Relations and Trade and the state department in charge of land.
Article 50. A joint venture engaged in agriculture or animal husbandry, with the agreement of the People's Government of the province, autonomous region or directly-administered municipality where it is located, may pay site use fees to the department in charge of land in its locality based on a percentage of the joint venture's business income.
In the case of projects of a development nature in economically undeveloped regions, special preferences may be granted in respect of site use fees with the agreement of the local People's Government.
Article 51. Site use fees are not to be adjusted within five years from the start of use of a site. Afterwards, when adjustments are needed in line with changes in economic development, the circumstances of supply and demand, and changes in geographic and environmental conditions, the interval between adjustments shall not be less than three years.
Site use fees used as capital contributions by Chinese joint venture parties must not be adjusted during the term of the contract in question.
Article 52. The site use fees for the right to the use of sites obtained by joint ventures in accordance with Article 47 of these Regulations shall be paid annually over the period of use of the site stipulated in the contract starting from the beginning of the period. If the period of use of the site in the first calendar year exceeds six months, the fee is to be calculated on the basis of a half-year; if it is less than six months, there is to be exemption from fees. During the contract period, if there are adjustments in the site use fees, joint ventures shall pay fees in accordance with the new fee standards starting from the year of adjustment.
Article 53. Joint ventures only have the right of use of sites they are permitted to use, and do not have the ownership right. There must be no assignment of their right to the use of sites.
Chapter 8. Planning, Purchases and Sales
Article 54. The basic construction plan of a joint venture (including such items as construction force, various building materials, water, power and gas) shall be prepared according to the approved feasibility study report, and entered into the basic construction plan of the department in charge of the enterprise. The department in charge of the enterprise shall give it priority in making arrangements and guarantee its implementation.
Article 55. The basic construction funds of joint ventures are to be under the unified control of the bank where the joint venture opens an account.
Article 56. The production and operating plan formulated by a joint venture in accordance with the scope of operations and scale of production stipulated in the contract are to be implemented upon approval of the board of directors and reported to the department in charge of the enterprise for the record.
Departments in charge of enterprises and planning control departments at various levels are not to issue mandatory production and operating plans to joint ventures.
Article 57. In their purchases of such items as required machinery, equipment, raw materials, fuel, parts, means of transport and articles for office use (hereinafter referred to as materials), joint ventures have the right to decide on their own whether to purchase in China or abroad. However, under equal conditions, they shall give priority to purchasing in China.
Article 58. The supply channels for joint ventures¡¯ purchase of materials in China are as follows:
1. materials under planned distribution are to be entered into the supply plan of the department in charge of the enterprise and the supply guaranteed in accordance with contracts by the materials and commercial departments or production enterprises;
2. materials handled by the materials and commercial departments are to be purchased from the relevant materials business unit;
3. materials freely circulating on the market are to be purchased from production enterprises or their sales organs or commission agencies; and
4. export materials handled by foreign trade corporations are to be purchased from the relevant foreign trade corporation.
Article 59. The articles for office and personal use that joint ventures need to purchase in China are to be purchased in accordance with the amounts needed are not subject to restriction.
Article 60. The Chinese Government encourages joint ventures to sell their products on the international market.
Article 61. Products produced by joint ventures that China urgently needs or that China needs to import may be mainly sold on the Chinese domestic market.
Article 62. Joint ventures have the right to export their products themselves and may also entrust the sales organs of the foreign joint venture party or Chinese foreign trade corporations with commission sales or distribution.
Article 63. With respect to any machinery, equipment, parts, raw materials and fuel needed for the enterprise's production that joint ventures import within the scope of operations stipulated by the joint venture contract and that fall within those items for which the state stipulates that import licenses must be obtained, joint ventures are to prepare plans each year and apply to obtain the licenses every six months. For machines, equipment and other materials that foreign joint venture parties contribute as capital contributions, import licenses may be handled directly and the items imported on the strength of the approval documents of the examination and approval authority. With respect to materials to be imported that go beyond the stipulated scope of the joint venture contract and for which the state stipulates that import licenses must be obtained, applications shall be separately made.
