Chapter 1 General Provisions
Article 1. The Regulations hereunder are formulated with a view
to facilitating the implementation of the Law of the People's
Republic of China on Joint Ventures Using Chinese and Foreign
Investment (hereinafter referred to as the Law on Chinese-Foreign
Joint Ventures).
Article 2. Joint ventures using Chinese and foreign investment
(hereinafter referred to as joint ventures) established within
China's territory in accordance with the Law on Chinese-Foreign
Joint Ventures are Chinese legal persons and are subject to the
jurisdiction and protection of Chinese law.
Article 3. Joint ventures established within China's territory
should be able to promote the development of China's economy and
the raising of scientific and technological levels for the benefit
of socialist modernization.
The industries in which the establishment of joint venture is
encouraged, permitted, restricted or prohibited shall follow the
provisions of the state on guiding the direction of foreign
investment and the guiding catalog of foreign-funded
industries.
Article 4. Applicants to establish joint ventures shall not be
granted approval if the project involves any of the following
conditions:
(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) Environmental pollution;
(5) Obvious inequity in the agreements, contracts and articles of
association signed, impairing the rights and interests of one
party.
Article 5. A joint venture has the right to do business
independently within the scope of the provisions of Chinese laws,
decrees, and the agreement, contract and articles of association of
the joint venture. The departments concerned shall provide support
and assistance.
Chapter 2 Establishment and Registration
Article 6 The establishment of a joint venture in China is
subject to the examination and approval of 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). Certificates of approval are to be issued by
the Ministry of Foreign Economic Relations and Trade.
The State Council shall authorize the people's governments of the
provinces, autonomous regions, and municipalities directly under
the Central Government or the relevant departments under the State
Council with the power to examine and approve the establishment of
joint ventures that meet the following conditions:
(1) The total amount of investment is within the limit of power to
examine and approve authorized by the State Council and the source
of capital of the Chinese participants has been ascertained;
(2) No additional allocations of raw materials by the state will
be needed and the national balance in the aspects of fuel, power,
transportation and foreign trade export quotas will not be
affected.
The joint venture established after being approved according to the
preceding paragraph shall be reported to the Ministry of Foreign
Trade and Economic Cooperation for record.
The Ministry of Foreign Trade and Economic Cooperation, and the
people's governments of the provinces, autonomous regions, and
municipalities directly under the Central Government or the
relevant departments under the State Council authorized by the
State Council will hereinafter be referred to as “the examination
and approval authority.
Article 7. When applying for the establishment of a joint venture,
the Chinese and foreign participants in the joint venture shall
jointly submit the following documents to the examination and
approval authority:
1) Application for the establishment of a joint venture;
2) The feasibility study report jointly prepared by the
participants;
3) Joint venture agreement, contract and articles of association
signed by the representatives authorized by the participants;
4) List of candidates for chairman, vice-chairman and directors
appointed by the participants; and
5) Other documents stipulated by the examination and approval
authority. The aforesaid documents shall be written in Chinese.
Documents (2), (3) and (4) may be written simultaneously in a
foreign language agreed upon by the participants. Both versions are
equally authentic.
Should anything inappropriate be found in any of the documents
submitted, the examination and approval authority shall demand an
amendment to it within a limited time.
Article 8. Upon receipt of the documents stipulated in Article 7 of
these Regulations, the examination and approval authority shall,
within three months, decide whether to approve or disapprove
them.
Article 9. The applicant shall, within one month after receipt of
the certificate of approval, register with the administrative
bureau for industry and commerce (hereinafter referred to as
registration and administration office) in accordance with the
relevant provisions of the state. The date on which its business
license is issued shall be regarded as the date of the
establishment of a joint venture.
Article 10. The "joint venture agreement" mentioned in these
Regulations refers to a document agreed upon by the parties to the
joint venture on some main points and principles governing the
establishment of a joint venture.
