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CIRCULAR OF THE STATE COUNCIL CONCERNING THE REVISION OF THE THIRD PARAGRAPH OF ARTICLE 86 IN REGULATIONS FOR IMPLEMENTATION OF THE CHINESE-FOREIGN EQUITY JOINT VENTURES

Category  FOREIGN ECONOMIC RELATIONS AND TECHNOLOGICAL COOPERATION Organ of Promulgation  The State Council Status of Effect  In Force
Date of Promulgation  1987-12-21 Effective Date  1987-12-21  

Circular of the State Council Concerning the Revision of the Third Paragraph of Article 86 in Regulations for Implementation of the Law of the People's Republic of China on Chinese-foreign Equity Joint Ventures




REGULATIONS FOR THE IMPLEMENTATION OF THE LAW OF THE PEOPLE'S REPUBLIC OF
Chapter I  General Provisions
Chapter II  Establishment and Registration
Chapter III  Form of Organization and Registered Capital
Chapter IV  Ways of Contributing Investment
Chapter V  Board of Directors and Management Structure
Chapter VI  Introduction of Technology
Chapter VII  Right to the Use of Site and Fees
Chapter VIII  Planning, Purchasing and Selling
Chapter IX  Taxes
Chapter X  Foreign Exchange Control
Chapter XI  Financial Affairs and Accounting
Chapter XII  Staff and Workers
Chapter XIII  Trade Union
Chapter XIV  Duration, Dissolution and Liquidation
Chapter XV  Settlement of Disputes
Chapter XVI  Supplementary Provisions
Note: New provisions have been added to this Article. Therefore, the

(December 21, 1987)

    The Third Paragraph of Article 86 in "Regulations for Implementation of the
Law of the People's Republic of China on Chinese-Foreign Equity Joint
Ventures", promulgated by the State Council on September 20, 1983, provides:
"Losses or gains in remittances resulting from differences in exchange rates
shall be recorded as current gains or losses for the year in which they occur.
No adjustments shall be made to a balance in a foreign currency account as the
result of a recorded fluctuation in the exchange rate for such a currency."
This paragraph has been revised and now it reads: "The differences, converted
into the standard accounting currency and resulting from the fluctuations in
foreign exchange rates, shall be recorded as current gains or losses in
remittances for the year in which they occur. The surplus appearing in foreign
currency accounts as the result of a recorded fluctuation in the exchange rates
shall be handled, while settling accounts at the end of the year, by
accountants in accordance with the provisions of pertinent Chinese laws and
financial and accounting system."

    The said Circular shall go into effect as of the date of promulgation.?
REGULATIONS FOR THE IMPLEMENTATION OF THE LAW OF THE PEOPLE'S REPUBLIC OF
CHINA ON CHINESE-FOREIGN EQUITY JOINT VENTURES (Promulgated by the State
Council on September 20, 1983, amended according to the Decision Concerning
the Revision of Article 100 in Regulations for Implementation of the Law of
the People's Republic of China on Chinese-Foreign Equity Joint Ventures,
promulgated by the State Council on January 15, 1986, and the Circular of the
State Council Concerning the Revision of the Third Paragraph of Article 86 in
Regulations for Implementation of the Law of the People's Republic of China
on Chinese-Foreign Equity Joint Ventures, issued by the State Council on
December 21, 1987)
Chapter I  General Provisions

    Article 1  These Regulations are formulated with a view to facilitating the
smooth implementation of the Law of the People's Republic of China on
Chinese-Foreign Equity Joint Ventures (hereinafter referred to as the Law on
Chinese-Foreign Equity Joint Ventures).

    Article 2  Chinese-foreign equity joint ventures (hereinafter referred to
as joint ventures) established within China's territory in accordance with the
Law on Chinese-foreign Equity Joint Ventures are legal persons in China and are
subject to the jurisdiction of Chinese laws and enjoy protection thereof.

    Article 3  Joint ventures established within China's territory shall be
able to promote the development of China's economy and the raising of
scientific and technological levels for the benefit of socialist modernization.
Joint ventures permitted to be established are mainly in the following
industries:

    (1) energy development, the building material, chemical and metallurgical
industries;

    (2) machine manufacturing, instrument and meter industries and offshore oil
exploitation equipment manufacturing;

    (3) electronics and computer industries, and communication equipment
manufacturing;

    (4) light, textile, foodstuffs, medicine, medical apparatus and packaging
industries;

    (5) agriculture, animal husbandry and aquiculture;

    (6) tourism and service trades.

    Article 4  Joint ventures to be applied for their establishment shall lay
stress on economic results and shall comply with one or several of the
following requirements:

    (1) they shall adopt advanced technical equipment and scientific managerial
methods which help increase the variety, improve the quality and raise the
output of products and save energy and materials;

    (2) they shall prove to be conducive to technical renovation of enterprises
and be able to bring about quicker returns and bigger profits with less
investment;

    (3) they shall help expand exports and thereby increase foreign currency
receipts;

    (4) they shall help train technical and managerial personnel.

    Article 5  Application for establishing joint ventures shall not be
approved if they involve any of the following circumstances:

    (1) detriment to China's sovereignty;

    (2) violation of Chinese Law;

    (3) nonconformity with the requirements of the development of China's
national economy;

    (4) environmental pollution;

    (5) obvious inequity in the agreements, contracts and articles of
association signed, impairing the rights and interests of one of the parties.

    Article 6  Unless otherwise stipulated, the government department in charge
of the Chinese joint venturer in a joint venture shall be the department in
charge of the joint venture (hereinafter referred to as the department in
charge). If a joint venture has two or more Chinese joint venturers which are
under different departments or from different regions, the departments and
regions concerned shall, through consultation, designate a department in
charge.

