Laws of the People's Republic of China

The Ministry of Foreign Economic Relations and Trade, the State Administration for Industry and Commerce

Provisions of the Ministry of Foreign Economic Relations and Trade, the State Administration for Industry and Commerce Concerning the Investments Made by the Various Parties of Chinese-foreign Equity Joint Ventures

January 1,1988

(Approved by the State Council on December 30, 1987, Promulgated by the Ministry of Foreign Economic Relations and Trade and the State Administration for Industry and Commerce on January 1, 1988)

Article 1

These Provisions are formulated in accordance with the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures and other pertinent laws and regulations in order to protect the lawful rights and interests of the various parties to Chinese-foreign equity joint ventures (hereinafter referred to as the "joint ventures"), and to maintain the social economic order.

Article 2

The investments contributed by the various parties to a joint venture in accordance with the stipulations of the contract of the said joint venture must be the cash owned by the parties themselves as well as the physical goods, the industrial property rights, the proprietary technology and etc. that are owned by the parties themselves and have not been used to establish any security interests.

In cases where physical goods, industrial property rights and proprietary technology are used as investments at the evaluated price, the investor shall present valid documents attesting their proprietary rights and their right of disposal.

Article 3

No party to a joint venture may use the loans, rented equipment or other assets it has obtained in the name of the joint venture, or the assets of persons other than the parties as its own investment contribution to the joint venture; nor may it use the assets or rights and interests of the joint venture, or the assets or rights and interests of the other parties to the joint venture as the warranty for its investment contribution to the joint venture.

Article 4

The various parties to a joint venture shall set the time limit in their joint venture contract for paying up their respective investment contributions to the joint venture, and they shall pay fully their respective investment contributions within the time limit stipulated in the joint venture contract. The investment contribution certificates issued by the joint venture in accordance with the pertinent stipulations shall be submitted to the original examining and approving authorities and the relevant administrative department for industry and commerce for the record.

If the joint venture contract stipulates that investment contributions shall be paid up in one lump, the various parties to the said joint venture shall make the full payment of their respective investment contributions within six months from the date the business licence is signed and issued.

If the joint venture contract stipulates that investments shall be paid by installments, the first installment paid by the various parties shall not be less than 15% of the total amount of their respective investment contributions and be paid within three months as of the date the business licence is signed and issued.

Article 5

In the event that the various parties to a joint venture fail to make the full payment of their respective investment contributions within the time limit prescribed in Article 4 , the joint venture shall be considered to be dissolved of its own accord, and the approval certificate for the joint venture shall automatically cease to be effective. The joint venture shall go through the procedures for cancellation of registration with the administrative department for industry and commerce, and hand in its business licence for cancellation; if a joint venture fails to go through the procedures for cancellation of registration or to hand in its business licence for cancellation, the administrative department for industry and commerce shall revoke its business licence and announce this publicly.

Article 6

After the various parties to a joint venture have paid the first installment of their respective investment contributions, if they fail to pay or to pay fully any of the remaining installments three months beyond the deadline as stipulated in the joint venture contract, the administrative department for industry and commerce shall, in conjunction with the original examining and approving authorities, issue a notice to the various parties to the said joint venture, enjoining them to pay the full amount due within one month. In the event that the various parties to the said joint venture still fail to make the full payment of their respective investment contributions in accordance with the time limit prescribed in the notice mentioned in the preceding paragraph, the original examining and approving authorities have the right to revoke the approval certificate for the said joint venture. After the approval certificate has been revoked, the said joint venture shall go through the procedures for cancellation of registration with the administrative department for industry and commerce, hand in its business licence for cancellation, and settle claims and debts. If it fails to go through the procedures for cancellation of registration or to hand in its business licence for cancellation, the administrative department for industry and commerce has the right to revoke its business licence and to announce this publicly.

Article 7

The failure of one of the parties to a joint venture to make the payment, or the full payment, of its investment contribution on time in accordance with the stipulations of the joint venture contract constitutes a breach of the contract. The observant party (parties) shall urge the defaulting party to make the payment, or the full payment, of its investment contribution within one month. If the defaulting party still fails to do so before the deadline, this shall be considered as the abandonment by the defaulting party of all its rights as stipulated in the joint venture contract and its withdrawal from the joint venture of its own accord. The observant party (parties) shall, within one month from the date when the defaulting party's prescribed payment is overdue, make an application to the original examining and approving authorities for the approval to dissolve the said joint venture, or for the approval to find another joint venture party to assume the defaulting party's rights and obligations as stipulated in the joint venture contract. The observant party (parties) may, according to law, claim compensation from the defaulting party for the economic losses caused by the latter's failure to make the payment, or the full payment, of its investment contribution.

If the defaulting party mentioned in the preceding paragraph has paid part of its prescribed investment contribution, this part of investment payment shall be liquidated by the joint venture.

In the event that the observant party (parties) fails (fail) to make an application to the original examining and approving authorities, in accordance with the provisions of the first paragraph of this Article, for the approval to dissolve the joint venture, or for the approval to find another joint venture party, the examining and approving authorities have the right to revoke the approval certificate issued to that joint venture. After the approval certificate has been revoked, the said joint venture shall go through the procedures for cancellation of registration with the administrative department for industry and commerce, and hand in its business licence for cancellation; if it fails to go through the procedures for registration cancellation or to hand in its business licence for cancellation, the administrative department for industry and commerce has the right to revoke its business licence and to announce this publicly.

Article 8

With respect to any joint venture which obtained its business licence before the date these Provisions become effective, if the various parties or any one of these parties have (has) failed to make the payment of the respective investment contributions in accordance with the time limits stipulated in the joint venture contract, they (it) shall, within two months as of the date these Provisions become effective, make the full payment of the prescribed investment contributions in accordance with the provisions of the contract.

In the event that the various parties or any one of the parties still fail(s) to make the full payment of the respective investment contributions within the time limit prescribed in the preceding paragraph, the case may be handled in accordance with the provisions in Article 5 through Article 7 of these Provisions.

Article 9

With respect to any joint venture which obtained its business licence before the date these Provisions become effective, if the various parties to that joint venture have not stipulated in their joint venture contract the respective time limits for making their respective investment contributions, and they have not made the full payment, the various parties shall, within two months as of the date these Provisions become effective and in accordance with these Provisions, conclude and sign a supplementary agreement to their joint venture contract prescribing the time limits for the various parties to the joint venture to make the payment of their respective investment contributions, and submit this supplementary agreement to the original examining and approving authorities for examination and approval; after they have obtained the approval, they shall submit their case to the administrative department for industry and commerce for the record.

In the event that a joint venture mentioned in the preceding paragraph fails to establish itself or to start its operations after six full months since the date of the issuance of its business licence owing to the failure of its various parties to conclude and sign a supplementary agreement to their joint venture contract within two month prescribed in the preceding paragraph, prescribing the time limits for making their respective investment payments, and the failure to pay full their respective investment contributions, the original examining and approving authorities have the right to revoke the approval certificate issued to that joint venture. After the approval certificate has been revoked, the said joint venture shall go through the procedures for cancellation of registration with the administrative department for industry and commerce, and hand in its business licence for cancellation. If the said joint venture fails to go through the procedures for cancellation of registration or to hand in its business licence for cancellation, the administrative department for industry and commerce has the right to revoke its business licence and to announce this publicly.

Article 10

The investment payment made by the various parties to a Chinese-foreign contractual joint venture shall be handled with reference to these Provisions.

Article 11

These Provisions shall enter into force as of March 1, 1988.