REGULATIONS FOR THE IMPLEMENTATION OF THE LAW OF THE PEOPLE'SREPUBLIC OF CHINA ON CHINESE-FOREIGN EQUITY JOINT VENTURES
REGULATIONS FOR THE IMPLEMENTATION OF THE LAW OF THE PEOPLE'SREPUBLIC OF CHINA ON CHINESE-FOREIGN EQUITY JOINT VENTURES
This English document is coming from "LAWS AND REGULATIONS OF THE
PEOPLE'S REPUBLIC OF CHINA GOVERNING FOREIGN-RELATED MATTERS" (1991.7)
which is compiled by the Brueau of Legislative Affairs of the State
Council of the People's Republic of China, and is published by the China
Legal System Publishing House.
In case of discrepancy, the original version in Chinese shall prevail.
REGULATIONS FOR THE IMPLEMENTATION OF THE LAW OF THE PEOPLE'S
REPUBLIC OF CHINA ON CHINESE-FOREIGN EQUITY JOINT VENTURES
(Promulgated by the State Council on September 20, 1983)
Chapter I General Provisions
These Regulations are formulated with a view to facilitating 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).
Chinese-foreign equity joint ventures (hereinafter referred to as joint
ventures) established within China's territory in accordance with the Law
on Chinese-foreign Equity Joint Ventures are legal persons in China and
are subject to the jurisdiction of Chinese laws and enjoy protection
Joint ventures established within China's territory shall be able to
promote the development of China's economy and the raising of scientific
and technological levels for the benefit of socialist modernization. Joint
ventures permitted to be established are mainly in the following
(1) energy development, the building material, chemical and metallurgical
(2) machine manufacturing, instrument and meter industries and offshore
oil exploitation equipment manufacturing;
(3) electronics and computer industries, and communication equipment
(4) light, textile, foodstuffs, medicine, medical apparatus and packaging
(5) agriculture, animal husbandry and aquiculture;
(6) tourism and service trades.
Joint ventures to be applied for their establishment shall lay stress on
economic results and shall comply with one or several of the following
(1) they shall adopt advanced technical equipment and scientific
managerial methods which help increase the variety, improve the quality
and raise the output of products and save energy and materials;
(2) they shall prove to be conducive to technical renovation of
enterprises and be able to bring about quicker returns and bigger profits
with less investment;
(3) they shall help expand exports and thereby increase foreign currency
(4) they shall help train technical and managerial personnel.
Application for establishing joint ventures shall not be approved if they
involve any of the following circumstances:
(1) detriment to China's sovereignty;
(2) violation of Chinese Law;
(3) nonconformity with the requirements of the development of China's
(4) environmental pollution;
(5) obvious inequity in the agreements, contracts and articles of
association signed, impairing the rights and interests of one of the
Unless otherwise stipulated, the government department in charge of the
Chinese joint venturer in a joint venture shall be the department in
charge of the joint venture (hereinafter referred to as the department in
charge). If a joint venture has two or more Chinese joint venturers which
are under different departments or from different regions, the departments
and regions concerned shall, through consultation, designate a department
Departments in charge are responsible for providing guidance and
assistance and exercising supervision over the joint ventures.
A joint venture has the right to independently conduct business operations
and management within the scope as prescribed by Chinese laws and
regulations, and by the agreement, contract and articles of association of
the joint venture. The departments concerned shall provide support and
Chapter II Establishment and Registration
The establishment of a joint venture in China is subject to examination
and approval by the Ministry of Foreign Economic Relations and Trade of
the People's Republic of China (hereinafter referred to as the MOFERT).
Upon approval, an Approval Certificate shall be issued by the MOFERT.
The MOFERT may entrust the people's governments in the related provinces,
autonomous regions, and municipalities directly under the Central
Government or relevant ministries or bureaus under the State Council
(hereinafter referred to as the entrusted office) with the power to
examine and approve the establishment of joint ventures that comply with
the following conditions:
(1) the total amount of investment is within the limit set by the State
Council and the source of capital of the Chinese venturers has been
(2) no additional allocation of raw materials by the State is required and
the national balance as to fuel, power transportation and foreign trade
export quotas is not affected. The entrusted office, after approving the
establishment of a joint venture, shall report the same to the MOFERT for
the record. An Approval Certificate shall be issued by the MOFERT.
(The MOFERT and the entrusted office will hereinafter be generally
referred to as the examining and approving authorities.)
The following procedures shall be followed in the establishment of a joint
(1) it is the Chinese joint venturer in a joint venture that shall submit
to its department in charge a project proposal and a preliminary
feasibility study report of the joint venture to be established with
foreign joint venturer. The proposal and the preliminary feasibility study
report, upon examination and approval by the department in charge, shall
be submitted to the examining and approving authorities for final
approval. The parties to the venture shall then conduct work centering
around the feasibility study, and then proceed on this basis, to negotiate
and sign joint venture agreement, contract and articles of association;
(2) when applying for the establishment of a joint venture, the Chinese
joint venturer is responsible for the submission of the following
documents to the examining and approving authorities:
(a) a written application for the establishment of the joint venture;
(b) the feasibility study report jointly prepared by the parties to the
venture; (c) joint venture agreement, contract and articles of association
signed by representatives authorized by the parties to the venture;
(d) list of candidates for chairman and vice-chairman of board of
directors and directors nominated by the parties to the venture;
(e) written opinions concerning the establishment of the said venture of
the department in charge and the people's government of the province,
autonomous region or municipality directly under the Central Government
where the joint venture is located. The aforesaid documents shall be
written in Chinese. Documents (b), (c) and (d) may be written
simultaneously in a foreign language agreed upon by the parties to the
joint venture. Both versions are equally authentic.