    Departments in charge are responsible for providing guidance and assistance
and exercising supervision over the joint ventures.

    Article 7  A joint venture has the right to independently conduct business
operations and management within the scope as prescribed by Chinese laws and
regulations, and by the agreement, contract and articles of association of the
joint venture. The departments concerned shall provide support and assistance.
Chapter II  Establishment and Registration

    Article 8  The establishment of a joint venture in China is subject to
examination and approval by the Ministry of Foreign Economic Relations and
Trade of the People's Republic of China (hereinafter referred to as the
MOFERT). Upon approval, an Approval Certificate shall be issued by the MOFERT.

    The MOFERT may entrust the people's governments in the related provinces,
autonomous regions, and municipalities directly under the Central Government or
relevant ministries or bureaus under the State Council (hereinafter referred
to as the entrusted office) with the power to examine and approve the
establishment of joint ventures that comply with the following conditions:

    (1) the total amount of investment is within the limit set by the State
Council and the source of capital of the Chinese venturers has been
ascertained;

    (2) no additional allocation of raw materials by the State is required and
the national balance as to fuel, power, transportation and foreign trade
export quotas is not affected.

    The entrusted office, after approving the establishment of a joint venture,
shall report the same to the MOFERT for the record. An Approval Certificate
shall be issued by the MOFERT.

    (The MOFERT and the entrusted office will hereinafter be generally referred
to as the examining and approving authorities.)

    Article 9  The following procedures shall be followed in the establishment
of a joint venture:

    (1) it is the Chinese joint venturer in a joint venture that shall submit
to its department in charge a project proposal and a preliminary feasibility
study report of the joint venture to be established with foreign joint
venturer. The proposal and the preliminary feasibility study report. upon
examination and approval by the department in charge, shall be submitted to the
examining and approving authorities for final approval. The parties to the
venture shall then conduct work centering around the feasibility study, and
then proceed on this basis, to negotiate and sign joint venture agreement,
contract and articles of association;

    (2) when applying for the establishment of a joint venture, the Chinese
joint venturer is responsible for the submission of the following documents to
the examining and approving authorities:

    (a) a wtitten application for the establishment of the joint venture;

    (b) the feasibility study report jointly prepared by the parties to the
venture;

    (c) joint venture agreement, contract and articles of association signed by
representatives authorized by the parties to the venture;

    (d) list of candidates for chairman and vice-chairman of board of directors
and directors nominated by the parties to the venture;

    (e) written opinions concerning the establishment of the said venture of
the department in charge and the people's government of the province,
autonomous region or municipality directly under the Central Government where
the joint venture is located.

    The aforesaid documents shall be written in Chinese. Documents (b), (c) and
(d) may be written simultaneously in a foreign language agreed upon by the
parties to the joint venture. Both versions are equally authentic.

    Article 10  Upon receipt of the documents stipulated in Article 9 (2). the
examining and approving authorities shall, within 3 months, decide whether to
approve or disapprove them. Should anything inappropriate be found in any of
the aforementioned documents, the examining and approving authorities shall
demand an amendment within a limited time. Otherwise, no approval shall be
granted.

    Article 11  The applicant shall, within one month as of the receipt of the
Approval Certificate, register with the administrative department for industry
and commerce of the province, autonomous region or municipality directly under
the Central Government in accordance with the provisions of the Measures of the
People's Republic of China for the Administration of the Registration of
Chinese-Foreign Equity Joint Ventures (hereinafter referred to as registration
administration office). The date of the issuance of its business licence is the
date of the formal establishment of the joint venture.

    Article 12  Any foreign investor who intends to establish a joint venture
in China but is unable to find a specific co-operator in China may submit a
preliminary plan for the joint venture project and entrust the China
International Trust and Investment Corporation (CITIC) or a trust and
investment corporation of a province, autonomous region or municipality
directly under the Central Government, or a relevant government department or
a non-governmental organization, to recommend Chinese co-operators.

    Article 13  The "joint venture agreement" mentioned in this Chapter refers
to the document agreed upon by the parties to the joint venture on some major
points and principles governing the establishment of the joint venture.

    "Joint venture contract" refers to the document agreed upon and concluded
by the parties to the joint venture on their mutual rights and obligations.

    "Articles of association" refers to the document agreed upon by the parties
to the joint venture specifying the purpose, organizational principles and
method of management of the joint venture in compliance with the principles of
the joint venture contract.

    Where the joint venture agreement comes into conflict with the contract,
the latter shall prevail.

    The parties to the joint venture may agree to sign the contract and
articles of association only, without signing an agreement.

    Article 14  A joint venture contract shall include the following main
items:

    (1) the names, the countries of registration, the legal addresses of
parties to the joint venture, and the names, positions and nationalities of the
legal representatives thereof;

    (2) name of the joint venture, its legal address, purpose and the scope and
scale of business;

    (3) total amount of investment and registered capital of the joint venture,
amount, proportion and forms of investment to be contributed by each party to
the joint venture, the time limit for contributing investment, stipulations
concerning incomplete contributions, and assignments of investments;

    (4) the proportion of profit to be shared and losses to be borne by each
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 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, and the ratio of products sold within Chinese territory to those sold
abroad;

    (8) arrangements for receipts and expenditures in foreign currency;

    (9) principles governing the handling of finance, accounting and auditing;

    (10) stipulations concerning labour management, wages, welfare, and labour
insurance;

    (11) the duration of the joint venture, its dissolution and the procedures
for liquidation;

    (12) the liabilities for breach of contract;

    (13) ways and procedures for settling disputes between the parties to the
joint venture;

    (14) the language(s) used for the contract and the conditions for putting
the contract into force.

    The annex to the contract of a joint venture shall be equally authentic as
the contract itself.