"Joint venture contract" refers to a document agreed upon and
concluded by the parties to the joint venture on their rights and
obligations. "Article of association" refers to a document agreed
upon by the parties to the joint venture indicating the purpose,
organizational principles and method of management of a joint
venture in compliance with the principles of the joint venture
contract.
If the joint venture agreement conflicts with the contract, the
contract shall prevail.
If the parties to the joint venture agree to sign only a contract
and articles of association, the agreement can be omitted.
Article 11. The joint venture contract shall include the following
main items:
(1) The names, the countries of registration, the legal address of
parties to the joint venture, and the names, professions 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, investment contributed by the parties to the joint
venture, each party's investment proportion, forms of investment,
the time limit for contributing investment, stipulations concerning
incomplete contributions, and assignment of investment;
(4) The ratio of profit distribution and losses to be borne by each
party;
(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 management personnel;
(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;
(8) Principles governing the handling of finance, accounting and
auditing;
(9) Stipulations concerning labor management, wages, welfare, and
labor insurance;
(10) The duration of the joint venture, its dissolution and the
procedure for liquidation;
(11) The liabilities for breach of contract;
(12) Ways and Procedures for settling disputes between the parties
to the joint venture;
(13) The language 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 with the contract itself.
Article 12. The formation of a joint venture contract, its
validity, interpretation, execution and the settlement of disputes
under it shall be governed by the Chinese law.
Article 13. Articles of association shall include the following
main items:
(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, professions and
nationalities of the legal representatives thereof;
(4) The total amount of investment, registered capital of the joint
venture, each party's investment proportion, stipulations
concerning the assignment of investment, the ratio 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 management personnel,
and the method of their appointment and dismissal;
(7) Principles governing finance, accounting and auditing;
(8) Dissolution and liquidation;
(9) Procedures for amendment of the articles of association.
Article 14. The agreement, contract and articles of association
shall come into force after being approved by the examination and
approval authority. The same applies in the event of
amendments.
Article 15. The examination and approval authority and the
registration and administration office are responsible for
supervising and inspecting the execution of the joint venture
contracts and articles of association.
Chapter 3 Form of Organization and Registered
Capital
Article 16. 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.
Article 17. 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.
Article 18. The registered capital shall generally be presented in
total amount of investment registered at the registration and
administration office for the establishment of the joint venture.
It should be the total amount of investment subscribed by parties
to the joint venture.
The registered capital shall generally be presented in Renminbi, or
may be in a foreign currency agreed upon by the parties to the
joint venture.
Article 19. A joint venture shall not reduce its registered capital
during the term of the joint venture. If it is needed to reduce the
registered capital because the total amount of investment and the
production and business scale, etc, have changed, the approval from
the examination and approval authority must be obtained.
Article 20. If one party to the joint venture intends to assign all
or part of his investment subscribed to a third party, consent
shall be obtained from the other party to the joint venture, and
the party shall submit the assignment to the examination and
approval authority for approval, and shall go through the
registration procedures for changes with the registration and
administration office.
When one party assigns all or part of his investment to a third
party, the other party has pre-emptive right.
When one party assigns his investment subscribed to a third party,
the conditions given shall not be more favourable than those given
to the other party to the joint venture.
No assignment shall be made effective should there be any violation
of the above stipulations.
Article 21. Any increase, reduction of the registered capital of a
joint venture shall be approved by a meeting of the board of
directors and submitted to the examination and approval authority
for approval. Registration procedures for changes shall be dealt
with at the registration and administration office.
Chapter 4 Ways of Contributing Investment
Article 22. Each participant to a joint venture may contribute
cash or buildings, premises, equipment or other materials,
industrial property, know-how, right to the use of a site as
investment, the value of which shall be ascertained. If the
investment is in the form of buildings, premises, equipment or
other materials, industrial property or known-how, the prices shall
be ascertained through consultation by the parties to the joint
venture on the basis of fairness and reasonableness, or evaluated
by the third party agreed upon by parties to the joint
venture.
