Adopted on July 1, 1979
at the Second Session of the Fifth National People's Congress, and amended by by
the 4th Session of the Standing Committee of the 9th National People's Congress
on March 15,2000
Chapter I General Provisions
Article 1.
The
People's Republic of China, in order to expand international economic
cooperation and technological exchange, permits foreign companies, enterprises
and other economic organizations or individuals(hereinafter referred to as the
"foreign party") to jointly establish and operate equity joint ventures within
the territory of the People's Republic of China with Chinese companies,
enterprises or other economic organizations (hereinafter referred to as the
"Chinese party") based on the principle of equality and mutual benefit, and upon
the approval of the Chinese Government.
Article 2.
The Chinese Government shall protect in accordance with the
law the investments of the foreign party, the profits due to it and its other
lawful rights and interests in an equity joint venture under the agreement,
contract and articles of association approved by the Chinese Government.All the
activities of an equity joint venture shall comply with the provisions of the
laws and regulations of the People's Republic of China.
The state will not
nationalize or expropriate equity joint ventures; under special circumstances,
based on the requirements of social and public interests, equity joint ventures
may be expropriated in accordance with legal procedures, and corresponding
compensation shall be provided.
Article 3.
The agreement, contract and articles of association of an
equity joint venture signed by the parties to the venture shall be submitted to
the state department in charge of foreign economic relations and trade
(hereinafter referred to as "the examination and approval authority") for
examination and approval. The examination and approval authority shall decide
within three months to approve or disapprove. After an equity joint venture has
been approved, it shall register with the state department in charge of
administration of industry and commerce, obtain its business licence, and
commence business operations.
Article 4.
The form of an equity joint venture shall be a limited
liability company.The proportion of the foreign party's contribution to the
registered capital of an equity joint venture shall in general not be less than
25 percent.
The parties to the venture shall share profits and bear risks and
losses in proportion to their respective contributions to the registered
capital.The transfer of a party's contribution to the registered capital must be
agreed upon by each party to the venture.
Article 5.
The parties to an equity joint venture may make their
investments in cash, in kind, in industrial property rights, etc. The technology
and equipment contributed by a foreign party as its investment must be advanced
technology and equipment which is truly suited to the needs of China. In case of
losses caused by deception through the intentional provision of outdated
technology and equipment, compensation shall be paid for such losses. The
investment of a Chinese party may include providing the right to use a site
during the term of operation of the equity joint venture. If the right to use a
site is not a part of the investment by a Chinese party, the venture shall pay
the Chinese Government a fee for its use.
The various investments mentioned
above shall be specified in the contract and articles of association of the
equity joint venture, and the value of each contribution (except for the site)
shall be appraised and determined through discussions between the parties to the
venture.
Article 6.
An equity joint venture shall establish a board of directors
with a size and composition stipulated in the contract and the articles of
association after consultation between the parties to the venture; and each
party to the venture shall appoint and replace its own director(s). The chairman
and the vice-chairman of the board shall be determined through consultation
between the parties to the venture or elected by the board. Where a director
appointed by the Chinese party or the foreign party serves as chairman, a
director appointed by the other party shall serve as vice-chairman. The board of
directors shall decide important issues concerning the equity joint venture
based on the principle of equality and mutual benefit.The function and powers of
the board of directors shall be to discuss and decide, pursuant to the
provisions of the articles of association of the equity joint venture, all
important issues concerning the venture, namely: the development plan of the
enterprise, production and business programs, the budget, distribution of
profits, plans concerning labor and wages, the termination of business, and the
appointment or hiring of the general manager, the deputy general manager(s), the
chief engineer, the chief accountant and the auditor, as well as their functions
and powers and their remuneration, etc. The positions of general manager and
deputy general manager(s) (or the factory manager and deputy factory manager(s))
shall be assumed by nominees of the respective parties to the venture.
The
employment￡dismissal, remuneration, welfare, labor protection and insurance of
the employees of an equity joint venture shall be stipulated according to laws
in the agreement or contract between employees and the venture.
Article 7.
Employees of an equity joint venture, in accordance with laws
to set up labor union to protect employees' lawful rights by conducting union's
activities. An equity joint venture shall provide the labor union with necessary
conditions.