    Article 15  Chinese laws shall apply to the conclusion, validity,
interpretation and execution of a joint venture contract, as well as to the
settlement of disputes.

    Article 16  The Articles of association of a joint venture 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, positions 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 proportions of profit distribution and losses to
be borne by parties to the joint venture;

    (5) the composition of the board of directors, its responsibilities, powers
and rules of procedure, the term of office of the directors, and the
responsibilities of its chairman and vice-chairman;

    (6) the setting up of management organizations, rules for handling routine
affairs, the responsibilities of the general manager, deputy general manager
and other high-ranking managerial personnel, and the method of their
appointment and dismissal;

    (7) principles governing financial, accounting and auditing systems;

    (8) dissolution and liquidation;

    (9) procedures for amendment of the articles of association.

    Article 17  The agreement, contract and articles of association shall come
into force upon approval by the examining and approving authorities. The same
applies to amendments thereof.

    Article 18  The examining and approval authorities and the registration
administration office are responsible for supervising and checking on the
execution of the joint venture contracts and articles of association.
Chapter III  Form of Organization and Registered Capital

    Article 19  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 20  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 21  The registered capital of a joint venture refers to the total
amount of investment registered at the registration administration office for
the establishment of the joint venture. It shall be the total amount of
investment subscribed by parties to the joint venture.

    The registered capital shall generally be represented in Renminbi, or may
be in a foreign currency agreed upon by the parties to the joint venture.

    Article 22  A joint venture shall not reduce its registered capital during
the term of the joint venture.

    Article 23  If one party to the joint venture intends to assign all or part
of its investment subscribed to a third party, consent shall be obtained from
the other party to the joint venture, and approval from the examining and
approving authorities is required.

    When one party assigns all or part of its investment to a third party, the
other party has pre-emptive right.

    When one party assigns its investment subscribed to a third party, the
terms of assignment shall not be more favourable than those to the other party
to the joint venture.

    No assignment shall be effective should there be any violation of the above
stipulations.

    Article 24  Any increase, assignment or other disposal of the registered
capital of a joint venture shall be approved at a meeting of the board of
directors and submitted to the original examining and approving authorities for
approval. Registration procedures for changes shall be handled at the original
registration administration office.
Chapter IV  Ways of Contributing Investment

    Article 25  Each joint venturer may invest in cash or may contribute
buildings, factory premises, equipment or other materials, industrial property,
proprietary technology, or right to the use of a site, appraised at
appropriate prices, as investment. If the investment is in the form of
buildings, premises, equipment or other materials, industrial property or
proprietary technology, the prices shall be determined through consultation by
the parties to the joint venture on the basis of fairness and reasonableness,
or they shall be evaluated by a third party accepted and invited by the parties
to the joint venture.

    Article 26  The foreign currency contributed by the foreign joint venturer
shall be converted into Renminbi according to the exchange rate quoted by the
State Administration of Foreign Exchange Control of the People's Republic of
China (hereinafter referred to as the State Administration of Foreign Exchange
Control) on the day of its submission or be cross exchanged into the foreign
currency as agreed upon.

    Should the cash Renminbi contributed by the Chinese joint venturer be
converted into foreign currency, it shall be converted according to the
exchange rate quoted by the State Administration of Foreign Exchange Control on
the day of its submission.

    Article 27  The machinery, equipment and other materials contributed as
investment by the foreign joint venturer shall meet the following conditions:

    (1) they are indispensable to the production of the joint venture;

    (2) China is unable to manufacture them, or can manufacture them only at
too high a price, or their technical performance and time of availability
cannot meet the requirement;

    (3) the price fixed shall not be higher than the current international
market price for similar equipment or materials.

    Article 28  The industrial property or proprietary technology contributed
by the foreign joint venturer as investment shall meet one of the following
conditions:

    (1) capable of manufacturing new products urgently needed in China or
products suitable for export;

    (2) capable of markedly improving the performance, quality of existing
products and raising productivity;

    (3) capable of notably saving raw materials, fuel or power.

    Article 29  Foreign joint ventures who contribute industrial property or
proprietary technology as investment shall present relevant documentation on
the industrial property or proprietary technology, including protocopies of the
patent certificates or trademark registration certificates, statements of
validity, their technical characteristics, practical value, the basis for
calculating the price and the price agreement signed with the Chinese joint
ventures. All these shall serve as an annex to the contract.

    Article 30  The machinery, equipment or other materials, industrial
property or proprietary technology contributed by foreign joint venturer as
investment shall be examined and approved by the department in charge of the
Chinese joint venturer and then submitted to the examining and approving
authorities for further approval.

    Article 31  The parties to the joint venture shall pay in all the
investment subscribed according to the time limit stipulated in the contract.
Delay in payment or partial delay in payment shall be subject to a payment of
investment on arrears or a compensation for the loss as defined in the contract.

    Article 32  After the investment is paid by the parties to the joint
venture, a Chinese registered accountant shall verify it and provide a
certificate of verification, in accordance with which the joint venture shall
issue to them investment certificates, which include the following items: name
of the joint venture; date, month and year of the establishment of the joint
venture; names of the joint venturers and the investment contributed; date,
month and year of the contribution of the investment; and date, month and year
of the issuance of investment certificates.
Chapter V  Board of Directors and Management Structure

    Article 33  The highest authority of the joint venture shall be its board
of directors, which shall decide all major issues concerning the joint venture.

    Article 34 (Note 1)  The board of directors shall consist of no less than
three members. The distribution of the number of directors shall be determined
through consultation by the parties to the joint venture with reference to the
proportions of investment contributed.

    The directors shall be appointed by the parties to the joint venture. The
chairman of the board shall be appointed by the Chinese joint venturer and its
vice-chairman by the foreign joint venturer.