Joint ventures may handle the export of the products they produce autonomously. With respect to those that fall within those items for which the state stipulates that export licenses must be obtained, joint ventures are to apply to obtain the licenses every six months in accordance with the enterprise's export plan for the year.
Article 64. Joint ventures may handle the sale of their products in China in the following ways:
1. materials under planned distribution are to be entered by the department in charge of the enterprise into the distribution plans of the materials control departments, to be sold to designated customers in accordance with the plans;
2. materials handled by the materials and commercial departments are to be ordered by the materials and commercial departments from joint ventures;
3. with respect to the portions of materials in the above two categories outside of the planned purchases, and materials not falling under the above two categories, joint ventures have the right to sell them themselves or to entrust relevant units to sell them on commission;
4. export products of joint ventures that are materials which Chinese foreign trade corporations want to import may be sold by joint ventures to Chinese foreign trade corporations for foreign exchange.
Article 65. Pricing for materials and needed services purchased in China by joint ventures is to be implemented in accordance with the following stipulations:
1. The six raw materials gold, silver, platinum, petroleum, coal and timber that are used directly in the production of export products are to be priced in accordance with the international market prices provided by the State Administration of Foreign Exchange Control or the foreign trade departments, and paid for in foreign currency or Renminbi.
2. For purchases of export commodities or import commodities handled by Chinese foreign trade corporations, the supplier and buyer are to discuss and fix the price by reference to international market prices, with payment made in foreign currency.
3. As regards the prices for purchases of coal for fuel and oil for vehicles which are needed for use in the production of products to be sold domestically in China, and other materials other than those listed in Paragraphs (1) and (2) of this article, and the fees charged for such items as water, electricity, gas, heat, transport of goods, labor services, engineering design, consultation services and advertising provided to joint ventures, the treatment shall be equal to that for state enterprises with payment in Renminbi.
Article 66. With respect to products of joint ventures sold domestically in China, except for those items for which the price control departments approve the fixing of prices by reference to international market prices, the state-stipulated prices shall be implemented, with prices determined in accordance with quality and Renminbi used for payment. Joint ventures shall report the product sales prices they formulate to the department in charge of the enterprise and the price control departments for the record.
Prices of export products of joint ventures are to be formulated by joint ventures themselves and reported to the department in charge of the enterprise and the price control departments for the record.
Article 67. In economic contacts between joint ventures and other Chinese economic organizations, the parties are to undertake economic responsibilities and resolve contractual disputes in accordance with the relevant legal stipulations and contracts concluded between the parties.
Article 68. Joint ventures must fill out statistical forms on production, supply and sales in accordance with relevant stipulations, and report them to the department in charge of the enterprise, the statistics departments and other relevant departments for the record.
Chapter 9. Taxes
Article 69. Joint ventures shall pay various taxes in accordance with the stipulations of the relevant laws of the People's Republic of China.
Article 70. Staff and workers of joint ventures shall pay individual income tax according to the Individual Income Tax Law of the People's Republic of China.
Article 71. Joint ventures are to be exempt from customs duty and industrial and commercial consolidated tax on the import of the following materials:
1. machinery, equipment, parts and other materials (other materials as used here and hereinafter refers to materials required for a joint venture's construction of the factory (site) and for installation and reinforcement of machinery) which serve as capital contributions of a foreign joint venture party in accordance with the stipulations of the contract;
2. machinery, equipment, parts and other materials imported with funds which are within the total amount of investment of a joint venture;
3. machinery, equipment, parts and other materials of which the production and supply cannot be guaranteed in China which, with the approval of the examination and approval organ, are imported by a joint venture with additional capital;
4. raw materials, auxiliary materials, components, parts and packaging materials imported by a joint venture from abroad for the production of export products.
Taxes shall be paid or made up according to regulations on such of the above materials imported free of tax as are, upon approval, diverted for sale domestically in China or diverted to use in products for sale domestically in China.
