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.