Article 23. The foreign currency contributed by the foreign
participant shall be converted into Renminbi according to the base
exchange rate announced by the People's Bank of China on the day of
its submission or be cross exchanged into a predetermined foreign
currency.
Should the cash Renminbi contributed by the Chinese participant be
converted into foreign currency, it shall be converted according to
the base exchange rate announced by the People's Bank of China on
the day of the submission of the funds.
Article 24. The machinery equipment and other materials contributed
as investment by the foreign participant shall be indispensable to
the production of the joint venture.
The price fixed for the machinery and other materials referred to
in the preceding paragraph shall not be higher than the current
international market price for the similar equipment or
materials.
Article 25. The industrial property or know-how contributed by the
foreign participant as investment shall meet one of the following
conditions:
(1) Capable of improving markedly the performance, quality of
existing products and raising productivity;
(2) Capable of notable savings in raw materials, fuel or
power.
Article 26. Foreign participants who contribute industrial property
or know-how as investment shall present relevant documentation on
the industrial property or know-how, including photocopies 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 participants. All these shall serve as an
annex to the contract.
Article 27. The machinery, equipment or other materials, industrial
property or know-how contributed by foreign participants as
investment shall be submitted to the examination and approval
authority for approval.
Article 28. 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 will be
subject to a payment of interest on arrears or a compensation for
the loss as defined in the contract.
Article 29. 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 an investment certificate, which includes
the following items: name of the joint venture; date, month and
year of the establishment of the joint venture; names of the
participants and the investment contributed; date, month and year
of the contribution of the investment; and date, month and year of
issuance of the investment certificate.
Chapter 5 Board of Directors and Management
Office
Article 30. The highest authority of the joint venture shall be
its board of directors. It shall decide all major issues concerning
the joint venture.
Article 31. The board of directors shall consist of no less than
three members. The distribution of the number of directors shall be
ascertained through consultation by the parties to the joint
venture with reference to the proportion of investment
contributed.
The term of office for the directors is four years. Their term of
office may be renewed with the consent of the parties to the joint
venture.
Article 32. 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 other director
to call and preside over the meeting. The chairman may convene an
interim meeting based on a proposal made by more than one-third of
the directors.
A board meeting requires a quorum of over two-thirds of the
directors. Should the director be unable to attend, he shall
present a proxy authorizing someone else to represent him and vote
for him.
A board meeting shall generally be held at the location of the
joint venture's legal address.
Article 33. Decisions on the following items shall be made only
after being unanimously agreed upon by the directors present at the
board meeting:
(1) Amendment of the articles of association of the joint
venture;
(2) Termination and dissolution of the joint venture;
(3) Increase or reduction of the registered capital of the joint
venture;
(4) Merger or division of the joint venture.
Decision on other items shall be made according to the rules of
procedure stipulated in the articles of association of the joint
venture.
Article 34. The chairman of the board is the legal representative
of the joint venture. Should the chairman be unable to exercise his
responsibilities, he shall authorize the vice-chairman of the board
or other director to represent the joint venture.
Article 35. A joint venture shall establish a management office
which shall be responsible for daily management. The management
office shall have a general manager and several deputy general
managers who shall assist the general manager in his work.
Article 36. The general manager shall carry out the decisions of
the board meeting and organize and conduct the daily management of
the joint venture. The general manager shall, within the scope
empowered him by the board, represent the joint venture in outside
dealings, have the right to appoint and dismiss his subordinates,
and exercise other responsibilities and rights as authorized by the
board within the joint venture.
Article 37. 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 citizens or foreign
citizens.
At the invitation 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
management personnel of the joint venture.
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 have any connections with
other economic organizations in commercial competition with their
own joint venture.
Article 38. In case of graft or serious dereliction of duty on the
part of the general manager, deputy general managers or other
high-ranking management personnel, the board of directors shall
have the power to dismiss them at any time.
Article 39. Establishment of branch offices (including sales
offices) outside of China or in Hongkong or Macao is subject to
approval by the Ministry of Foreign Trade and Economic
Cooperation.