Article 72. Except for items of which the state restricts export, export products produced by joint ventures may, with the approval of the Ministry of Finance of the People's Republic of China, be exempted from industrial and commercial consolidated tax.
Joint ventures that have difficulty in the beginning period of operations paying taxes on products produced for domestic sale may apply for reduction or exemption of industrial and commercial consolidated tax for a fixed period.
Chapter 10. Foreign Exchange Control
Article 73. All foreign exchange matters of joint ventures are to be handled in accordance with the stipulations of the Provisional Foreign Exchange Regulations of the People's Republic of China and relevant control measures.
Article 74. Joint ventures are, on the strength of the business license issued by the State Administration for Industry and Commerce of the People's Republic of China, to open foreign exchange deposit accounts and Renminbi deposit accounts with the Bank of China, or other designated banks, with the bank where the account is opened to supervise receipts and disbursements.
All foreign exchange income of a joint venture must be deposited in the foreign exchange deposit account in the bank where an account has been opened; all foreign exchange disbursements are to be made from the foreign exchange deposit account. The interest rates on deposits are to be implemented in accordance with the interest rates announced by the Bank of China.
Article 75. Joint ventures shall in general maintain balance between their foreign exchange receipts and disbursements. In cases where, according to the approved feasibility study report and contract of the joint venture, the joint venture's products are mainly sold domestically and foreign exchange cannot be balanced, the matter is to be resolved by adjustment from the retained foreign exchange of the People's Government of the relevant province, autonomous region or directly-administered municipality or State Council department in charge. If the matter cannot be resolved in this way, it shall be resolved by entering the matter into the plan after examination and approval by the Ministry of Foreign Economic Relations and Trade together with the State Planning Commission of the People's Republic of China.
Article 76. Joint ventures shall obtain the approval of the State Administration of Foreign Exchange Control or its branches to open foreign exchange deposit accounts in banks abroad or in the Hong Kong and Macao regions, and shall report to the State Administration of Foreign Exchange Control or its branches the receipts and disbursements circumstances and provide account statements.
Article 77. Branch organs established by joint ventures abroad or in the Hong Kong and Macao regions shall open accounts with the Bank of China whenever there is a Bank of China in the locality. They shall deliver their annual statements of assets and liabilities and annual profit statements to the State Administration of Foreign Exchange Control or its branches through the joint venture.
Article 78. Joint ventures may, according to the requirements of their business, apply to the Bank of China for foreign exchange loans and Renminbi loans in accordance with the Provisional Measures of the Bank of China for the Handling of Loans to Joint Ventures Using Chinese and Foreign Investment. Interest rates on loans to joint ventures are to be implemented in accordance with the interest rates announced by the Bank of China. Joint ventures may also borrow foreign exchange funds from banks abroad or in the Hong Kong or Macao regions, but must file the matter with the State Administration of Foreign Exchange Control or one of its branches for the record.
Articles 79. Foreign staff and workers and Hong Kong and Macao staff and workers of joint ventures, after paying tax according to law, and after taking out money for expenses in China, may apply to the Bank of China to remit out all the remaining portion of their wages and other legitimate income.
Chapter 11. Finance and Accounting
Article 80. The financial and accounting systems of joint ventures are to be formulated according to the stipulations of the relevant laws and financial and accounting systems of China in combination with the circumstances of the joint venture, and are to be reported to the finance departments and tax offices of the locality for the record.
Article 81. Joint ventures are to have an accountant to assist the general manager in his responsibility for presiding over the financial and accounting work of the enterprise. When necessary, there may be a deputy accountant.
Article 82. Joint ventures are to have an auditor (small enterprises may elect not to have one) to be responsible for examining and checking financial receipts and disbursements and accounts of the joint venture, and for submitting reports to the board of directors and the general manager.
Article 83. The calendar year is to be adopted as the fiscal year of joint ventures, a fiscal year being from January 1 to December 31 in the Gregorian calendar.