    The term of office for the directors is four years. Their term of office
may be renewed with the re-appointment by the parties to the joint venture.

    Article 35  The board of directors shall convene at least one meeting every
year. The meeting shall be called and presided over by the chairman of the
board. Should the chairman be unable to call the meeting, he shall authorize
the vice-chairman or a director to call and preside over the meeting. The
chairman may convene an interim meeting on the suggestion of more than
one-third of the directors.

    A board meeting requires a quorum of over two-thirds of the directors.
Should a director be unable to attend, he may make a proxy authorizing someone
else to represent him and vote in his stead.

    A board meeting shall usually be held at the location of the joint
venture's legal address.

    Article 36  Decisions on the following items shall be made only after being
unanimously agreed upon by the directors present at the board meeting:

    (1) amendment to the articles of association of the joint venture;

    (2) suspension or dissolution of the joint venture;

    (3) increase in or assignment of the registered capital of the joint
venture;

    (4) merger of the joint venture with other economic organization.

    Decision on other matters may be made according to the rules of procedure
stipulated in the articles of association.

    Article 37  The chairman of the board is the legal representative of the
joint venture. Should the chairman be unable to perform his duties, he shall
authorize the vice-chairman of the board or a director to represent the joint
venture.

    Article 38  A joint venture shall establish a management office which shall
be responsible for the day-to-day management and operations. The management
office shall have a general manager and several deputy general managers who
assist the general manager in his work.

    Article 39  The general manager shall carry out the decisions of the board
meeting and organize and conduct the day-to-day management and operations of
the joint venture. Within the scope of authorization by the board, the general
manager shall, externally, represent the joint venture, and internally, have
the right to appoint and dismiss his subordinates and exercise other powers as
authorized by the board.

    Article 40  The general manager and deputy general managers shall be
engaged by the board of directors of the joint venture. These positions may be
held either by Chinese or foreign citizens.

    At the instance of the board of directors, the chairman, vice-chairman or
other directors of the board may concurrently be the general manager, deputy
general managers or other high-ranking managerial personnel of the 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 get involved in other economic organizations'
commercial competition against their own joint venture.

    Article 41  In case of graft or serious dereliction of duty on the part of
the general manager, deputy general managers or other high-ranking managerial
personnel, they may be dismissed at any time by a decision of the board of
directors.

    Article 42  Establishment of branch offices (including sales offices)
outside China or in regions of Hong Kong or Macao is subject to approval by the
MOFERT.
Chapter VI  Introduction of Technology

    Article 43  The introduction of technology mentioned in this Chapter refers
to the acquisition of necessary technology by the joint venture by means of
technology transfer from a third party or a joint venturer.

    Article 44  The technology to be introduced to the joint venture shall be
appropriate and advanced and enable the venture's products to display
conspicuous social economic results domestically or to be competitive on the
international market.

    Article 45  The right of the joint venture to do business independently
shall be maintained when concluding such technology transfer agreements, and
relevant documentations shall be provided by the technology exporting party
with reference to the provisions of Article 29 of these Regulations.

    Article 46  The technology transfer agreements concluded by a joint venture
shall be examined and agreed to by the department in charge of the joint
venture and then submitted for approval to the examining and approving
authorities.

    Technology transfer agreements shall comply with the following
stipulations:

    (1) Fees for the use of technology shall be fair and reasonable. Payments
are generally made in royalties, and the royalty rate shall not be higher than
the obtaining standard international rate, which shall be calculated on the
basis of net sales of the products turned out with the relevant technology or
in other reasonable ways agreed upon by both parties.

    (2) Unless otherwise agreed upon by both parties, the technology exporting
party shall not put any restrictions on the quantity, price or region of sale
of the products that are to be exported by the technology importing party.

    (3) The term for a technology transfer agreement is generally not longer
than 10 years.

    (4) After the expiration of a technology transfer agreement, the technology
importing party shall have the right to continue to use the technology.

    (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 under Chinese law and
regulations shall be included.
Chapter VII  Right to the Use of Site and Fees

    Article 47  Joint ventures shall practise economy in the use of land for
their premises. Any joint venture requiring the use of a site shall file an
application with local departments of the municipal (county) government in
charge of land and obtain the right to use a site after securing approval and
signing a contract. The acreage, location, purpose and contract period and fee
for the right to use a site (hereinafter referred to as site use fee), rights
and obligations of the two contracting parties and penalty provisions for
breach of contract shall be stipulated in explicit terms in the contract.

    Article 48  If the Chinese joint venturer already has the right to the use
of site for the joint venture, it may use the right as part of its investment.
The monetary equivalent of this investment shall be the same as the site use
fee otherwise paid for acquiring a site of similar conditions.

    Article 49  The standards for site use fee shall be set by the people's
governments of the province, autonomous region or municipality directly under
the Central Government where the joint venture is located in the light of the
purpose of use, geographic and environmental conditions, expenses for
requisition, demolition and resettlement and the joint venture's requirements
for infrastructure, and filed with the MOFERT and the state department in
charge of land for the record.

    Article 50  Joint ventures engaged in agriculture and animal husbandry may,
with the consent of the people's governments of the province, autonomous
region or municipality directly under the Central Government, pay a percentage
of the joint venture's revenues from its business operations as site use fees
to the local department in charge of land.

    Projects of a development nature in economically under-developed areas may
receive special preferential treatment in respect of site use fees with the
consent of the local people's government.

    Article 51  The rates of site use fees shall not be subject to adjustment
in the first 5 years beginning from the day the land is used. After that, the
interval in between the necessary adjustments to be made according to the
development of the economy, changes in supply and demand, and changes in
geographic and environmental conditions shall not be less than three years.