Chapter 6 Acquisition of Technology
Article 40. The acquisition of technology mentioned in these
Regulations refers to the necessary technology obtained by the
joint venture by means of technology transfer from a third party or
participants.
Article 41. The technology acquired by 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 international market.
Article 42. The right of the joint venture to do business
independently shall be maintained when making technology transfer
agreements, and relevant documentation shall be provided by the
technology exporting party in accordance with the provisions of
Article 26 of these Regulations.
Article 43. The technology transfer agreements signed by a joint
venture shall be submitted for approval to the examination and
approval authority.
Technology transfer agreements shall comply with the following
stipulations:
(1) Expenses for the use of technology shall be fair and
reasonable.
(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 party.
(3) The term for a technology transfer agreement is generally no
longer than ten years.
(4) After the expiration of a technology transfer agreement, the
technology importing party shall have the right to use the
technology continuously.
(5) Conditions for mutual exchange of information on the
improvement of technology by both parties of the technology
transfer agreement shall be reciprocal.
(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 by Chinese law and
regulations shall be included.
Chapter 7 Right to the Use of Site and its
Fee
Article 44. 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 only 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 parties to a joint venture
and fines for breach of contract should be stipulated in explicit
terms in the contract.
Article 45. If the Chinese participant already has the right to the
use of site for the joint venture, the Chinese participant may use
it as part of its investment. The monetary equivalent of this
investment should be the same as the site use fee otherwise paid
for acquiring such site.
Article 46. The standard 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 according to the purpose of use, geographic and
environmental conditions, expenses for requisition, demolishing and
resettlement and the joint venture's requirements with regard to
infrastructure, and filed with the Ministry of Foreign Economic
Relations and Trade and the state department in charge of
land.
Article 47. Joint ventures engaged in agriculture and animal
husbandry may, with consent of the people's government of the local
province, autonomous region or municipality directly under the
central government, pay a percentage of the joint venture's
operating revenue as site use fees to the local department in
charge of land.
Projects of a development nature in economically undeveloped areas
shall receive special preferential treatment in respect of site use
fees with consent of the local people's government.
Article 48. The rates shall not be subject to adjustment in the
first five years beginning from the day the land is used. After
that the interval of adjustment shall not be less than three years
according to the development and changes in geographic and
environmental conditions.
Site use fee as part of the investment by the Chinese participant
shall not be subject to adjustment during the contract
period.
Article 49. The fee for the right to the use of site obtained by a
joint venture according to Article 44 of these Regulations shall be
paid annually from the day to use the land stipulated in the
contract. For the first calendar year, the venture will pay a
half-year fee if it has used the land for over six months; if less
than six months, the site use fee shall be exempt. During the
contract period, if the rates of site use fees are adjusted, the
joint venture shall pay it according to the new rates from the year
of adjustment.
Article 50. A joint venture may obtain the right to the use of site
not only according to the relevant provisions of the state but also
according to the provisions of this Chapter.
Chapter 8 Purchasing and Selling
Article 51. In its purchase of required machinery, equipment,
raw materials, fuel, parts, means of transport and things for
office use, etc. (hereinafter referred to as materials), a joint
venture has the right to decide whether it buys them in China or
from abroad.
Article 52. The amount of materials needed for office and daily
life use for joint ventures purchased in China is not subject to
restriction.
Article 53. The Chinese Government encourages joint ventures to
sell their products on the international market.
Article 54. A joint venture has the right to export its products
itself or entrust sale agencies of the foreign participant or
Chinese foreign trade corporations with sales on a commission or
distribution.
Article 55. Within the scope of operation stipulated in the
contract, a joint venture can 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
six months. For machines, equipment and other objects a foreign
participant has contributed as part of his investment, the foreign
participant can apply directly for import licenses with documents
approved by examination and approval authority. For materials to be
imported exceeding the stipulated scope of the contracts, separate
application for import licenses according to state regulations is
required.