Article 84. In their accounting, joint ventures are to adopt the internationally used accrual system and debit and credit method for the keeping of accounts. All vouchers, account books, and statements prepared by the enterprise itself must be written in the Chinese language. They may be written concurrently in a foreign language decided upon by the joint venture parties.
Article 85. Joint ventures in principle are to adopt the Renminbi as the standard currency for the keeping of accounts. Upon the decision of the joint venture parties, a given foreign currency may be adopted as the standard currency.
Article 86. In joint venture accounts, in addition to making records in the standard currency used in the keeping of accounts, cash, bank deposits, amounts in other currencies, and such as items as creditors¡¯ rights, debts, receipts, and expenses which are in different currencies from the standard currency used in the keeping of accounts shall also be recorded in the accounts in the currencies actually used in the receipts or disbursements.
Joint ventures using a foreign currency in the keeping of accounts, in addition to preparing accounting statements in the foreign currency, shall separately prepare accounting statements converted into Renminbi.
Differentials upon conversion into the standard accounting currency resulting from differences in exchange rates shall be recorded as exchange gains or losses. In the event of a fluctuation in the exchange rate used at the time of recording, the book amount of the various accounting items in the foreign currency concerned shall, at the time of settlement of accounts at the year-end, be subjected to accounting treatment in accordance with the provisions of the relevant Chinese laws and financial and accounting system.
Article 87. The principles of profit distribution after the payment of income tax by joint ventures in accordance with the Income Tax Law of the People's Republic of China for Chinese-Foreign Equity Joint Ventures are as follows:
1. withdrawals are to made for the reserve fund, staff and workers incentive and welfare fund and enterprise expansion fund of the joint venture, the ratios of withdrawal to be decided by the board of directors;
2. the reserve fund, in addition to being used to make up the losses of the joint venture, may also, with the approval of the examination and approval organ, be used to increase the capital of the enterprise for the expansion of production; and
3. the profits available for distribution after withdrawals for the three funds in accordance with the stipulations of paragraph (1) of this article shall, if the board of directors decides to distribute them, be distributed in accordance with the ratio of capital contributions of the joint venture parties.
Article 88. Profits must not be distributed until the losses of previous years have been made up. Undistributed profits from previous years may be distributed together with the profits of the current year.
Article 89. Joint ventures shall deliver quarterly and annual accounting statements to the joint venture parties, the tax office in the locality, the department in charge of the enterprise and the financial department at the same level.
A copy of the annual accounting statement shall be delivered to the original examination and approval authority.
Article 90. The following joint venture documents, certificates and statements are only to be valid after being verified by a Chinese registered accountant and a certification issued:
1. the certificates of capital contribution of the joint venture parties (where materials, rights to the use of sites, industrial property rights or proprietary technology are used as capital contributions, the list of estimated property values signed and agreed to by the joint venture parties and the agreement documents thereon shall be included);
2. annual accounting statements of joint ventures; and
3. accounting statements on liquidation of joint ventures.
Chapter 12. Staff and Workers
Article 91. Matters relating to the staff and workers of joint ventures such as their recruitment, employment, dismissal, resignation, wages, welfare benefits, labor insurance, labor protection, and labor discipline are to be handled in accordance with the Regulations of the People's Republic of China on Labor Management in Chinese-Foreign Equity Joint Ventures.
Article 92. Joint ventures shall strengthen professional and technical training of staff and workers and establish strict examination systems enabling staff and workers to meet the requirements of a modern enterprise for production and managerial skills.
Article 93. The wage and incentive systems of joint ventures must comply with the principles of each according to his work and more pay for more work.
Article 94. The wage treatment of such high-level managerial personnel as the general and deputy general managers, chief and deputy engineers, chief and deputy accountants and auditors is to be decided upon by the board of directors.
Chapter 13. Labor Unions
Article 95. Staff and workers of joint ventures have the right to establish basic-level labor unions and develop labor union activities in accordance with the Labor Union Law of the People's Republic of China (hereinafter referred to as the Labor Union Law of China) and the Labor Union Charter of China.