Upon receipt of the documents stipulated in Article 9 (2), the examining
and approving authorities shall, within 3 months, decide whether to
approve or disapprove them. Should anything inappropriate be found in any
of the aforementioned documents, the examining and approving authorities
shall demand an amendment within a limited time. Otherwise, no approval
shall be granted.
The applicant shall, within one month as of the receipt of the Approval
Certificate, register with the administrative department for industry and
commerce of the province, autonomous region or municipality directly under
the Central Government in accordance with the provisions of the Measures
of the People's Republic of China for the Administration of the
Registration of Chinese-Foreign Equity Joint Ventures (hereinafter
referred to as registration administration office). The date of the
issuance of its business licence is the date of the formal establishment
of the joint venture.
Any foreign investor who intends to establish a joint venture in China but
is unable to find a specific co-operator in China may submit a preliminary
plan for the joint venture project and entrust the China International
Trust and Investment Corporation (CITIC) or a trust and investment
corporation of a trust and investment corporation of a province,
autonomous region or municipality directly under the Central Government,
or a relevant government department or a non-governmental organization, to
recommend Chinese co-operators.
The "joint venture agreement" mentioned in this Chapter refers to the
document agreed upon by the parties to the joint venture on some major
points and principles governing the establishment of the joint venture.
"Joint venture contract" refers to the document agreed upon and concluded
by the parties to the joint venture on their mutual rights and
"Articles of association" refers to the document agreed upon by the
parties to the joint venture specifying the purpose, organizational
principles and method of management of the joint venture in compliance
with the principles of the joint venture contract. Where the joint venture
agreement comes into conflict with the contract, the latter shall prevail.
The parties to the joint venture may agree to sign the contract and
articles of association only, without signing an agreement.
A joint venture contract shall include the following main items:
(1) the names, the countries of registration, the legal addresses of
parties to the joint venture, and the names, positions and nationalities
of the legal representatives thereof;
(2) name of the joint venture, its legal address, purpose and the scope
and scale of business;
(3) total amount of investment and registered capital of the joint
venture, amount, proportion and forms of investment to be contributed by
each party to the joint venture, the time limit for contributing
investment, stipulations concerning incomplete contributions, and
assignments of investments;
(4) the proportion of profit to be shared and losses to be borne by each
(5) the composition of the board of directors, the distribution of the
number of directors, and the responsibilities, powers and means of
employment of the general manager, deputy general manager and high-ranking
(6) the main production equipment and technology to be adopted and their
source of supply;
(7) the ways and means of purchasing raw materials and selling finished
products, and the ratio of products sold within Chinese territory to those
(8) arrangements for receipts and expenditures in foreign currency;
(9) principles governing the handling of finance, accounting and auditing;
(10) stipulations concerning labour management, wages, welfare, and labour
(11) the duration of the joint venture, its dissolution and the procedures
(12) the liabilities for breach of contract;
(13) ways and procedures for settling disputes between the parties to the
(14) the language(s) used for the contract and the conditions for putting
the contract into force.
The annex to the contract of a joint venture shall be equally authentic as
the contract itself.
Chinese laws shall apply to the conclusion, validity, interpretation and
execution of a joint venture contract, as well as to the settlement of
The Articles of association of a joint venture shall include the following
(1) the name of the joint venture and its legal address;
(2) the purpose, business scope and duration of the joint venture;
(3) the names, countries of registration and legal addresses of parties to
the joint venture, and the names, positions and nationalities of the legal
(4) the total amount of investment, registered capital of the joint
venture, each party's investment proportion, stipulations concerning the
assignment of investment, the proportions of profit distribution and
losses to be borne by parties to the joint venture;
(5) the composition of the board of directors, its responsibilities,
powers and rules of procedure, the term of office of the directors, and
the responsibilities of its chairman and vice-chairman;
(6) the setting up of management organizations, rules for handling routine
affairs, the responsibilities of the general manager, deputy general
manager and other high-ranking managerial personnel, and the method of
their appointment and dismissal;
(7) principles governing financial, accounting and auditing systems;
(8) dissolution and liquidation;
(9) procedures for amendment of the articles of association.
The agreement, contract and articles of association shall come into force
upon approval by the examining and approving authorities. The same applies
to amendments thereof.
The examining and approval authorities and the registration administration
office are responsible for supervising and checking on the execution of
the joint venture contracts and articles of association.
Chapter III Form of Organization and Registered Capital
A joint venture is a limited liability company.
Each party to the joint venture is liable to the joint venture within the
limit of the capital subscribed by it.
The total amount of investment (including loans) of a joint venture refers
to the sum of capital construction funds and the circulating funds needed
for the joint venture's production scale as stipulated in the contract and
the articles of association of the joint venture.