A joint venture has the right to export its products by itself, for
those export licenses are required by the stipulation of the State,
the joint venture shall make an export plan every business year and
apply for them every six months.
Article 56. The price of materials purchased in China by joint
ventures and the fees paid for water, electricity, gas, heat, goods
transportation, service, engineering, consultation and
advertisement etc, shall enjoy the equal treatment with that
enjoyed by the other domestic enterprises.
Article 57. A joint venture and other Chinese economic
organizations shall, in their economic exchanges, undertake
economic responsibilities and settle disputes over contracts in
accordance with relevant law and the contract concluded between
both parties.
Article 58. A joint venture shall provide statistical documents and
submit statistical forms according to the Statistics Law of the
People's Republic of China and to the provisions on the statistics
system of utilization of foreign investment of China.
Chapter 9 Taxes
Article 59. Joint ventures shall pay taxes according to the
stipulations of relevant laws of the People's Republic of
China.
Article 60. 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.
Article 61. Taxes of the following imported materials of joint
ventures shall be exempted or reduced according to the relevant
provisions of Chinese tax laws:
(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
participant's share of investment according to the provisions of
contract.
(2) Machinery, equipment, parts and other materials imported with
funds which are part of the joint venture's total investment.
(3) Machinery, equipment, parts and other materials imported by the
joint venture with the additional capital under the approval of
examination and approval authority on which China cannot guarantee
production and supply.
(4) Raw materials, auxiliary materials, components, parts and
packing materials imported by the joint venture for production of
export goods.
Taxes shall be pursued and payable according to regulations when
the above-mentioned duty-free or duty-reduced imported materials
are approved for sale inside China or switched to the production of
items to be sold on the Chinese domestic market.
Article 62. Except those export items restricted by the state, the
taxes of products of a joint venture for export will be reduced,
exempted or returned according to the relevant provisions of
Chinese tax laws.
Chapter 10 Foreign Exchange Control
Article 63. All matters concerning foreign exchange for joint
ventures shall be handled according to the Regulations on Foreign
Exchange Control of the People's Republic of China and relevant
regulations.
Article 64. With the business license, a joint venture can open
foreign exchange deposit accounts and Renminbi deposit accounts
with domestic banks. The bank handling the account of the joint
venture exercises supervision of receipts and expenditures.
Article 65. A joint venture shall get permission from the General
Administration of Foreign Exchange Control or one of its branches
to open a foreign exchange deposit account with an overseas bank or
one in Hongkong or Macao, and report to the State General
Administration of Foreign Exchange Control or one of its branches
its foreign exchange receipts and expenditures, and provide account
sheets.
Article 66. The sub-division set up by a joint venture in foreign
countries or in Hongkong or Macao shall submit its annual statement
of assets and liabilities and annual profit report to the State
General Administration of Foreign Exchange Control or one of its
branches through the joint venture.
Article 67. A joint venture can apply to domestic financial
institutions for foreign loans and Renminbi loans according to its
business needs, and can also borrow foreign exchange as capital
from banks abroad or in Hong Kong or Macao, and shall go through
the procedures for registration or record-keeping with the State
General Administration of Foreign Exchange Control or one of its
branches.
Article 68. After foreign staff and workers and staff and workers
from Hongkong or Macao have paid income tax on their salaries and
other legitimate incomes according to the law, they can purchase
foreign exchanges and remit outside China the remaining foreign
exchange after deduction of their living expenses in China
according to the relevant provisions of the state.
Chapter 11 Financial Affairs and Accounting
Article 69. Procedures for handling financial affairs and
accounting of a joint venture shall be formulated 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 being filed with local financial departments and
tax authorities.
Article 70. A joint venture shall employ a treasurer to assist the
general manager in handling the financial affairs of the
enterprise. If necessary a deputy treasurer can be appointed.
Article 71. A joint venture shall (small venture may not) 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.
Article 72. 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.
Article 73. 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. A foreign language can be used concurrently with mutual
consent.
