(Adopted at the 1st Session of the 7th National People's Congress on April 13, 1988, and amended by the 18th Session of the Standing Committee of the 9th National People's Congress on October 31, 2000)
Article 1. This Law is specially formulated in order to expand foreign economic cooperation and technological exchange, and to promote the joint establishment of Chinese-foreign cooperative joint ventures (hereinafter referred to as "cooperative joint ventures") in China by foreign enterprises, other economic organizations or individuals (hereinafter referred to as "foreign parties") and enterprises or other economic organizations of the People's Republic of China (hereinafter referred to as "Chinese parties") in accordance with the principle of equality and mutual benefit.
Article 2. When a Chinese party and a foreign party establish a cooperative joint venture, they shall, in accordance with the provisions of this Law, provide in the cooperative joint venture contract for matters such as investment or cooperation conditions, the distribution of earnings or products, the sharing of risks and losses, the form of operation and management and the title to property upon termination of the cooperative joint venture.
A cooperative joint venture which complies with the requirements for legal persons contained in Chinese law shall obtain the status of a Chinese legal person according to law.
Article 3. The lawful rights and interests of a cooperative joint venture and of the Chinese party and the foreign party thereto shall be protected by the state according to law.
A cooperative joint venture must observe Chinese laws and regulations and may not harm the public interest.
The relevant authorities of the state shall supervise cooperative joint ventures according to law.
Article 4. The state encourages the establishment of productive cooperative joint ventures which are export-oriented or technologically advanced.
Article 5. Applications for the establishment of a cooperative joint venture shall be made by submitting for examination and approval such documents as the agreement, contract and articles of association entered into by and between the Chinese party and the foreign party to the department in charge of foreign economic relations and trade under the State Council or the department or local government authorized by the State Council (hereinafter referred to as the "examination and approval authority"). The examination and approval authority shall decide whether to approve or disapprove the application within forty-five (45) days from the date of receipt of the same.
Article 6. Upon approval of the application for the establishment of a cooperative joint venture, an application for registration shall be made within thirty (30) days from the date of receipt of the approval certificate to the authority for the administration of industry and commerce and a business license shall be collected. The date of establishment of a cooperative joint venture shall be the date of issuance of its business license.
A cooperative joint venture shall, within thirty (30) days of the date of its establishment, go through tax registration procedures with the tax authorities.
Article 7. Major amendments to a cooperative joint venture contract agreed upon by the Chinese party and the foreign party during the term of cooperation shall be submitted to the examination and approval authority for approval. If the content to be changed involves statutory items of industrial and commercial registration or tax registration, the registration with the authority for the administration of industry and commerce and the tax authorities shall be amended.
Article 8. The investment made or cooperation conditions provided by Chinese and foreign parties may be in the form of cash, material objects, land-use rights, industrial property rights, unpatented technology and other property rights.
Article 9. Chinese and foreign parties shall perform their obligations in respect of making the investment in full and providing the cooperation conditions according to schedule and in accordance with the provisions of the laws, regulations and the cooperative joint venture contract. If the parties fail to perform the said obligations according to schedule, the authority for the administration of industry and commerce shall specify a time limit for the performance thereof. If the parties have still not performed the said obligations upon the expiration of the specified time limit, the matter shall be dealt with by the examination and approval authority and the authority for the administration of industry and commerce in accordance with relevant regulations of the state.
The investment made by or cooperation conditions provided by Chinese and foreign parties shall be verified by an accountant registered in China or a relevant organization, who (which) shall issue a certificate.
Article 10. If a Chinese or foreign party wishes to assign part or all of its rights and obligations under the cooperative joint venture contract, it must obtain the consent of the other party and submit the assignment to the examination and approval authority for approval.
Article 11. A cooperative joint venture shall conduct its operational and management activities in accordance with its approved contract and articles of association. The autonomy of a cooperative joint venture in terms of operation and management shall not be interfered with.
Article 12. A cooperative joint venture shall form a board of directors or a joint management committee which shall decide the important issues concerning the cooperative joint venture in accordance with the provisions of the contract or the articles of association of the cooperative joint venture. If the position of chairman of the board of directors or head of the joint management committee is assumed by the Chinese party or the foreign party, the position of vice chairman or deputy head shall be assumed by the other party. The board of directors or joint management committee may decide to appoint or engage a general manager to take charge of the day-to-day operation and management of the cooperative joint venture. The general manager shall report to the board of directors or joint management committee.
If, upon the establishment of a cooperative joint venture, a party other than the Chinese party and foreign party thereto is entrusted with the operation and management thereof, such change shall be subject to the unanimous consent of the board of directors or joint management committee and be submitted to the examination and approval authority for approval. In addition, the registration with the authority for the administration of industry and commerce shall be amended.
