Law of the People's Republic of China on Sino-Foreign Cooperative Joint Ventures (Revised in 2017)

Order of the President of the People's Republic of China No. 81

November 4, 2017

(Adopted at the first Session of the Standing Committee of the 7th National People's Congress on April 13, 1988; amended for the first time according to the Decision on Revising the Sino-Foreign Cooperative Joint Venture Law made at the 18th Session of the Standing Committee of the 9th National People's Congress on October 31, 2000; amended for the second time according to the Decision of the Standing Committee of the National People's Congress on Revising Four Laws including the Law of the People's Republic of China on Wholly Foreign-owned Enterprises made at the 22nd Session of the Standing Committee of the 12th National People's Congress on September 3, 2016; amended for the third time according to the Decision on Revising Twelve Laws including the Foreign Trade Law of the People's Republic of China made at the 24th Session of the Standing Committee of the 12th National People's Congress on November 7, 2016; and amended for the fourth time according to the Decision of the Standing Committee of the National People's Congress on Amending Eleven Laws Including the Accounting Law of the People's Republic of China at the 30th Session of the Standing Committee of the 12th National People's Congress on November 4, 2017)

Article 1 This Law is enacted for the purposes of increasing economic cooperation and technological exchange with foreign countries and encouraging foreign enterprises, other economic organizations, or individuals (the "foreign party") to jointly establish Sino-foreign cooperative joint ventures (the "cooperative enterprises") within the territory of the People's Republic of China with Chinese enterprises or other economic organizations (the "Chinese party") in accordance with the principles of equality and mutual benefit.

Article 2 When establishing a cooperative enterprise, both Chinese and foreign parties shall, in accordance with the provisions of this Law, stipulate in their cooperative enterprise contract such items as the investment or pre-requisites for cooperation, the distribution of earnings or products, the sharing of risk and loss, the mode of operation and management, and the ownership of property upon termination of the cooperative enterprise.
A cooperative enterprise which meets the conditions for being considered a legal person as specified in relevant Chinese law is to lawfully acquire said status of a Chinese legal person.

Article 3 The State shall protect the lawful rights and interests of the cooperative enterprise and of both Chinese and foreign parties according to law.
A cooperative enterprise must abide by Chinese laws and regulations, and shall not damage the public interest of China.
The relevant State organs shall supervise cooperative enterprises according to law.

Article 4 The State encourages the establishment of cooperative production enterprises that export products or have advanced technology.

Article 5 When applying to establish a cooperative enterprise, such documents as the agreement, the contract, and the company charter, each signed by both Chinese and foreign parties, shall be submitted to the department under the State Council in charge of foreign economic trade or to a department authorized by the State Council and a relevant local government (the "examination and approval authority") for examination and approval. Within 45 days of receipt of the application, the examination and approval authority shall decide whether or not to approve the application.

Article 6 After an application for the establishment of a cooperative enterprise is approved, the applicant shall, within 30 days of receipt of the certificate of approval, apply to the industrial and commercial administrative organs for registration and collect a business license. The date on which the business license of a cooperative enterprise is issued shall be its official date of establishment.
A cooperative enterprise shall complete the tax registration formalities with the relevant tax authority within 30 days of its establishment.

Article 7 Where both Chinese and foreign parties, during the term of their cooperative enterprise contract, agree after consultation to make any significant modification to the contract, they shall report such modification to the examination and approval authority for approval; where the modification involves any statutory business registration item or tax registration item, they shall complete the registration formalities for such modification with the relevant the industrial and commercial administrative organs or tax authority.

Article 8 The investment or pre-requisite conditions for cooperation provided by either party may be in the form of cash, in kind, land use rights, industrial property, non-patented technology, or any other property right.

Article 9 Both Chinese and foreign parties shall, in accordance with the provisions of laws and regulations and the agreements set forth in the cooperative enterprise contract, duly perform their responsibilities of paying up their investment and providing the pre-requisites for cooperation. If one party fails to do so within the prescribed time limit, the industrial and commercial administrative organs shall set another deadline for the satisfaction of these obligations; if the new deadline expires and the contract is still unfulfilled, the issue shall be handled by the examination and approval authority and the industrial and commercial administrative organs according to national regulations.
The fulfillment of investments or other pre-requisites for cooperation by both parties shall be confirmed by either a registered accountant in China or the relevant authorities. Written proof of fulfillment shall be issued following verification.

Article 10 If either the Chinese or foreign party wishes to transfer some or all of the rights and responsibilities stipulated in the cooperative enterprise contract, the party must first obtain the consent of the other party or parties, and report to the examination and approval authority for approval.

Article 11 A cooperative enterprise shall carry out its business operations and management as stipulated in the contract or charter of the cooperative enterprise. The right of a cooperative enterprise to make its own business decisions shall not be infringed.

Article 12 A cooperative enterprise shall establish a board of directors or a joint managerial body, which in turn shall, as stipulated in the contract or charter of the cooperative enterprise, make all major decisions for the company. Where one party assumes the post of either chairman of the board of directors or director of the joint managerial body, the other shall take the post of vice-chairman or deputy director. The board of directors or the joint managerial body may decide on the appointment or hiring of a general manager, who shall be in charge of the daily operation and management of the cooperative enterprise. The general manager shall answer to the board of directors or joint managerial body.
If a cooperative enterprise, following its establishment, chooses to employ a third party to operate and manage the company, the full consent of the board of directors or the joint managerial body must be obtained, and the change must be registered with the industrial and commercial administrative organs.