The registered capital of a joint venture refers to the total amount of
investment registered at the registration administration office for the
establishment of the joint venture. It shall be the total amount of
investment subscribed by parties to the joint venture.
The registered capital shall generally be represented in Renminbi, or may
be in a foreign currency agreed upon by the parties to the joint venture.
A joint venture shall not reduce its registered capital during the term of
the joint venture.
If one party to the joint venture intends to assign all or part of its
investment subscribed to a third party, consent shall be obtained from the
other party to the joint venture, and approval from the examining and
approving authorities is required. When one party assigns all or part of
its investment to a third party, the other party has preemptive right.
When one party assigns its investment subscribed to a third party, the
terms of assignment shall not be more favourable than those to the other
party to the joint venture.
No assignment shall be effective should there be any violation of the
Any increase, assignment or other disposal of the registered capital of a
joint venture shall be approved at a meeting of the board of directors and
submitted to the original examining and approving authorities for
approval. Registration procedures for changes shall be handled at the
original registration administration office.
Chapter IV Ways of Contributing Investment
Each joint venturer may invest in cash or may contribute buildings,
factory premises, equipment or other materials, industrial property,
preprietary technology, or right to the use of a site, appraised at
appropriate prices, as investment. If the investment is in the form of
buildings, premises, equipment or other materials, industrial property or
proprietary technology, the prices shall be determined through
consultation by the parties to the joint venture on the basis of fairness
and reasonableness, or they shall be evaluated by a third party accepted
and invited by the parties to the joint venture.
The foreign currency contributed by the foreign joint venturer shall be
converted into Renminbi according to the exchange rate quoted 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 submission or be cross exchanged into
the foreign currency as agreed upon.
Should the cash Renminbi contributed by the Chinese joint venturer be
converted into foreign currency, it shall be converted according to the
exchange rate quoted by the State Administration of Foreign Exchange
Control on the day of its submission.
The machinery, equipment and other materials contributed as investment by
the foreign joint venturer shall meet the following conditions:
(1) they are indispensable to the production of the joint venture;
(2) China is unable to manufacture them, or can manufacture them only at
too high a price, or their technical performance and time of availability
cannot meet the requirement;
(3) the price fixed shall not be higher than the current international
market price for similar equipment or materials.
The industrial property or proprietary technology contributed by the
foreign joint venturer as investment shall meet one of the following
(1) capable of manufacturing new products urgently needed in China or
products suitable for export;
(2) capable of markedly improving the performance, quality of existing
products and raising productivity;
(3) capable of notably saving raw materials, fuel or power.
Foreign joint ventures who contribute industrial property or proprietary
technology as investment shall present relevant documentation on the
industrial property or proprietary technology, including protocopies of
the patent certificates or trademark registration certificates, statements
of validity, their technical characteristics, practical value, the basis
for calculating the price and the price agreement signed with the Chinese
joint ventures. All these shall serve as an annex to the contract.
The machinery, equipment or other materials, industrial property or
proprietary technology contributed by foreign joint venturer as investment
shall be examined and approved by the department in charge of the Chinese
joint venturer and then submitted to the examining and approving
authorities for further approval.
The parties to the joint venture shall pay in all the investment
subscribed according to the time limit stipulated in the contract. Delay
in payment or partial delay in payment shall be subject to a payment of
investment on arrears or a compensation for the loss as defined in the
After the investment is paid by the parties to the joint venture, a
Chinese registered accountant shall verify it and provide a certificate of
verification, in accordance with which the joint venture shall issue to
them investment certificates, which include the following items: name of
the joint venture; date, month and year of the establishment of the joint
venture; names of the joint venturers and the investment contributed;
date, month and year of the contribution of the investment; and date,
month and year of the issuance of investment certificates.
Chapter V Board of Directors and Management Structure
The highest authority of the joint venture shall be its board of
directors, which shall decide all major issues concerning the joint
The board of directors shall consist of no less than three members. The
distribution of the number of directors shall be determined through
consultation by the parties to the joint venture with reference to the
proportions of investment contributed. The directors shall be appointed
by the parties to the joint venture. The chairman of the board shall be
appointed by the Chinese joint venturer and its vice-chairman by the
foreign joint venturer.
The term of office for the directors is four years. Their term of office
may be renewed with the re-appointment by the parties to the joint
The board of directors shall convene at least one meeting every year. The
meeting shall be called and presided over by the chairman of the board.
Should the chairman be unable to call the meeting, he shall authorize the
vice-chairman or a director to call and preside over the meeting. The
chairman may convene an interim meeting on the suggestion of more than
one-third of the directors.
A board meeting requires a quorum of over two-thirds of the directors.
Should a director be unable to attend, he may make a proxy authorizing
someone else to represent him and vote in his stead.
A board meeting shall usually be held at the location of the joint
venture's legal address.
Decisions on the following items shall be made only after being
unanimously agreed upon by the directors present at the board meeting:
(1) amendment to the articles of association of the joint venture;
(2) suspension or dissolution of the joint venture;
(3) increase in or assignment of the registered capital of the joint
(4) merger of the joint venture with other economic organization.
Decision on other matters may be made according to the rules of procedure
stipulated in the articles of association.