    Site use fee as part of the investment by the Chinese joint venture shall
not be subject to adjustment during the contract period.

    Article 52  The fee for the right to the use of a site obtained by a joint
venture according to Article 47 of these Regulations shall be paid annually
from the day to use the land stipulated in the contract. For the first calender
year, the venture will pay a half-year fee if it has used the land for over 6
months; if less than 6 months, the site use fee shall be exempted. During the
contract period, if the rate of site use fee is adjusted, the joint venture
shall pay it according to the new rate from the year of adjustment.

    Article 53  Joint ventures that have permission to use a site shall only
have the right to the use of it but no ownership. Assignment of the right to
use land is forbidden.
Chapter VIII  Planning, Purchasing and Selling

    Article 54  A joint venture shall work out a capital construction plan
(including labour force required for the construction, building materials,
water, power and gas supply) according to the approved feasibility study
report, and the plan shall be included in the capital construction plan of the
department in charge of the joint venture, which shall give priority in
arranging supplies and ensured the execution of the plan.

    Article 55  Funds earmarked for capital construction of a joint venture
shall be put under unified management of the bank where the venture has opened
an account.

    Article 56  A joint venture shall work out a production and operating plan
in accordance with the scope of operation and scale of production stipulated in
the contract. The plan shall be carried out with the approval of the board of
directors and filed with the department in charge of the joint venture for the
record.

    Departments in charge of the joint ventures and planning administration
departments at all levels shall not prescribe mandatory production and
operation plans for joint ventures.

    Article 57  In its purchase of required machinery, equipment, raw
materials, fuel, parts, means of transport and office equipment, etc.
(hereinafter referred to as materials), a joint venture has the right to decide
whether it buys them in China or from abroad. However, where the terms are the
same, it shall give first priority to purchasing them in China.

    Article 58  Joint ventures can purchase materials in China through the
following channels:

    (1) those under planned distribution shall be brought into the supply plan
of the departments in charge of joint ventures and supplied by materials and
commercial departments or production enterprises according to contracts;

    (2) those handled by materials and commercial departments shall be
purchased from these departments;

    (3) those freely circulating on the market shall be purchased from
production enterprises or their sale or commission agencies;

    (4) those export items handled by foreign trade corporations shall be
purchased from the appropriate foreign trade corporations.

    Article 59  The materials needed for office and daily use for joint
ventures can be purchased in China without quantity restrictions.

    Article 60  The Chinese Government encourages joint ventures to sell their
products on the international market.

    Article 61  Products of joint ventures that are urgently needed or to be
imported by China can be mainly sold on the Chinese market.

    Article 62  A joint venture has the right to export its products itself or
entrust the sale-agencies of the foreign joint venturer or Chinese foreign
trade corporations with sales on a commission or distribution.

    Article 63  Within the scope of business stipulated in the contract, a
joint venture may import machinery, equipment, parts, raw materials and fuel
needed for its production. A joint venture shall make a plan every year for
items on which import licenses are required by the stipulation of the State,
and apply for them every 6 months. For machines, equipment and other objects a
foreign joint venturer has contributed as part of its investment, import
licenses can be applied for directly with the documents approved by the
examining and approving authorities. For materials the import of which is
beyond the stipulated scope of the contract, separate applications for import
licenses according to State regulations are required.

    A joint venture has the right to export its products by itself, whereas for
those products which require export licenses under the stipulation of the
State, the joint venture shall make an export plan every business year and
apply for the needed licenses every 6 months.

    Article 64  A joint venture may sell its products on the Chinese market in
the following ways:

    (1) For those items under planned distribution, the departments in charge
of joint ventures will bring them into the distribution plan of the materials
administration departments, which sell them to designated users according to
plan.

    (2) For those items handled by materials and commercial departments, the
materials and commercial departments will place orders with the joint ventures.

    (3) For the excess of those purchased by plan of the above two categories
and those beyond the above two categories, the joint venture has the right to
sell them by itself or entrust sales to the relevant units.

    (4) For products of a joint venture that Chinese foreign trade companies
need to import, the joint venture may sell them to these trade companies and
shall be paid in foreign currency.

    Article 65  Materials purchased and services needed in China by joint
ventures shall be priced according to the following stipulations:

    (1) The six raw materials-gold, silver, platinum, petroleum, coal and
timber-that are used directly in production for export shall be priced
according to the international market prices provided by the State
Administration of Foreign Exchange Control or foreign trade agencies and
paid for in foreign currency or Renminbi.

    (2) When purchasing export or import commodities handled by Chinese foreign
trade companies, the suppliers and buyers shall negotiate the price, with
reference to the prices on the international market, and foreign currency shall
be paid.

    (3) The prices for purchasing coal used as fuel and oil for motor vehicles,
which are needed for manufacturing products to be sold domestically, as well
as materials other than those listed in (1) and (2) of this Article, and the
fees charged for water, electricity, gas, heat, goods transportation,
seivcices, engineering, consultancy service and advertisement, etc. provided to
joint ventures, shall be treated equally with state-owned enterprises and paid
in Renminbi.

    Article 66  Prices of products of a joint venture for sale on the Chinese
domestic market, except those items approved by the price control department
for appraisal of prices with reference to the prices on the international
market, shall correspond with State-set prices, be priced according to equlity
and paid in Renminbi. Prices fixed by a joint venture for its products shall be
filed with departments in charge of joint ventures and of price control for
the record.

    Prices of export products of a joint venture will be fixed by the joint
venture itself and shall be filed with departments in charge of joint ventures
and of price control for the record.

    Article 67  A joint venture, in its economic exchanges with another Chinese
economic organization, shall undertake economic responsibilities and settle
disputes over contract in accordance with relevant laws and the contract
concluded between the two parties.