Article 74. Principally joint ventures shall adopt Renminbi as the
standard currency. In keeping accounts, however, another currency
can be used through consultation by the parties concerned.
Article 75. In addition to the use of standard currency to record
accounts, joint ventures shall record accounts in currencies
actually used in payments and receipts, if such currencies in cash,
bank deposits, funds of other currencies, creditor's right, debts,
gains, expenses, etc. are inconsistent with the standard currency
in recording accounts.
Joint ventures using a foreign currency in accounting shall work
out a report of financial affaires and accounts in Renminbi.
The losses and gains of the standard currency used in the accounts
caused by differences in exchange rates in the course of
remittances shall be recorded in the year's losses and gains
accounts. If the exchange rates change, the remaining sum on the
book of related foreign exchange accounts shall be handled
according to China's relevant laws and procedures on financial
affairs and accounting on the settling day at the end of each
year.
Article 76. Principles of profit distribution after payment of
taxes in accordance with the Income Tax Law of the People's
Republic of China concerning Joint Ventures with Chinese and
Foreign Investment are as follows:
(1) Allocations for reserve funds, bonuses and welfare funds for
staff and workers and expansion funds of the joint venture.
Proportion of allocations is decided by the board of
directors.
(2) Reserve funds can be used to make up the losses of the joint
venture, and with the consent of examination and approval
authority, to increase the joint venture's capital for production
expansion.
(3) After the funds described in (1) of this article have been
deducted and if the board of directors decides to distribute the
remaining profit, it should be distributed according to the
proportion of each participant's investment.
Article 77. Profits cannot be distributed unless the losses of
previous years have been made up. Remaining profits from previous
year (or years) can be distributed together with that of the
current year.
Article 78. A joint venture shall submit quarterly and annual
fiscal reports to the participants, the local tax authority, and
financial department.
Article 79. Only after being examined and certified by an
accountant registered in China can the following documents,
certificates and reports be considered valid.
(1) Certificates of investment from all parties to a joint venture
(lists of assessed value signed and agreed upon by all parties to
the joint venture shall be attached to documents on investments
involving materials, site use rights, industrial property and
know-how);
(2) Annual fiscal reports of the joint venture;
(3) Fiscal reports on liquidation of the joint venture.
Chapter 12 Staff and Workers
Article 80. 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 state provisions related to labor and social security.
Article 81. 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.
Article 82. The salary and bonus systems of joint ventures shall be
in accordance with the principle of distribution to each according
to his work, and more pay for more works.
Article 83. Salaries and remuneration of the general manager,
deputy general manager(s), chief engineer and deputy chief
engineer(s), treasurer and deputy treasurer(s), auditor and other
high-ranking officials shall be decided upon by the board of
directors.
Chapter 13 Trade Union
Article 84. 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 and the Articles of Association of Chinese Trade
Union.
Article 85. Trade unions in joint ventures are representatives of
the interests of the staff and workers. They have the power to
represent the staff and workers to sign labour contracts with joint
ventures and supervise the execution of these contracts.
Article 86. The basic tasks of the trade unions in joint ventures
are: to protect the democratic rights and material interests of the
staff and workers pursuant to the 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 fulfill the economic tasks of the enterprises.
Article 87. Trade union representatives have the right to attend as
nonvoting members and to report the opinions and demands of staff
and workers to meetings of the board of directors held to discuss
important issues such as development plans, production and
operational activities of joint ventures.
Trade union representatives have the right to attend as nonvoting
members of meetings of the board of directors held to discuss and
decide on awards and penalties to staff and workers, salary
systems, welfare benefits, labour protection and labour insurance,
etc. The board of directors shall heed the opinions of the trade
unions and win its cooperation.
Article 88. A joint venture shall actively support the work of the
trade union, and, in accordance with stipulations of the Trade
Union Law of the People's Republic of China, provide housing and
facilities for the trade union's office work, meetings, and
welfare, cultural and sports activities. Each month the joint
venture shall allot an amount of money totaling 2 percent of all
the salaries of the joint venture's staff and workers as trade
union's funds, which the trade union of the joint venture shall use
according to the relevant managerial rules for trade union funds
formulated by the All China Federation of Trade Unions.
