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Sino-Foreign Equity Joint Venture Enterprise Law

 Article 1    In order to increase the international economic cooperation and technology exchange, the People's Republic of China permits foreign companies, enterprises, and other economic organizations or individuals (hereinafter, "Foreign Parties") to establish equity joint venture enterprises ("EJVs") in the People's Republic of China in conjunction with Chinese companies, enterprises, or other economic organizations (hereinafter, "Chinese Parties") upon approval of the Chinese Government and based on the principle of equality and mutual benefit.

 Article 2    The Chinese Government protects, pursuant to the law, Foreign Parties to EJVs in respect to their investments, profits due to them, and other lawful rights and interests according to the agreements, contracts, or articles of association approved by the Chinese Government.
All activities conducted by an EJV shall comply with the laws and regulations of the People's Republic of China.
The State does not nationalize or expropriate any EJV, provided that the State may, under special circumstances and as required by the social public interest, expropriate an EJV in accordance with the statutory procedures and shall offer compensation accordingly.

 Article 3    The agreement, contract, or article of association of an EJV entered into by the parties thereto shall be submitted to the department in charge of foreign economic relations and trade of the State (hereinafter, "Examination and Approval Authority") for examination and approval. The Examination and Approval Authority shall decide whether to grant the approval or not within three months. Upon approval, an EJV shall register with the State Administration for Industry and Commerce and collect its business license, and then commence business operation.

 Article 4    The form of an EJV is a limited liability company.
Of the total registered capital of an EJV, the proportional ratio of the investment made by the Foreign Party thereto shall generally be not less than twenty-five percent.
The parties to an EJV share profits, risks, and losses in proportion to their registered capital.
Transfer of the registered capital of an EJV, if required, must be subject to the consent of all parties thereto.

 Article 5    The parties to an EJV may make investment in cash, in kind, in form of industrial property rights, etc.
Technologies and equipment that are contributed as capital by the Foreign Party to an EJV must truly be advanced technologies and equipment accommodating China's needs. Those who intentionally use lagging technologies and equipment to conduct deception and have caused losses shall compensate for the losses.
The investment of the Chinese Party to an EJV includes the premises use rights provided for the duration of operation of the EJV. The enterprise shall pay the use fee to the Chinese Government if the premises use rights are not included as a part of the investment of the Chinese Party thereto.
The aforesaid various investment forms shall be specified in the contract and articles of association of an EJV, with the prices thereof (other than for the premises) shall be determined through consultation and assessment by the parties to the EJV.

 Article 6    An EJV has a board of directors, and the number of its members and composition shall be determined in the contract and articles of association through consultation by all parties to the EJV. The appointment, dismissal, and replacement of the members shall be at the discretion of the parties to the EJV. The chairman and vice chairman shall be determined through consultation by the parties to the EJV or elected by the board of directors. Where the chairman is from one of the Chinese and Foreign Parties to the EJV, the vice chairman shall then be from the other. The board shall make decisions on major issues of the EJV based on the principles of equality and mutual benefit.
The authority of a board of directors includes discussing and deciding on, in accordance with the provisions of the articles of association of the EJV, all major issues of the EJV: enterprise development planning, proposals for production and operation activities, income and expense budget, profit distribution, plans on employees' salaries, close of business, and the appointment or engagement of the general manager, deputy general manager, chief engineer, chief accountant, and auditor as well as their authorities and remunerations, etc.
The posts of general manager and deputy general manager (or factory manager and deputy factory manager) shall respectively be assumed by each party to the EJV.
The matters of an employee of a joint venture, such as employment, dismissal, remuneration, welfare, labor protection, and labor insurance shall be specified by concluding a contract in accordance with the law.

 Article 7    The staff members of an EJV establish a labor union organization in accordance with the law to carry out labor union activities and safeguard the employees' lawful rights and interests.
An EJV shall provide, to the labor union of its own, the necessary conditions for carrying out activities.

 Article 8    With respect to any gross profit gained by an EJV, after payment of the income taxes for such profit pursuant to the provisions of the tax laws of the People's Republic of China and deduction of the reserve funds, rewards and welfare funds for the employees, and the enterprise development funds from such profit according to the articles of association of the EJV, the net profit shall be distributed based on the proportional ratio of the registered capital for each party to the EJV.
An EJV may, pursuant to the taxation laws and administrative regulations of the State, be entitled to the preferential treatment of tax reduction or exemption.
When a Foreign Party reinvests its distributed profit in China, an application may be filed for returning a part of the paid income tax.

 Article 9    An EJV shall, subject to its business license, open a foreign exchange account in a bank or any other financial institution that is permitted to undertake foreign exchange operations by the relevant State administrative authority for foreign exchange.
The matters of an EJV concerning foreign exchange shall be handled in conformity with the Regulations on Foreign Exchange Administration of the People's Republic of China.
An EJV may, in its business operation activities, directly raise funds from foreign banks.
All insurances of an EJV shall be covered by insurance companies within China.

 Article 10    The raw materials, fuel, and other materials as needed by an EJV within the approved business scope may be purchased on the domestic or international market based on the principles of fairness and reasonableness.
EJVs are encouraged to sell their products to overseas markets. Exported products may be sold to overseas markets by an EJV directly or by a commissioned agency that is associated thereto, or alternatively, they may be sold through a foreign trade agency in China. The products of an EJV may also be sold on the China market.
An EJV may establish a branch outside China if necessary.

 Article 11    The Foreign Party to an EJV may, using the currencies specified in the equity joint venture contract thereof, remit the net profit distributed upon its performance of the obligations as specified in the law and the agreement or contract thereof, the funds distributed upon the expiration of an EJV period or suspension of the EJV, and other funds according to the regulations on foreign exchange administration.
A Foreign Party to an EJV is encouraged to deposit in the banks of China its foreign exchange which it is entitled to remit.

 Article 12    Foreign employees of an EJV may, upon payment of individual income tax pursuant to the tax laws of the People's Republic of China, remit their salary-earnings and other legitimate incomes abroad according to the regulations on foreign exchange administration.

 Article 13    Agreement on the duration of operation of an EJV shall vary depending on different industries and situations. With respect to EJVs in certain industries, duration of operation thereof may or may not be agreed upon. With respect to EJVs in certain industries, duration of equity joint venture operation may or may not be agreed upon. Where the duration of equity joint venture operation of an EJV is agreed upon, and the parties thereto agree to extend the duration, the application shall be filed with the relevant Examination and Approval Authority at least six months in advance before the duration expires. That authority shall, within one month of receiving the application, decide whether to grant approval or not.

 Article 14    Where an EJV suffers any severe loss or a party thereto fails to perform its obligations under the contract and articles of association or in the event of force majeure, the contract may be terminated, provided that such termination shall be consented by all parties to the EJV through their consultation, reported to, and approved by, the relevant Examination and Approval Authority, and registered with the administrative authority for industry and commerce of the State. Where any loss is caused by breach of the contract, the breaching party shall bear the economic liability.

 Article 15    In the case of failure of a board of directors to settle the dispute between each party to an EJV through negotiation, an arbitration institution of China may conduct mediation or arbitration, or each party thereto may also confer on arbitration in other arbitration institutions.
Where each party thereto has neither provided an arbitration clause in the contract nor subsequently reached a written arbitration agreement, an action may be filed with a people's court.

 Article 16    This Law shall take effect as of the promulgation date.
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