    Article 68  A joint venture shall fill in statistical forms on production,
supply and marketing in accordance with relevant regulations, and file them
with the departments in charge, statistics departments and other departments
concerned for the record.
Chapter IX  Taxes

    Article 69  Joint ventures shall pay taxes according to the stipulations of relevant laws of the People's Republic of China.

    Article 70  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 71  Joint ventures shall be exempt from Customs duties and
consolidated industrial and commercial tax on the following imported materials:

    (1) machinery, equipment, parts and other materials (materials here and
hereinafter mean required materials for the joint venture's construction on the
factory site and for installation and reinforcement of machines) which are
part of the foreign joint venture's share of investment according to the
provisions of the contract;

    (2) machinery, equipment, parts and other materials imported with funds
from the joint venture's total investment;

    (3) machinery, equipment, parts and other materials imported by the joint
venture with the additional capital and with the approving authorities, of
which China cannot guarantee production and supply;

    (4) raw materials, auxiliary materials, components, parts and packaging
materials imported by the joint venture for the production of export goods.

    Duties and taxes shall be paid or paid retroactively according to
regulations when the above-mentioned duty-tax-free materials are approved for
sale inside China or diverted to the production of items to be sold on the
Chinese domestic market.

    Article 72  Except those export items restricted by the State, products of
a joint venture for export shall be exempt from consolidated industrial and
commercial tax, subject to the approval by the Ministry of Finance of the
People's Republic of China.

    A joint venture may apply for reduction of or exemption from consolidated
industrial and commercial tax for a certain period of time for products that
are sold on the domestic market when it has difficulty to pay such tax in its
initial period of production.
Chapter X  Foreign Exchange Control

    Article 73  All matters concerning foreign exchange for joint ventures
shall be handled according to the Interim Regulations on Foreign Exchange
Control of the People's Republic of China and relevant regulations.

    Article 74  On the strength of the business license issued by the State
Administration for Industry and Commerce of the People's Republic of China, a
joint venture may open foreign exchange deposit accounts and Renminbi deposit
accounts with the Bank of China, or any other designated bank. The bank
handling the accounts of the joint venture shall monitor its receipts and
expenditures.

    All foreign exchange incomes of a joint venture must be deposited in the
foreign exchange deposit account in the bank where an account has been opened;
all payments by the joint venture in foreign exchange are to be effected from
its foreign exchange deposit account. The deposit interest rate shall be set
according to the announced rates by the Bank of China.

    Article 75  A joint venture shall in general maintain a balance between its
foreign exchange receipts and expenditures. When a joint venture whose
products are mainly sold on the domestic market under its approved feasibility
study report and contract sustains an imbalance of its foreign exchange
receipts and expenditures, the imbalance shall be remedied by the people's
government of a relevant province, autonomous region or municipality directly
under the Central Government or the department in charge under the State
Council from their own foreign exchange reserves. If the imbalance defies
solution through such adjustment, it shall be solved through inclusion into the
plan after the examination and approval by the MOFERT in conjunction with the
State Planning Commission of the People's Republic of China.

    Article 76  A joint venture shall get permission from the State
Administration of Foreign Exchange Control or one of its branches to open a
foreign exchange deposit account with an overseas bank or one in Hong Kong or
Macao, and report to the State Administration of Foreign Exchange Control or
one of its branches its foreign exchange receipts and expenditures, and provide
bank statements.

    Article 77  Any branch office set up by a joint venture in a foreign
country or in Hong Kong or Macao shall open an account with the Bank of China
wherever there is a branch of the bank. The branch office shall submit its
annual statement of assets and liabilities and annual profit report to the
State Administration of Foreign Exchange Control or one of its branches through
the joint venture.

    Article 78  A joint venture may apply to the Bank of China for foreign
currency loans and Renminbi loans according to business needs and according to
the Provisional Regulations for Providing Loans by the Bank of China to
Chinese-Foreign Equity Joint Ventures. Interest rates on loans to joint
ventures are as announced by the Bank of China. A joint venture may also borrow
foreign exchange as capital from banks abroad or in Hong Kong or Macao, but
shall file a report with the State Administration of Foreign Exchange Control
or one of its branches for the record.

    Article 79  After foreign staff and workers or staff and workers from Hong
Kong or Macao have paid income tax on their salaries and other legitimate
incomes according to law, they may apply to the Bank of China for permission to
remit out all the remaining foreign exchange after deduction of their living
expenses in China.
Chapter XI  Financial Affairs and Accounting

    Article 80  The financial and accounting systems of a joint venture shall
be instituted in accordance with China's relevant laws and procedures on
financial affairs and accounting, and in consideration of the conditions of the
joint venture, and then be filed with the local financial departments and tax
authorities for the record.

    Article 81  A joint venture shall employ a chief accountant to assist the
general manager in handling the financial affairs of the enterprises. If
necessary, a deputy chief accountant may be appointed.

    Article 82  A joint venture shall (unless it is a small venture) appoint an
auditor to be responsible for checking financial receipts, payments and
accounts, and to submit reports to the board of directors and the general
manager.

    Article 83  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 84  The accounting of a joint venture shall adopt the
internationally used accrual basis and debit and credit accounting system in
their work. All vouchers, account books, statistic statements and reports
prepared by the enterprise shall be written in Chinese, or concurrently in a
foreign language agreed upon by the parties.

    Article 85  Joint ventures shall, in principle, adopt Renminbi as the
standard accounting currency, however, a foreign currency may also be used as
the standard accounting currency, if so agreed upon by the parties concerned.

    Article 86  In addition to the use of a standard accounting currency, joint
ventures shall record accounts in currencies actually used in payments and
receipts, if such currencies in cash, bank deposits, funds of other currencies,
assets and liabilities, gains, expenses, etc. are inconsistent with the
standard accounting currency.