Article 96. The labor union of a joint venture is the representative of the interests of the staff and workers. It has the right to represent the staff and workers in signing labor contracts with the joint venture and to supervise the implementation of such contracts.
Article 97. The basic tasks of labor unions in joint ventures are to protect the democratic rights and material interests of the staff and workers according to law, to assist the joint venture with the arrangement and reasonable use of welfare and incentive funds, to organize the staff and workers in the study of political, professional, scientific and technical and professional knowledge, and develop literary, artistic and athletic activities, and to educate the staff and workers to observe labor discipline and to exert their efforts to fulfil the various economic tasks of the enterprise.
Article 98. Labor union representatives have the right to attend as nonvoting delegates, making known the opinions and demands of the staff and workers, at meetings of the board of directors at which such major matters as development plans and production and operational activities of the joint venture are under discussion.
Labor union representatives have the right to attend as nonvoting delegates at meetings of the board of directors at which such questions as those relating to staff and worker rewards and penalties, wage systems, welfare benefits, labor protection and labor insurance are considered and decided. The board of directors shall heed the opinions of the labor union and obtain the labor union's cooperation.
Article 99. Joint ventures shall actively support the work of the labor union in the enterprise. Joint ventures shall, in accordance with the stipulations of the Labor Union Law of China, provide necessary housing and facilities to the labor union organization for use for office work and meetings, and in conducting collective welfare, cultural and athletic activities. Joint ventures are each month to allot two percent of the total amount of the real wages of the enterprise's staff and workers for payment into the labor union fund, for the enterprise labor union's use in accordance with the relevant control measures for labor union funds formulated by the All-China Federation of Labor Unions.
Chapter 14. Term, Dissolution and Liquidation
Article 100. The term of a joint venture shall be decided upon through consultations of all parties to the joint venture according to the actual conditions of the particular lines of business and projects. The term of a joint venture engaged in an ordinary project is usually from 10 to 30 years. The term of those engaged in projects of large investment, long construction periods and low profit rate on capital; and those supplied with advanced technology or key technology for producing sophisticated products by foreign parties to the joint venture; or those engaged in projects whose products are internationally competitive can be extended to 50 years. Subject to special approvals from the State Council, the term can be extended to more than 50 years.
Article 101. The term of joint ventures is to be stipulated by the joint venture parties in the joint venture agreement, contract and articles of association. The joint venture term is counted from the day when the joint venture business license is issued.
If the joint venture parties agree to extend the joint venture term, an application for extension of the joint venture term signed by authorized representatives of the joint venture parties shall be delivered to the examination and approval authority six months before the date of expiration of the joint venture term. The examination and approval authority shall give a reply within one month of receiving the application.
After approval of the extension of a joint venture's term, the joint venture shall undertake alteration of registration procedures in accordance with the Measures of the People's Republic of China for the Registration and Administration of Chinese-Foreign Equity Joint Ventures.
Article 102. A joint venture is to be dissolved in the following situations:
1. expiration of its term;
2. the incidence of severe losses to the enterprise, making it unable to continue operations;
3. the failure of one of the joint venture parties to perform the obligations stipulated in the joint venture agreement, contract or articles of association, making the enterprise unable to continue operations;
4. the suffering of severe losses because of such incidents of force majeure as natural disasters and wars;
5. inability of the joint venture to attain its business goals and, at the same time, lack of a future for development; or
6. the occurrence of other reasons for dissolution stipulated in the joint venture contract or articles of association.
When the circumstances in paragraphs (2), (3), (4), (5) and (6) of this article arise, the board of directors shall submit an application for dissolution to the examination and approval authority for approval.
Under the circumstances in paragraph (3) of this article, the party that has failed to perform the obligations stipulated in the joint venture agreement, contract or articles of association shall be liable to compensate the joint venture for the losses caused thereby.
Article 103. When joint ventures announce dissolution, the board of directors shall submit the procedures and principles for liquidation and the members of the liquidation committee to the department in charge of the enterprise for examination and supervision of liquidation.