The chairman of the board is the legal representative of the joint
venture. Should the chairman be unable to perform his duties, he shall
authorize the vice-chairman of the board or a director to represent the
A joint venture shall establish a management office which shall be
responsible for the day-to-day management and operations. The management
office shall have a general manager and several deputy general managers
who assist the general manager in his work.
The general manager shall carry out the decisions of the board meeting and
organize and conduct the day-to-day management and operations of the joint
venture. Within the scope of authorization by the board, the general
manager shall, externally, represent the joint venture, and internally,
have the right to appoint and dismiss his subordinates and exercise other
powers as authorized by the board.
The general manager and deputy general managers shall be engaged by the
board of directors of the joint venture. These positions may be held
either by Chinese or foreign citizens.
At the instance of the board of directors, the chairman, vice-chairman or
other directors of the board may concurrently be the general manager,
deputy general managers or other high-ranking managerial personnel of the
In handling major issues, the general manager shall consult with the
deputy general managers.
The general manager or deputy general managers shall not hold posts
concurrently as general manager or deputy general managers of other
economic organizations. They shall not get involved in other economic
organizations' commercial competition against their own joint venture.
In case of graft or serious dereliction of duty on the part of the general
manager, deputy general managers or other high-ranking managerial
personnel, they may be dismissed at any time by a decision of the board of
Establishment of branch offices (including sales offices) outside China or
in regions of Hong Kong or Macao is subject to approval by the MOFERT.
Chapter VI Introduction of Technology
The introduction of technology mentioned in this Chapter refers to the
acquisition of necessary technology by the joint venture by means of
technology transfer from a third party or a joint venturer.
The technology to be introduced to the joint venture shall be appropriate
and advanced and enable the venture's products to display conspicuous
social economic results domestically or to be competitive on the
The right of the joint venture to do business independently shall be
maintained when concluding such technology transfer agreements, and
relevant documentations shall be provided by the technology exporting
party with reference to the provisions of Article 29 of these Regulations.
The technology transfer agreements concluded by a joint venture shall be
examined and agreed to by the department in charge of the joint venture
and then submitted for approval to the examining and approving
Technology transfer agreements shall comply with the following
(1) Fees for the use of technology shall be fair and reasonable. Payments
are generally made in royalties, and the royalty rate shall not be higher
than the obtaining standard international rate, which shall be calculated
on the basis of net sales of the products turned out with the relevant
technology or in other reasonable ways agreed upon by both parties.
(2) Unless otherwise agreed upon by both parties, the technology exporting
party shall not put any restrictions on the quantity, price or region of
sale of the products that are to be exported by the technology importing
(3) The term for a technology transfer agreement is generally not longer
than 10 years.
(4) After the expiration of a technology transfer agreement, the
technology importing party shall have the right to continue to use the
(5) Conditions for mutual exchange of information on the improvement of
technology by both parties of the technology transfer agreement shall be
(6) The technology importing party shall have the right to buy the
equipment, parts and raw materials needed from sources they deem suitable.
(7) No irrational restrictive clauses prohibited under Chinese law and
regulations shall be included.
Chapter VII Right to the Use of Site and Fees
Joint ventures shall practise economy in the use of land for their
premises. Any joint venture requiring the use of a site shall file an
application with local departments of the municipal (county) government in
charge of land and obtain the right to use a site after securing approval
and signing a contract. The acreage, location, purpose and contract period
and fee for the right to use a site (hereinafter referred to as site use
fee), rights and obligations of the two contracting parties and penalty
provisions for breach of contract shall be stipulated in explicit terms in
If the Chinese joint venturer already has the right to the use of site for
the joint venture, it may use the right as part of its investment. The
monetary equivalent of this investment shall be the same as the site use
fee otherwise paid for acquiring a site of similar conditions.
The standards for site use fee shall be set by the people's governments of
the province, autonomous region or municipality directly under the Central
Government where the joint venture is located in the light of the purpose
of use, geographic and environmental conditions, expenses for requisition,
demolition and resettlement and the joint venture's requirements for
infrastructure, and filed with the MOFERT and the state department in
charge of land for the record.
Joint ventures engaged in agriculture and animal husbandry may, with the
consent of the people's governments of the province, autonomous region or
municipality directly under the Central Government, pay a percentage of
the joint venture's revenues from its business operations as site use fees
to the local department in charge of land. Projects of a development
nature in economically under-developed areas may receive special
preferential treatment in respect of site use fees with the consent of the
local people's government.
The rates of site use fees shall not be subject to adjustment in the first
5 years beginning from the day the land is used. After that, the interval
in between the necessary adjustments to be made according to the
development of the economy, changes in supply and demand, and changes in
geographic and environmental conditions shall not be less than three
Site use fee as part of the investment by the Chinese joint venture shall
not be subject to adjustment during the contract period.
The fee for the right to the use of a site obtained by a joint venture
according to Article 47 of these Regulations shall be paid annually from
the day to use the land stipulated in the contract. For the first calender
year, the venture will pay a half-year fee if it has used the land for
over 6 months; if less than 6 months, the site use fee shall be exempted.
During the contract period, if the rate of site use fee is adjusted, the
joint venture shall pay it according to the new rate from the year of
Joint ventures that have permission to use a site shall only have the
right to the use of it but no ownership. Assignment of the right to use
land is forbidden.