Article 13. Matters such as the employment, dismissal, remuneration, welfare benefits, labor protection and labor insurance of the staff and workers of a cooperative joint venture shall be provided for in contracts according to law.
Article 14. The staff and workers of a cooperative joint venture shall, according to law, establish a trade union to carry out trade union activities and to protect the lawful rights and interests of the staff and workers.
A cooperative joint venture shall provide the conditions necessary for the activities of its trade union.
Article 15. A cooperative joint venture must keep account books in China, submit accounting statements in accordance with regulations, and accept the supervision of the finance department and tax authorities.
If a cooperative joint venture violates the preceding paragraph by failing to keep account books in China, the finance department and tax authorities may impose a fine and the authority for the administration of industry and commerce may order it to cease operation or cancel its business license.
Article 16. A cooperative joint venture shall open a foreign exchange account with a bank or other financial institution that is permitted by the state authority for the administration of exchange control to engage in foreign exchange business.
Matters concerning foreign exchange of a cooperative joint venture shall be handled in accordance with state regulations concerning foreign exchange control.
Article 17. A cooperative joint venture may borrow funds from financial institutions in China, and may also borrow funds outside China.
Loans taken out by the Chinese party and the foreign party for the purpose of making its investment or providing cooperation conditions, and the guarantees therefor, shall be arranged by each Party itself.
Article 18. All insurance of a cooperative joint venture shall be carried with an insurance organization in China.
Article 19. A cooperative joint venture may, within its approved scope of operation, import supplies it requires and export products it has produced. Supplies such as raw materials, fuel, etc., required by a cooperative joint venture within its approved scope of operation may be purchased on the domestic or international market.
Article 20. A cooperative joint venture shall pay tax in accordance with state regulations concerning taxation and may enjoy preferential treatment in the form of reduction of and exemption from tax.
Article 21. If the Chinese party and the foreign party stipulate in the cooperative joint venture contract that the Chinese party shall take title to all fixed assets of the cooperative joint venture upon expiration of the term of cooperation, they may provide in the cooperative joint venture contract for a method whereby the foreign party first recovers its investment during the term of cooperation. If the cooperative joint venture contract stipulates that the foreign party shall recover its investment before the payment of income tax, an application must be filed with the finance department and tax authorities, which shall examine and approve the same in accordance with state regulations concerning taxation.
If the foreign party first recovers its investment during the term of cooperation in accordance with the preceding paragraph, the Chinese party and the foreign party shall assume the liabilities of the cooperative joint venture in accordance with the provisions of relevant laws and the cooperative joint venture contract.
Article 22. After performing its statutory obligations and its obligations under the cooperative joint venture contract, a foreign party may remit out of China, according to law, the profit distributed to it, other income lawfully derived by it, and the funds distributed to it upon termination of the cooperative joint venture contract. The expatriate staff and workers of a cooperative joint venture may remit out of China their income from wages and other lawful income after paying individual income tax in accordance with the law.
Article 23. Upon the expiration or early termination of the term of a cooperative joint venture, its assets, claims and obligations shall be liquidated in accordance with statutory procedures. The Chinese party and the foreign party shall determine the ownership of the property of the cooperative joint venture in accordance with the provisions of the cooperative joint venture contract.
Upon the expiration or early termination of the term of a cooperative joint venture, the registration of the enterprise with the authority for the administration of industry and commerce and the tax authorities shall be cancelled.
Article 24. The term of cooperation of a cooperative joint venture shall be discussed by the Chinese party and the foreign party and shall be specified in the cooperative joint venture contract. If the Chinese party and the foreign party agree to extend the term of cooperation, they shall, no later than one hundred and eighty (180) days prior to the expiration of such term, file an application with the examination and approval authority. The examination and approval authority shall, within thirty (30) days from the date of receipt of the application, decide whether to approve or disapprove the same.
Article 25. When a dispute arises in connection with the performance of the contract and articles of association of a cooperative joint venture, the Chinese party and the foreign party shall resolve the dispute through consultation or mediation. If the Chinese party and the foreign party are unwilling to settle by consultation or mediation, or if consultation or mediation is unsuccessful, the dispute may be submitted for arbitration to a Chinese arbitration organization or other arbitration organization in accordance with an arbitration clause in the cooperative joint venture contract or a written arbitration agreement subsequently reached.
If the Chinese party and the foreign party have neither included an arbitration clause in the cooperative joint venture contract nor subsequently reached a written arbitration agreement, legal proceedings may be commenced in a Chinese court.
Article 26. Implementing rules shall be formulated by the department in charge of foreign economic relations and trade under the State Council on the basis of this Law, which rules shall come into force upon approval by the State Council.
Article 27. This Law shall come into force on the date of promulgation.
This translation, together with any explanatory material, is provided courtesy of Lehman Tax & Accounting.