Article 13 Terms of employment and dismissal, remuneration, benefits, labor safety, labor insurance, and other matters that concern the employees of a cooperative enterprise shall be specified in a lawfully signed contract.

Article 14 The employees of a cooperative enterprise shall, in accordance with law, set up a trade union to carry out various trade union activities and protect the employees' lawful rights and interests.
The cooperative enterprise should provide the necessary conditions for the union to conduct its activities.

Article 15 A cooperative enterprise must establish its bookkeeping system within Chinese territory; it must file regular accounting statements as per relevant provisions, and submit to supervision by the finance and tax authorities.
Should a cooperative enterprise not establish its bookkeeping system within Chinese territory in violation of the stipulations of the preceding paragraph, the finance and tax authorities may impose fines, and the industrial and commercial administrative organs may order it to suspend business operations or revoke its business license.

Article 16 A cooperative enterprise should open a foreign exchange account by presenting its business license at a bank or any other financial institution which is permitted by the national exchange control authorities to conduct foreign exchange transactions.
A cooperative enterprise shall handle its foreign exchange transactions in accordance with national regulations on administration of foreign exchange.

Article 17 A cooperative enterprise may accept loans from either domestic or foreign financial institutions.
Each party should make their own arrangements for loans and guarantees to be used as investments or pre-requisites for cooperation.

Article 18 The various types of insurance required by a cooperative enterprise shall be provided by insurance institutions within the territory of the People's Republic of China.

Article 19 A cooperative enterprise may, within its approved scope of operation, import necessary materials and export finished products. Consistent with the principles of fairness and reasonableness, a cooperative enterprise may, within its approved scope of operation, purchase the raw materials, fuels, and other necessary resources on either the domestic or world market.

Article 20 In accordance with national regulations on taxation, a cooperative enterprise shall pay taxes, and may enjoy preferential tax treatment including tax deductions or exemptions.

Article 21 The Chinese and foreign parties shall share earnings and manufactured goods or bear risk and loss in accordance with the stipulations of the cooperative enterprise contract.
If it is stipulated in the cooperative enterprise contract that all the fixed assets of the cooperative enterprise are to become property of the Chinese party upon the expiration of parties' cooperative agreement, the Chinese and foreign parties may also stipulate in the contract means for the foreign party to recover their investment prior to the end of the company's operational term.
If, as per the provisions of the preceding paragraph, the foreign party is to recover its investment before the end of the company's operational term, both Chinese and foreign parties shall first take responsibility for the company's debts, as stipulated by the relevant laws and the cooperative enterprise contract.

Article 22 After the foreign party has fulfilled its legal responsibilities as stipulated in relevant laws and the cooperative enterprise contract, their share of company profits, other legitimate income, and any money received at the termination of the contract may be lawfully transferred overseas.
The wages or other legitimate income earned by the company's foreign personnel may be transferred overseas following the payment of personal income tax as prescribed by tax laws.

Article 23 Upon expiration or advance termination of a cooperative enterprise contract, the company's assets, claims, and debts shall be liquidated according to standard legal procedure. The Chinese and foreign parties shall determine the ownership of cooperative enterprise property based on the stipulations of the cooperative enterprise contract.
Upon expiration or advance termination of the contract, the cooperative enterprise shall cancel its registration with both the industrial and commercial administrative organs and the tax authorities.

Article 24 The operational term of a cooperative enterprise shall be determined by consultation between the Chinese and foreign parties, and shall be clearly specified in the cooperative enterprise contract. If the Chinese and foreign parties agree to extend the period of their cooperation, they shall apply to the approval authority at least 180 days prior to the expiration of the contract. The approval authority shall decide whether to grant approval within 30 days of receiving the application.

Article 25 Where the establishment of Chinese-foreign cooperative joint ventures does not involve the implementation of special access administration measures prescribed by the state, the approval items stipulated in Article 5, Article 7, Article 10, and Article 24 of this Law shall be subject to record-filing management. The special access administrative measures prescribed by the state shall be promulgated by or approved for promulgation by the State Council.

Article 26 Any disputes between the Chinese and foreign parties to a cooperative enterprise while performing the cooperative enterprise contract or the company charter should be settled through consultation or mediation. In the case where one party is unwilling to resolve a dispute through consultation or mediation, or where the parties have failed to settle a dispute through consultation or mediation, each party may act in accordance with the arbitration clause in the cooperative enterprise contract or a written arbitration agreement signed afterwards and submit the case to a Chinese arbitration agency or some other arbitration agency.
If there is no arbitration clause in the cooperative enterprise contract, nor a written arbitration agreement signed afterwards, then the parties may file a suit in a Chinese court.

Article 27 The detailed rules for the implementation of this document shall be formulated by the department under the State Council in charge of foreign economic trade, and submitted to the State Council for approval prior to implementation.

Article 28 The Law shall come into effect as of the date of its promulgation.