Chapter VIII Planning, Purchasing and Selling
A joint venture shall work out a capital construction plan (including
labour force required for the construction, building materials, water,
power and gas supply) according to the approved feasibility study report,
and the plan shall be included in the capital construction plan of the
department in charge of the joint venture, which shall give priority in
arranging supplies and ensured the execution of the plan.
Funds earmarked for capital construction of a joint venture shall be put
under unified management of the bank where the venture has opened an
A joint venture shall work out a production and operating plan in
accordance with the scope of operation and scale of production stipulated
in the contract. The plan shall be carried out with the approval of the
board of directors and filed with the department in charge of the joint
venture for the record.
Departments in charge of the joint ventures and planning administration
departments at all levels shall not prescribe mandatory production and
operation plans for joint ventures.
In its purchase of required machinery, equipment, raw materials, fuel,
parts, means of transport and office equipment, etc. (hereinafter referred
to as materials), a joint venture has the right to decide whether it buys
them in China or from abroad. However, where the terms are the same, it
shall give first priority to purchasing them in China.
Joint ventures can purchase materials in China through the following
(1) those under planned distribution shall be brought into the supply plan
of the departments in charge of joint ventures and supplied by materials
and commercial departments or production enterprises according to
(2) those handled by materials and commercial departments shall be
purchased from these departments;
(3) those freely circulating on the market shall be purchased from
production enterprises or their sale or commission agencies;
(4) those export items handled by foreign trade corporations shall be
purchased from the appropriate foreign trade corporations.
The materials needed for office and daily use for joint ventures can be
purchased in China without quantity restrictions.
The Chinese Government encourages joint ventures to sell their products on
the international market.
Products of joint ventures that are urgently needed or to be imported by
China can be mainly sold on the Chinese market.
A joint venture has the right to export its products itself or entrust the
sale-agencies of the foreign joint venturer or Chinese foreign trade
corporations with sales on a commission or distribution.
Within the scope of business stipulated in the contract, a joint venture
may import machinery, equipment, parts, raw materials and fuel needed for
its production. A joint venture shall make a plan every year for items on
which import licenses are required by the stipulation of the State, and
apply for them every 6 months. For machines, equipment and other objects a
foreign joint venturer has contributed as part of its investment, import
licenses can be applied for directly with the documents approved by the
examining and approving authorities. For materials the import of which is
beyond the stipulated scope of the contract, separate applications for
import licenses according to State regulations are required.
A joint venture has the right to export its products by itself, whereas
for those products which require export licenses under the stipulation of
the State, the joint venture shall make an export plan every business year
and apply for the needed licenses every 6 months.
A joint venture may sell its products on the Chinese market in the
(1) For those items under planned distribution, the departments in charge
of joint ventures will bring them into the distribution plan of the
materials administration departments, which sell them to designated users
according to plan.
(2) For those items handled by materials and commercial departments, the
materials and commercial departments will place orders with the joint
(3) For the excess of those purchased by plan of the above two categories,
the joint venture has the right to sell them by itself or entrust sales to
the relevant units.
(4) For products of a joint venture that Chinese foreign trade companies
need to import, the joint venture may sell them to these trade companies
and shall be paid in foreign currency.
Materials purchased and services needed in China by joint ventures shall
be priced according to the following stipulations:
(1) The six raw materials - gold, silver, platinum, petroleum, coal and
timber - that are used directly in production for export shall be priced
according to the international market prices provided by the State
Administration of Foreign Exchange Control or foreign currency or
(2) When purchasing export or import commodities handled by Chinese
foreign trade companies, the suppliers and buyers shall negotiate the
price, with reference to the prices on the international market, and
foreign currency shall be paid.
(3) The prices for purchasing coal used as fuel and oil for motor
vehicles, which are needed for manufacturing products to be sold
domestically, as well as materials other than those listed in (1) and (2)
of this Article, and the fees charged for water, electricity, gas, heat,
goods transportation, services, engineering, consultancy service and
advertisement, etc. provided to joint ventures, shall be treated equally
with state-owned enterprises and paid in Renminbi.
Prices of products of a joint venture for sale on the Chinese domestic
market, except those items approved by the price control department for
appraisal of prices with reference to the prices on the international
market, shall correspond with State-set prices, be priced according to
equality and paid in Renminbi. Prices fixed by a joint venture for its
products shall be filed with departments in charge of joint ventures and
of price control for the record.
Prices of export products of a joint venture will be fixed by the joint
venture itself and shall be filed with departments in charge of joint
ventures and of price control for the record.
A joint venture, in its economic exchanges with another Chinese economic
organization, shall undertake economic responsibilities and settle
disputes over contract in accordance with relevant laws and the contract
concluded between the two parties.
A joint venture shall fill in statistical forms on production, supply and
marketing in accordance with relevant regulations, and file them with the
departments in charge, statistics departments and other departments
concerned for the record.
Chapter IX Taxes
Joint ventures shall pay taxes according to the stipulations of relevant
laws of the People's Republic of China.
Staff members and workers employed by joint ventures shall pay individual
income tax according to the Individual Income Tax Law of the People's
Republic of China.