    Joint ventures using a foreign currency in accounting shall work out a
statement of accounts in Renminbi equivalents in addition to those in the
foreign currency.

    The differences, converted into the standard accounting currency and
resulting from the fluctuations in foreign exchange rates, shall be recorded
as current gains or losses in remittances for the year in which they occur.
The surplus appearing in foreign currency accounts as the result of a recorded
fluctuation in the exchange rates shall be handled, while settling accounts at
the end of the year, by accountants in accordance with the provisions of
pertinent Chinese laws and financial and accounting system.

    Article 87  Principles of profit distribution after payment of taxes in
accordance with the Income Tax Law of the People's Republic of China Concerning
Chinese-Foreign Equity Joint Ventures are as follows:

    (1) Allocations for reserve funds, bonuses and welfare funds for staff and
workers and expansion funds of the joint venture. The proportion of allocations
is to be decided by the board of directors.

    (2) Reserve funds which can be used to make up for the losses of the joint
venture, or with the consent of the examining and approving authorities, to
increase the joint venture's capital for the expansion of production.

    (3) After the funds specified in (1) of this Article have been deducted and
if the board of directors decides to distribute the remaining profit, it shall
be distributed proportionately to each party's investment.

    Article 88  Profits may not be distributed before the losses of the
previous year have been made up. Remaining profits from previous year (or
years) may be distributed together with those of the current year.

    Article 89  A joint venture shall submit quarterly and annual fiscal
reports to parties to the joint venture, the local tax authority, department in
charge of the joint venture and the financial department at the same level to
those departments.

    A copy of the annual fiscal report shall be submitted to the original
examining and approving authorities.

    Article 90  Only after being examined and certified by an accountant
registered in China shall the following documents, certificates and reports be
considered valid:

    (1) certificates of investment from all the parties to a joint venture
(lists of assessed value agreed upon and signed by the parties to the joint
venture and relevant written agreements shall be attached if investment
involves materials, site use rights, industrial property and proprietary
technoloy);

    (2) annual fiscal reports of the joint venture;

    (3) fiscal reports on liquidation of the joint venture.
Chapter XII  Staff and Workers

    Article 91  The employment, recruitment, dismissal and resignation of staff
and workers of joint ventures, and their salary, welfare benefits, labour
insurance, labour protection, labour discipline and other matters shall be
handled according to the Regulations of the People's Republic of China on
Labour Management in Chinese-Foreign Equity Joint Ventures.

    Article 92  Joint ventures shall make efforts to conduct professional and
technical training of their staff and workers and establish a strict
examiniation system so that they can meet the requirements of production and
managerial skills in a modernized enterprise.

    Article 93  The salary and bonus system of joint ventures shall be in
accord with the principle of distribution to each according to his work, and
more pay for more work.

    Article 94  Salaries and remuneration of the general manager and deputy
general manager(s), chief engineer, deputy chief engineer(s), chief accountant
and deputy chief accountant, auditor and other high-ranking managerial
personnel shall be decided upon by the board of directors.
Chapter XIII  Trade Union

    Article 95  Staff and workers of a joint venture have the right to set up
grass-roots trade unions and carry on trade union activities in accordance with
the Trade Union Law of the People's Republic of China (hereinafter referred to
as Chinese Trade Union Law) and the Statute of the Trade Unions of China.

    Article 96  Trade unions in joint ventures are representatives of the
interests of the staff and workers. They have the power to sign, on behalf of
the staff and workers, labour contracts with joint ventures and supervise the
execution of these contracts.

    Article 97  The basic tasks of the trade unions in joint ventures are: to
protect the democratic rights and material interests of the staff and workers
according to law; to help the joint ventures with the arrangement and rational
use of welfare and bonus funds; to organize political, professional, scientific
and technical studies, carry out literary, art and sports activities; and to
educate staff and workers to observe labour discipline and strive to fulfil the
economic tasks of the enterprises.

    Article 98  Trade union representatives have the right to attend, without
the right to vote, meetings of the board of directors held to discuss important
issues such as development plans, production and operational activities of
joint ventures and to air the opinions and demands of staff and workers.

    Trade union representatives have the right to attend, without the right to
vote, meetings of the board of directors held to discuss and decide on awards
and penalties to staff and workers, salary and wage system, welfare benefits,
labour protection and labour insurance, etc. The board of directors shall heed
the opinions of the trade union and win its co-operation.

    Article 99  A joint venture shall actively support the work of the trade
union, and, in accordance with the stipulations of the Chinese Trade Union Law,
provide housing and facilities for the trade union as offices, meeting-halls,
and for organizing welfare, cultural and sports activities. The joint venture
shall allot an amount of money totalling 2 per cent of all the salaries of the
joint venture's staff and workers as trade union funds, which the trade union
of the joint venture shall use according to the relevant administration rules
for trade union funds formulated by the All-China Federation of Trade Unions.
Chapter XIV  Duration, Dissolution and Liquidation

    Article 100  The duration of a joint venture shall be decided upon through
consultation among all the parties to the joint venture according to the
actual conditions of the particular lines of business and projects. The
duration of a joint venture engaged in an ordinary project shall be tetween 10
to 30 years, and this can be extended to 50 years, or even above 50 years if
the special approval of the State Council is obtained, for those engaged in
projects requiring large amounts of investment, long construction cycles and
low profit rates on the capital, those manufacturing highly sophisticated
products with a supply of advanced or key technologies from the foreign
parties, or those producing products competitive in the world market.

    Article 101  The duration of a joint venture shall be determined by all the
parties to the joint venture in the agreement, contract and articles of
association. The duration begins from the date when the joint venture is issued
a business license.