Article 104. The members of the liquidation committee generally shall be appointed from among the directors of the joint venture. When the directors cannot serve or are unsuitable to serve as members of the liquidation committee, the joint venture may retain Chinese registered accountants or lawyers to serve. When the examination and approval organ considers it necessary, it may send people to conduct supervision.
The liquidation expenses and remuneration of members of the liquidation committee are to be paid from the existing property of the joint venture and are to be given priority.
Article 105. The tasks of the liquidation committee are to conduct a complete check of the joint venture's property and its creditors¡¯ rights and debts, to prepare a statement of assets and liabilities and a list of property, to submit a valuation of the property and the basis of calculation, to formulate a liquidation plan, and to submit these to a meeting of the board of directors and implement them after adoption.
During the period of liquidation, the liquidation committee is to represent the joint venture in question in suing and being sued.
Article 106. Joint ventures bear liability for their debts in respect of all of their assets. The property remaining after the clearance of debts of joint ventures is to be distributed in accordance with the ratio of capital contributions of the joint venture parties, with the exception of cases in which the joint venture agreement, contract or articles of association have other stipulations.
When the net amount of assets or remaining property of a dissolving joint venture exceeds the registered capital, the portion of added value is regarded as profit and income tax shall be paid according to law. Income tax shall be paid according to law on the remittance abroad by a foreign joint venture party of the portion of the net amount of assets or remaining property distributed to it that exceeds its capital contribution.
Article 107. On completion of the liquidation work of a joint venture, the liquidation committee is to submit a report on the completion of liquidation to a meeting of the board of directors, after adoption by which it is to be reported to the original examination and approval authority. Cancellation of registration procedures are to be undertaken at the original registration control organ and the business license handed in for cancellation.
Article 108. After dissolution of a joint venture, its various account books and documents shall be held by the Chinese joint venture party.
Chapter 15. Resolution of Disputes
Article 109. If disputes arise over the interpretation or performance of the joint venture agreement, contract or articles of association, the joint venture parties shall exert their greatest efforts to resolve them through friendly discussions or mediation. If friendly discussions or mediation are ineffective, disputes may be submitted to arbitration or the judiciary for resolution.
Article 110. Joint venture parties are to submit matters to arbitration according to relevant written arbitration agreements. Arbitration may be conducted before the Foreign Economic and Trade Arbitration Commission of the China Council for the Promotion of International Trade in accordance with the procedural rules for arbitration of the said Commission. If both parties agree, arbitration may also be conducted before an arbitration organ in the country of the defendant or in a third country, in accordance with the procedural rules for arbitration of the organ in question.
Article 111. It there is no written arbitration agreement between the joint venture parties, either party to a dispute that arises may file suit in the People's Courts of China according to law.
Article 112. During periods when disputes are being resolved, with the exception of matters in dispute, the joint venture parties shall continue to perform all other provisions stipulated in the joint venture agreement, contract and articles of association.
Chapter 16. Supplementary Provisions
Article 113. The Chinese organs in charge of visas may simplify procedures to convenience foreign staff and workers and Hong Kong and Macao staff and workers of joint ventures (including their family members) who need to go in and out of China frequently.
Article 114. The department in charge of the enterprise is to be responsible for applying for and handling exit procedures for Chinese staff and workers of joint ventures, who, because of the requirements of work, go abroad for observation, business negotiations, study or training.
Article 115. Foreign staff and workers and Hong Kong and Macao staff and workers of joint ventures may bring in necessary means of transport and articles for office use, paying customs duty and industrial and commercial consolidated tax in accordance with stipulations.
Article 116. Joint ventures established in the special economic zones are to follow any separate stipulations of laws and regulations passed by the National People's Congress, the Standing Committee of the National People's Congress or the State Council.
Article 117. The power of interpretation of these Regulations is vested in the Ministry of the Foreign Economic Relations and Trade.
Article 118. These Regulations are to be implemented from the date of promulgation.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.