Joint ventures shall be exempt from Customs duties and consolidated
industrial and commercial tax on the following imported materials:
(1) machinery, equipment, parts and other materials (materials here and
hereinafter mean required materials for the joint venture's construction
on the factory site and for installation and reinforcement of machines)
which are part of the foreign joint venture's share of investment
according to the provisions of the contract;
(2) machinery, equipment, parts and components, and other materials
imported with funds from the joint venture's total investment;
(3) machinery, equipment, parts and components, and other materials
imported by the joint venture with the additional capital and with the
approving authorities, of which China cannot guarantee production and
(4) raw materials, auxiliary materials, components, parts and packaging
materials imported by the joint venture for the production of export
Duties and taxes shall be paid or paid retroactively according to
regulations when the above-mentioned duty-tax-free materials are approved
for sale inside China or diverted to the production of items to be sold on
the Chinese domestic market.
Except those export items restricted by the State, products of a joint
venture for export shall be exempt from consolidated industrial and
commercial tax, subject to the approval by the Ministry of Finance of the
People's Republic of China.
A joint venture may apply for reduction of or exemption from consolidated
industrial and commercial tax for a certain period of time for products
that are sold on the domestic market when it has difficulty to pay such
tax in its initial period of production.
Chapter X Foreign Exchange Control
All matters concerning foreign exchange for joint ventures shall be
handled according to the Interim Regulations on Foreign Exchange Control
of the People's Republic of China and relevant regulations.
On the strength of the business license issued by the State Administration
for Industry and Commerce of the People's Republic of China, a joint
venture may open foreign exchange deposit accounts and Renminbi deposit
accounts with the Bank of China, or any other designated bank. The bank
handling the accounts of the joint venture shall monitor its receipts and
All foreign exchange incomes of a joint venture must be deposited in the
foreign exchange deposit account in the bank where an account has been
opened; all payments by the joint venture in foreign exchange are to be
effected from its foreign exchange deposit account. The deposit interest
rate shall be set according to the announced rates by the Bank of China.
A joint venture shall in general maintain a balance between its foreign
exchange receipts and expenditures. When a joint venture whose products
are mainly sold on the domestic market under its approved feasibility
study report and contract sustains an imbalance of its foreign exchange
receipts and expenditures, the imbalance shall be remedied by the people's
government of a relevant province, autonomous region or municipality
directly under the Central Government or the department in charge under
the State Council from their own foreign exchange reserves. If the
imbalance defies solution through such adjustment, it shall be solved
through inclusion into the plan after the examination and approval by the
MOFERT in conjunction with the State Planning Commission of the People's
Republic of China.
A joint venture shall get permission from the State Administration of
Foreign Exchange Control or one of its branches to open a foreign exchange
deposit account with an overseas bank or one in Hong Kong or Macao, and
report to the State Administration of Foreign Exchange Control or one of
its branches its foreign exchange receipts and expenditures, and provide
Any branch office set up by a joint venture in a foreign country or in
Hong Kong or Macao shall open an account with the Bank of China wherever
there is a branch of the bank. The branch office shall submit its annual
statement of assets and liabilities and annual profit report to the State
Administration of Foreign Exchange Control or one of its branches through
the joint venture.
A joint venture may apply to the Bank of China for foreign currency loans
and Renminbi loans according to business needs and according to the
Provisional Regulations for Providing Loans by the Bank of China to
Chinese-Foreign Equity Joint Ventures. Interest rates on loans to joint
ventures are as announced by the Bank of China. A joint venture may also
borrow foreign exchange as capital from banks abroad or in Hong Kong or
Macao, but shall file a report with the State Administration of Foreign
Exchange Control or one of its branches for the record.
After foreign staff and workers or staff and workers from Hong Kong or
Macao have paid income tax on their salaries and other legitimate incomes
according to law, they may apply to the Bank of China for permission to
remit out all the remaining foreign exchange after deduction of their
living expenses in China.
Chapter XI Financial Affairs and Accounting
The financial and accounting systems of a joint venture shall be
instituted in accordance with China's relevant laws and procedures on
financial affairs and accounting, and in consideration of the conditions
of the joint venture, and then be filed with the local financial
departments and tax authorities for the record.
A joint venture shall employ a chief accountant to assist the general
manager in handling the financial affairs of the enterprises. If
necessary, a deputy chief accountant may be appointed.
A joint venture shall (unless it is a small venture) appoint an auditor to
be responsible for checking financial receipts, payments and accounts, and
to submit reports to the board of directors and the general manager.
The fiscal year of a joint venture shall coincide with the calendar year,
i.e. from January 1 to December 31 on the Gregorian calendar.
The accounting of a joint venture shall adopt the internationally used
accrual basis and debit and credit accounting system in their work. All
vouchers, account books, statistic statements and reports prepared by the
enterprise shall be written in Chinese, or concurrently in a foreign
language agreed upon by the parties.
Joint ventures shall, in principle, adopt Renminbi as the standard
accounting currency, however, a foreign currency may also be used as the
standard accounting currency, if so agreed upon by the parties concerned.
In addition to the use of a standard accounting currency, joint ventures
shall record accounts in currencies actually used in payments and
receipts, if such currencies in cash, bank deposits, funds of other
currencies, assets and liabilities, gains, expenses, etc. are inconsistent
with the standard accounting currency.
