Implementing Regulations of the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures (Revised in 2001)

Implementing Regulations of the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures

Order of the State Council No. 311

July 22, 2001

(Promulgated by the State Council on September 20, 1983, amended by the State Council on January 15, 1986 and December 21, 1987, and further amended in accordance with the Decision of the State Council on the Revision of the Implementing Regulations of the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures on July 22, 2001)

Chapter I General Provisions

Article 1 These Regulations are formulated for the purpose of facilitating the smooth implementation of the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures (hereinafter referred to as the "Law on Sino-Foreign Equity Joint Ventures").

Article 2 Sino-foreign equity joint ventures (hereinafter referred to as "joint ventures") established within the territory of China in accordance with the Law on Sino-foreign Equity Joint Ventures are legal persons in China and are governed and protected by Chinese laws.

Article 3 Joint ventures established within the territory of China shall be able to promote the economic development of China and the enhancement of science and technology, and facilitate the socialist modernization and construction.
Industries in which the establishment of joint ventures is encouraged, permitted, restricted or prohibited by the State shall be determined in accordance with the provisions of the State in the Regulations on Foreign Investment Guidelines and the Guidance Catalogue of Foreign Investment Industries.

Article 4 An application for establishing a joint venture shall not be approved under any of the following circumstances:
1. damages China's sovereignty;
2. violates Chinese laws;
3. is not in conformity with the requirements of the development of China's national economy;
4. causes environmental pollution; or
5. there is obvious inequity in the agreements, contracts and Articles of association signed, impairing the rights and interests of one party to the joint venture.

Article 5 A joint venture shall have the right to independently conduct business 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 assistance.

Chapter II Establishment and Registration

Article 6 The establishment of joint ventures within the territory of China shall be subject to the examination and approval of the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China (hereinafter referred to as MOFTEC). Upon approval, MOFTEC shall issue a certificate of approval.
The State Council shall authorize the people's government in provinces, autonomous regions and municipalities directly under the Central Government and the relevant departments under the State Council the power to examine and approve the establishment of joint ventures which satisfy the following conditions:
1. Where the total amount of capital contribution is within the examination and approval authority as prescribed by the State Council and the source of capital of the Chinese party to the joint venture has been ascertained;
2. Where there is no need for the State to allocate additional raw materials, and the national balance of fuel, power, transportation and foreign trade export quota, etc. is not affected.
Joint ventures established upon approval as prescribed in the preceding paragraph shall be filed with MOFTEC for the record.
MOFTEC and the State Council authorized people's government in provinces, autonomous regions and municipalities directly under the Central Government and the relevant departments under the State Council shall hereinafter collectively referred to as the examination and approval authorities.

Article 7 When applying for the establishment of a joint venture, the Chinese party and the foreign party to the joint venture shall jointly submit the following documents to the examination and approval authorities:
1. An application for the establishment of a joint venture;
2. The feasibility study report jointly prepared by the parties to the joint venture;
3. Joint venture agreements, contracts and
Articles of association executed by the representatives authorized by the parties to the joint venture;
4. Lists of candidates for chairperson, vice chairperson and directors nominated by the parties to the joint venture;
5. Other documents required by the examination and approval authorities.
Documents listed in the preceding paragraph shall be written in Chinese, and documents (2), (3) and (4) can be written simultaneously in a foreign language agreed upon by the parties to the joint venture. Documents written in both languages shall be equally authentic and effective.
Anything inappropriate in the submitted documents found by the examination and approval authorities shall be required to be amended within a specified time limit.

Article 8 Upon receipt of all the documents stipulated in Article 7 hereof, the examination and approval authorities shall, within 3 months, decide whether to approve or disapprove.

Article 9 The applicant shall, within one month upon receipt of the certificate of approval, go through the registration formalities with the administrative authority for industry and commerce (hereinafter referred to as the registration authority) in accordance with the relevant provisions of the State. The date on which the business license of the joint venture is issued shall be the date of the establishment of the joint venture.

Article 10 For the purposes of these Regulations, "joint venture agreement" refers to the document agreed upon by the parties to the joint venture on some major points and principles regarding the establishment of the joint venture. "Joint venture contract" refers to the document in which a consensus is reached by the parties to the joint venture on their mutual rights and obligations. "Articles of association" refers to the document agreed upon by the parties to the joint venture specifying the purposes, organizational principles and methods of management of the joint venture in compliance with the principles of the joint venture contract. Where the joint venture agreement is in conflict with the joint venture contract, the latter shall prevail. The parties to the joint venture may agree to sign the joint venture contract and Articles of association only, without concluding a joint venture agreement.

Article 11 A joint venture contract shall include the following main particulars:
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. the name of the joint venture, its legal address, purposes and the scope and scale of business;
3. the total amount of capital contribution and registered capital of the joint venture, the amount, proportion and forms of capital contribution of each party to the joint venture, the time limit for making capital contribution, stipulations concerning contribution in default and equity transfer;
4. the proportion of profit to be distributed and losses to be borne by each party;
5. the composition of the board of directors, the number of directors to be appointed by each party, and the responsibilities, powers and means of employment of the general manager, deputy general manager and other high-ranking managerial 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. the principles governing the handling of finance, accounting and auditing;
9. the stipulations concerning labor management, wages, welfare, and labor insurance;
10. the duration of the joint venture, its dissolution and the procedures for liquidation;
11. the liabilities for breach of contract;
12. the ways and procedures for settling disputes between the parties to the joint venture; and
13. the language(s) used in the contract and the conditions on which the contract comes into force.
The annex to a joint venture contract shall carry the same effect as the contract itself.

Article 12 Chinese laws shall apply to the conclusion, validity, interpretation and performance of a joint venture contract, as well as to the settlement of disputes.

Article 13 The Articles of association of a joint venture shall include the following main particulars:
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 representatives thereof;
4. the total amount of capital contribution, registered capital of the joint venture, each party's capital contribution the amount and proportion of capital contribution of each party to the joint venture, stipulations concerning equity transfer, 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. the principles governing financial, accounting and auditing systems;
8.
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