Chapter 14 Duration, Dissolution and
Liquidation
Article 89. The duration of a joint venture shall be implemented
according to the Interim Provisions on the Duration of Joint
Ventures Using Chinese and Foreign Investment.
Article 90. A joint venture may be dissolved in the following
situations:
(1) Termination of duration;
(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 fulfill the obligations prescribed by
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, etc.;
(5) Inability to obtain the desired objectives of the operation and
at the same time to see a future for development;
(6) Occurrence of other reasons for dissolution prescribed by the
contract and articles of association.
In cases described in (2), (3), (4), (5) and (6) of the preceding
paragraph, the board of directors shall make an application for
dissolution to the examination and approval authority; in the case
described in (3), the party performing the contract shall make an
application to the examination and approval authority.
In the situation described in (3) of this article, the party that
failed to fulfill the obligations prescribed by the agreement,
contract and articles of association shall be liable to the losses
thus caused.
Article 91. Liquidation shall be conducted upon announcement of the
dissolution of a joint venture. The joint venture shall set up a
liquidation commission according to the provisions of the
Liquidation Measures of Foreign Funded Enterprises, which shall be
responsible for the matters of liquidation.
Article 92. Members of a liquidation committee are usually selected
among 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 examination and approval authority
deems necessary, it may send personnel to supervise the
process.
The liquidation expenses and remuneration to members of the
liquidation committee shall be paid in priority from the existing
assets of the joint venture.
Article 93. The tasks of the liquidation committee are: to conduct
thorough check of the property of the joint venture concerned, its
creditors' rights and liabilities; to work out the statement of
assets and liabilities and the list of property; to put forward a
basis on which 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 to sue and be sued.
Article 94. Joint venture shall be liable to its debts with all of
its assets. The remaining property after the clearance of debts
shall be distributed among parties to the joint venture according
to the proportion of each party's investment unless otherwise
provided by agreement, contract and articles of association of the
joint venture.
At the time when a joint venture is being dissolved, its net assets
or remaining property, after the deduction of the undistributed
profit, various funds and liquidation expenses of the joint
venture, that exceeds the registered capital is liquidation income,
on which income taxes shall be levied according to law.
Article 95. On 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
examination and approval authority, go through formalities for
nullifying its registration and hand in its business license to the
registration authority.
Article 96. After dissolution of a joint venture, its account books
and documents shall be left in the care of the Chinese
participant.
Chapter 15 Settlement of Disputes
Article 97. 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. Disputes that
cannot be settled through these means may be settled through
arbitration or courts of justice.
Article 98. In accordance with the relevant written agreement on
arbitration, the participants may carry out arbitration at
arbitration agencies in China, or at other arbitration
agencies.
Article 99. If there is no written arbitration agreement between
the parties to a joint venture, each side of the dispute can file a
suit with the Chinese People's Court.
Article 100. In the process of solving 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 joint venture.
Chapter 16 Supplementary Provisions
Article 101. The Chinese office in charge of visas shall give
convenient service by simplifying procedures for staff and workers
from foreign countries or from Hong Kong and Macao (including their
family members) who frequently cross Chinese borders.
Article 102. Chinese staff and workers going abroad for study
tours, business negotiations or training shall go through the
procedures for going abroad (cross border) according to the
relevant provisions of the state.
Article 103. Staff and workers from foreign countries or from Hong
Kong and Macao working for a joint venture can bring in needed
means of transport and items for office use, paying taxes according
to the relevant provisions of Chinese tax laws.
Article 104. Joint ventures set up in the special economic zones
shall abide by the laws and administrative regulations otherwise
provided, if any.
Article 105. The regulations shall come into force on the day of
promulgation.?
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? Source: Ministry of Commerce