Joint ventures using a foreign currency in accounting shall work out a
statement of accounts in Renminbi equivalents in addition to those in the
foreign currency. Losses or gains in remittances resulting from
differences in exchange rates shall be recorded as current gains or losses
for the year in which they occur. No adjustments shall be made to a
balance in a foreign currency account as the result of a recorded
fluctuation in the exchange rate such a currency.
Principles of profit distribution after payment of taxes in accordance
with the Income Tax Law of the People's Republic of China Concerning
Chinese-Foreign Equity Joint Ventures are as follows:
(1) Allocations for reserve funds, bonuses and welfare funds for staff and
workers and expansion funds of the joint venture. The proportion of
allocations is to be decided by the board of directors.
(2) Reserve funds which can be used to make up for the losses of the joint
venture, or with the consent of the examining and approving authorities,
to increase the joint venture's capital for the expansion of production.
(3) After the funds specified in (1) of this Article have been deducted
and if the board of directors decides to distribute the remaining profit,
it shall be distributed proportionately to each party's investment.
Profits may not be distributed before the losses of the previous year have
been made up. Remaining profits from previous year (or years) may be
distributed together with those of the current year.
A joint venture shall submit quarterly and annual fiscal reports to
parties to the joint venture, the local tax authority, department in
charge of the joint venture and the financial department at the same level
to those departments.
A copy of the annual fiscal report shall be submitted to the original
examining and approving authorities.
Only after being examined and certified by an accountant registered in
China shall the following documents, certificates and reports be
(1) certificates of investment from all the parties to a joint venture
(lists of assessed value agreed upon and signed by the parties to the
joint venture and relevant written agreements shall be attached if
investment involves materials, site use rights, industrial property and
(2) annual fiscal reports of the joint venture;
(3) fiscal reports on liquidation of the joint venture.
Chapter XII Staff and Workers
The employment, recruitment, dismissal and resignation of staff and
workers of joint ventures, and their salary, welfare benefits, labour
insurance, labour protection, labour discipline and other matters shall be
handled according to the Regulations of the People's Republic of China on
Labour Management in Chinese-Foreign Equity Joint Ventures.
Joint ventures shall make efforts to conduct professional and technical
training of their staff and workers and establish a strict examination
system so that they can meet the requirements of production and managerial
skills in a modernized enterprise.
The salary and bonus system of joint ventures shall be in accord with the
principle of distribution to each according to his work, and more pay for
Salaries and remuneration of the general manager and deputy general
manager(s), chief engineer, deputy chief engineer(s), chief accountant and
deputy chief accountant, auditor and other high-ranking managerial
personnel shall be decided upon by the board of directors.
Chapter XIII Trade Union
Staff and workers of a joint venture have the right to set up grass-roots
trade unions and carry on trade union activities in accordance with the
Trade Union Law of the People's Republic of China (hereinafter referred to
as Chinese Trade Union Law) and the Statute of the Trade Unions of China.
Trade unions in joint ventures are representatives of the interests of the
staff and workers. They have the power to sign, on behalf of the staff and
workers, labour contracts with joint ventures and supervise the execution
of these contracts.
The basic tasks of the trade unions in joint ventures are: to protect the
democratic rights and material interests of the staff and workers
according to law; to help the joint ventures with the arrangement and
rational use of welfare and bonus funds; to organize political,
professional, scientific and technical studies, carry out literary, art
and sports activities; and to educate staff and workers to observe labour
discipline and strive to fulfil the economic tasks of the enterprises.
Trade union representatives have the right to attend, without the right to
vote, meetings of the board of directors held to discuss important issues
such as development plans, production and operational activities of joint
ventures and to air the opinions and demands of staff and workers.
Trade union representatives have the right to attend, without the right to
vote, meetings of the board of directors held to discuss and decide on
awards and penalties to staff and workers, salary and wage system, welfare
benefits, labour protection and labour insurance, etc. The board of
directors shall heed the opinions of the trade union and win its co-
A joint venture shall actively support the work of the trade union, and,
in accordance with the stipulations of the Chinese Trade Union Law,
provide housing and facilities for the trade union as offices, meeting-
halls, and for organizing welfare, cultural and sports activities. The
joint venture shall allot an amount of money totalling 2 per cent of all
the salaries of the joint venture's staff and workers as trade union
funds, which the trade union of the joint venture shall use according to
the relevant administration rules for trade union funds formulated by the
All-China Federation of Trade Unions.
Chapter XIV Duration, Dissolution and Liquidation
The duration of a joint venture shall be decided upon through consultation
among all the parties to the joint venture according to the actual
conditions of the particular lines of business and projects. The duration
of a joint venture engaged in an ordinary project shall, in principle, be
between 10 to 30 years. Duration for those engaged in projects requiring
large amounts of investment, long construction cycles and low profit rates
on the capital may be longer than 30 years.
The duration of a joint venture shall be determined by all the parties to
the joint venture in the agreement, contract and activities of
association. The duration begins from the date when the joint venture is
issued a business license.