    When all parties to a joint venture agree to extend the duration. the joint
venture shall file an application for extending the duration signed by
representatives authorized by the parties with the examining and approving
authorities 6 months before the date of expiration of the duration. The
examining and approving authorities shall give an official written reply to the
applicant within one month as of the date of receipt of the application.

    Upon approval of the extension of the duration, the joint venture concerned
shall go through registration formalities for the alteration in accordance
with the Measures of the People's Republic of China for the Registration
Administration of Chinese-Foreign Equity Joint Ventures.

    Article 102  A joint venture may be dissolved in the following situations:

    (1) termination of duration of the venture;

    (2) inability to continue operations due to heavy losses;

    (3) inability to continue operations due to the failure of one of the
contracting parties to fulfil its obligations prescribed in the agreement,
contract and articles of association;

    (4) inability to continue operations due to heavy losses caused by force
majeure such as natural calamities and wars;

    (5) failure to obtain the desired objectives of the operation and no
prospects for future development;

    (6) occurence of other reasons for dissolution as prescribed in the
contract and articles of association.

    In cases described in (2), (3), (4), (5) and (6) of this Article, the board
of directors shall make an application for dissolution to the examining and
approving authorities for approval.

    In the situation described in (3) of this Article, the party which has
failed to fulfil its obligations prescribed in the agreement, contract and
articles of association shall be liable for the losses arising therefrom.

    Article 103  Upon announcement of the dissolution of a joint venture, its
board of directors shall work out procedures and principles governing the
liquidation and nominate candidates for the liquidation committee. It shall
report to the department in charge of the joint venture for examination,
verification and supervision of its liquidation.

    Article 104  Members of a liquidation committee shall generally be selected
from among the directors of a joint venture. In case the directors cannot
serve or are unsuitable to be members of the liquidation committee, the joint
venture may invite accountants and lawyers registered in China to do the job.
When the examining and approving authorities deems necessary, it may send
personnel to supervise the process.

    The liquidation expenses and remuneration for the members of the
liquidation committee shall be given priority in the disbursements from the
existing assets of the joint venture.

    Article 105  The tasks of the liquidation committee are: to conduct
thorough investigation of the property of the joint venture concerned, its
credits and debts; to work out the statement of assets and liabilities and an
inventory of its property; to put forward a basis on which its property is to
be evaluated and calculated; and to formulate a liquidation plan. All these
shall be carried out upon approval of the board of directors.

    During the process of liquidation, the liquidation committee shall
represent the joint venture concerned in initiating legal action or responding
thereto.

    Article 106  A joint venture shall be liable for its debts with all of its
assets. The remaining assets after the clearance of debts shall be distributed
among the parties to the joint venture in proportion to each party's investment
unless otherwise provided for in the agreement, contract and articles of
association of the joint venture.

    At the time when a joint venture is being dissolved, the portion of its net
assets or remaining property that exceeds the value added to its registered
capital is regarded as profit on which income tax shall be levied according to
law. The foreign joint venturer shall pay income tax according to law on the
portion of the net assets or remaining property due him that exceeds his
investment when he remits it abroad.

    Article 107  On the completion of the liquidation of a dissolved joint
venture, the liquidation committee shall submit a liquidation report approved
by a meeting of the board of directors to the original examining and approving
authorities, go through formalities for cancelling its registration and hand in
its business license to the original registration authorities.

    Article 108  After the dissolution of a joint venture, its account books
and documents shall be left in the custody of the former Chinese joint venturer.
Chapter XV  Settlement of Disputes

    Article 109  Disputes arising over the interpretation or execution of the
agreement, contract or articles of association between the parties to the joint
venture shall, if possible, be settled through friendly consultation or
mediation. If these means prove futile, the disputes shall be subject to
arbitration or judicial settlement.

    Article 110  Parties to a joint venture shall apply for arbitration in
accordance with the relevant written agreement. They may submit the disputes to
the Foreign Economic and Trade Arbitration Commission of the China Council for
the Promotion of International Trade in accordance with its arbitration rules.
With mutual consent of the parties concerned, arbitration can also be carried
out by an arbitration agency in the country where the respondent is located or
by one in a third country in accordance with the arbitration agency's rules.

    Article 111  In the absence of a written agreement on arbitration between
the parties to a joint venture, either party may bring a suit in a Chinese
people's court.

    Article 112  In the process of settling disputes, except for matters in
dispute, parties to a joint venture shall continue to carry out other
provisions stipulated by the agreement, contract and articles of association of the joint venture.
Chapter XVI  Supplementary Provisions

    Article 113  The Chinese departments in charge of visas shall provide
facility by simplifying procedures for staff and workers from foreign countries
or from Hong Kong or Macao (including their family members) who have frequent
needs of entry and exit into and out of the China.

    Article 114  The departments in charge of joint ventures shall make
applications and go through the formalities for Chinese staff and workers going
abroad lot studies, business negotiations or training.

    Article 115  Staff and workers from foreign countries or from Hong Kong or
Macao working for a joint venture may bring in needed means of transport and
office equipment with payment of Customs duties and consolidated industrial and
commercial taxes according to regulations.

    Article 116  Joint ventures set up in the special economic zones shall
comply with the provisions otherwise provided, if any, in the laws and
regulations adopted by the National People's Congress, its Standing Committee
or the State Council.

    Article 117  The power to interpret these Regulations is vested in the
Ministry of Foreign Economic Relations and Trade.

    Article 118  These Regulations shall go into force as of the date of
promulgation.
Note: New provisions have been added to this Article. Therefore, the
relevant provisions in the Law of the People's Republic of China on
Chinese-Foreign Equity Joint Ventures, amended on April 4, 1990, shall
prevail. -- The Editor


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