When all parties to a joint venture agree to extend the duration, the
joint venture shall file an application for extending the duration signed
by representatives authorized by the parties with the examining and
approving authorities 6 months before the date of expiration of the
duration. The examining and approving authorities shall give an official
written reply to the applicant within one month as of the date of receipt
of the application. Upon approval of the extension of the duration, the
joint venture concerned shall go through registration formalities for the
alteration in accordance with the Measures of the People's Republic of
China for the Registration Administration of Chinese-Foreign Equity Joint
A joint venture may be dissolved in the following situations:
(1) termination of duration of the venture;
(2) inability to continue operations due to heavy losses;
(3) inability to continue operations due to the failure of one of the
contracting parties to fulfil its obligations prescribed in the agreement,
contract and articles of association;
(4) inability to continue operations due to heavy losses caused by force
majeure such as natural calamities and wars;
(5) failure to obtain the desired objectives of the operation and no
prospects for future development;
(6) occurrence of other reasons for dissolution as prescribed in the
contract and articles of association.
In cases described in (2), (3), (4), (5) and (6) of this Article, the
board of directors shall make an application for dissolution to the
examining and approving authorities for approval.
In the situation described in (3) of this Article, the party which has
failed to fulfil its obligations prescribed in the agreement, contract and
articles of association shall be liable for the losses arising therefrom.
Upon announcement of the dissolution of a joint venture, its board of
directors shall work out procedures and principles governing the
liquidation and nominate candidates for the liquidation committee. It
shall report to the department in charge of the joint venture for
examination, verification and supervision of its liquidation.
Members of a liquidation committee shall generally be selected from among
the directors of a joint venture. In case the directors cannot serve or
are unsuitable to be members of the liquidation committee, the joint
venture may invite accountants and lawyers registered in China to do the
job. When the examining and approving authorities deems necessary, it may
send personnel to supervise the process.
The liquidation expenses and remuneration for the members of the
liquidation committee shall be given priority in the disbursements from
the existing assets of the joint venture.
The tasks of the liquidation committee are: to conduct thorough
investigation of the property of the joint venture concerned, its credits
and debts; to work out the statement of assets and liabilities and an
inventory of its property; to put forward a basis on which its property is
to be evaluated and calculated; and to formulate a liquidation plan. All
these shall be carried out upon approval of the board of directors.
During the process of liquidation, the liquidation committee shall
represent the joint venture concerned in initiating legal action or
A joint venture shall be liable for its debts with all of its assets. The
remaining assets after the clearance of debts shall be distributed among
the parties to the joint venture in proportion to each party's investment
unless otherwise provided for in the agreement, contract and articles of
association of the joint venture.
At the time when a joint venture is being dissolved, the portion of its
net assets or remaining property that exceeds the value added to its
registered capital is regarded as profit on which income tax shall be
levied according to law. The foreign joint venturer shall pay income tax
according to law on the portion of the net assets or remaining property
due him that exceeds his investment when he remits it abroad.
On the completion of the liquidation of a dissolved joint venture, the
liquidation committee shall submit a liquidation report approved by a
meeting of the board of directors to the original examining and approving
authorities, go through formalities for cancelling its registration and
hand in its business license to the original registration authorities.
After the dissolution of a joint venture, its account books and documents
shall be left in the custody of the former Chinese joint venturer.
Chapter XV Settlement of Disputes
Disputes arising over the interpretation or execution of the agreement,
contract or articles of association between the parties to the joint
venture shall, if possible, be settled through friendly consultation or
mediation. If these means prove futile, the disputes shall be subject to
arbitration or judicial settlement.
Parties to a joint venture shall apply for arbitration in accordance with
the relevant written agreement. They may submit the disputes to the
Foreign Economic and Trade Arbitration Commission of the China Council for
the Promotion of International Trade in accordance with its arbitration
rules. With mutual consent of the parties concerned, arbitration can also
be carried out by an arbitration agency in the country where the
respondent is located or by one in a third country in accordance with the
arbitration agency's rules.
In the absence of a written agreement on arbitration between the parties
to a joint venture, either party may bring a suit in a Chinese people's
In the process of settling disputes, except for matters in dispute,
parties to a joint venture shall continue to carry out other provisions
stipulated by the agreement, contract and articles of association of the
Chapter XVI Supplementary Provisions
The Chinese departments in charge of visas shall provide facility by
simplifying procedures for staff and workers from foreign countries or
from Hong Kong or Macao (including their family members) who have frequent
needs of entry and exit into and out of the China.
The departments in charge of joint ventures shall make applications and go
through the formalities for Chinese staff and workers going abroad for
studies, business negotiations or training.
Staff and workers from foreign countries or from Hong Kong or Macao
working for a joint venture may bring in needed means of transport and
office equipment with payment of Customs duties and consolidated
industrial and commercial taxes according to regulations.
Joint ventures set up in the special economic zones shall comply with the
provisions otherwise provided, if any, in the laws and regulations adopted
by the National People's Congress, its Standing Committee or the State
The power to interpret these Regulations is vested in the Ministry of
Foreign Economic Relations and Trade.
These Regulations shall go into force as of the date of promulgation.
New provisions have been added to this Article. Therefore, the
relevant provisions in the Law of the People's Republic of China on
Chinese-Foreign Equity Joint Ventures amended on April 4, 1990 shall
prevail. - The Editor