Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures (Revised in 2016)

Order of the President of the People's Republic of China No. 51

September 3, 2016

(Adopted at the second session of the Standing Committee of the fifth National People's Congress on July 1, 1979;revised for the first time according to the Decision on Revising the Wholly Foreign-owned Enterprise Law made at the third Session of the Standing Committee of the seventh National People's Congress on April 4th 1990, and revised for a second time according to the Decision on Revising the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures made at the fourth session of the Standing Committee of the ninth People's Congress; and revised for the third 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 on September 3, 2016, and issued according to the Order of the President of the People's Republic of China No.51)

Article 1 In order to expand international economic cooperation and technological exchange, the People's Republic of China shall permit foreign companies, enterprises, other commercial organizations and individuals (hereinafter referred to as "foreign parties"), subject to the approval of the Chinese government, to form joint ventures with Chinese companies, enterprises and other commercial organizations (hereinafter referred to as "Chinese investors") within the territory of the People's Republic of China based on the principles of equality and mutual benefit.

Article 2 The Chinese government shall protect, in accordance with the law, investments, entitled profits and other lawful rights and interests of foreign parties in joint ventures that are in accordance with agreements, contracts and articles of association approved by the Chinese government.
Joint ventures shall observe the laws and regulations of the People's Republic of China in all their activities.
The State shall not nationalize or expropriate any joint venture. Under special circumstances, in accordance with public interest, a joint venture may be expropriated in accordance with the procedures prescribed by law, in which case appropriate compensation shall be given.

Article 3 Joint venture agreements, contracts and articles of association concluded by the parties to a joint venture shall be submitted to the state foreign economic relations and trade administrative department (hereinafter referred to as the "approval authority") for examination and approval. The approval authority shall make a decision on whether or not to approve a joint venture within three months. Once approved, a joint venture shall register with the State Administrative Department for Industry and Commerce and obtain a business license, and shall commence operations.


Article 4 Joint ventures shall be established as limited liability companies.
The proportion of a joint venture's registered capital contributed by the foreign party shall generally be no lower than 25 percent.
The profits, risks and losses of a joint venture shall be shared by the parties to the venture in proportion to their respective contributions to its registered capital.
A party to a joint venture may transfer its shares in the registered capital only with the agreement of the other party.

Article 5 Each party to a joint venture may contribute cash, material assets, industrial property rights, etc., as its investment in the venture.
The technology or equipment contributed by a foreign party as its investment in the venture shall be advanced technology or equipment that is truly appropriate to China's needs. Compensation shall be paid where losses are caused by fraud through the intentional provision of outdated equipment or technology.
The investment contributed by a Chinese investor may include the right to use a site provided for the joint venture during its operating term. Where the right to use a site does not constitute part of the investment made by the Chinese investor, the joint venture shall pay fees to the Chinese government for use of the site.
The various contributions referred to in this Article shall be specified in the joint venture contract or the joint venture's articles of association, and the value of each contribution (excluding that of the site) shall be ascertained by the parties to the venture through consultation.

Article 6 A joint venture shall establish a board of directors. The size and composition of the board of directors shall be determined through negotiations between the parties to the joint venture, and shall be stipulated in the contract and articles of association. Members of the board of directors shall be appointed and replaced by the parties to the joint venture. The chairman of the board and the vice-chairman of the board shall be determined through negotiation between the parties to the joint venture or elected by the board of directors. Where the post of chairman of the board is assumed by one party to the joint venture, the other party shall assume the post of vice-chairman. The board of directors shall make major decisions concerning the joint venture based on the principles of equality and mutual benefit.
The powers and functions of the board of directors shall be to discuss and decide, in accordance with the provisions of the articles of association of the joint venture, all major issues concerning the venture, namely, development plans, production and business plans, its budget, the distribution of profits, labor and remuneration plans, the cessation of business activities and the appointment or recruitment of the general manager, the deputy general manager, the chief engineer, the chief accountant and the auditor, in addition to their functions, powers and remuneration, etc.
The posts of general manager and deputy general manager (or factory manager and deputy factory manager) shall be split between the parties to the joint venture.
Matters concerning the employment, dismissal, remuneration, welfare benefits, labor protections, labor insurance, etc., of the employees of a joint venture shall be stipulated in a contract in accordance with the law.


Article 7 The employees of a joint venture may, in accordance with the law, establish a trade union organization to conduct trade union activities and safeguard the lawful rights and interests of employees.
Joint ventures shall provide their trade unions with the necessary conditions for union activities.

Article 8 The net profits of a joint venture shall be distributed to the parties to the venture in proportion to their respective shares in the registered capital after paying joint venture income tax in accordance with the tax laws of the People's Republic of China and after making deductions for the reserve fund, the employee bonus and welfare fund, and the venture development fund as stipulated in the articles of association of the joint venture.
A joint venture may, in accordance with relevant tax laws and administrative regulations of the state, enjoy preferential tax reductions and exemptions.
Any foreign party that reinvests its share of net profits within Chinese territory may apply for a refund of part of the income tax already paid.

Article 9 A joint venture shall, on the strength of its business license, open a foreign exchange account with a bank or other financial institution authorized to engage in foreign exchange business by the State Administration of Foreign Exchange.
Joint ventures shall conduct their foreign exchange business in accordance with the Administrative Regulations of the People's Republic of China on Foreign Exchange.
Joint ventures may, in the course of their business activities, borrow funds directly from foreign banks.
Any insurance policy taken out by a joint venture shall be taken out with an insurance company within Chinese territory.

Article 10 Materials, such as raw materials and fuel, which are required under the approved business scope of a joint venture, may be purchased on the domestic market or international market according to the principles of fairness and reasonableness.
Joint ventures are encouraged to sell their products outside China. Joint ventures may distribute their export products in foreign markets either directly or via appropriate agencies or Chinese foreign trade organizations. Joint venture products may also be distributed in the Chinese market.
Where necessary, joint ventures may establish branch organizations outside China.


Article 11 A foreign party to a joint venture may, on the expiry or suspension of a joint venture, after performing its obligations as stipulated in the law and in any agreement or contract, remit abroad its net share of profits and any other funds distributed to it using the currency stipulated in the joint venture contract and in accordance with the Administrative Regulations of the People's Republic of China on Foreign Exchange.
Foreign parties shall be encouraged to deposit with the Bank of China any amount of foreign exchange they become entitled to remit abroad.

Article 12 Wages and other lawful income earned by expatriate employees of joint ventures may, after the payment of individual income tax in accordance with the tax laws of the People's Republic of China, be remitted abroad in accordance with the Administrative Regulations of the People's Republic of China on Foreign Exchange.

Article 13 The operating term of any joint venture shall be determined in accordance with its industry and individual circumstances. An operating period shall be set for joint ventures in certain industries, and may or may not be set for joint ventures in other industries. Where the operating period for a joint venture is set and the parties subsequently agree to extend the operating period, they shall apply to the approval authority no later than six months prior to the date on which the operating period is due to expire. The approval authority shall make a decision on whether or not to approve the extension within one month of the date on which it receives the application.

Article 14 Subject to the approval of the approval authority and registration with the state industry and commerce administration department, where a joint venture suffers heavy losses, one party to a joint venture fails to perform its obligations under the contract or articles of association, or any force majeure event occurs, etc., the joint venture contract may be terminated by agreement of the parties. Where any economic loss is caused by a breach of contract, the party in breach shall be liable for the loss.

Article 15 Where the establishment of Chinese-foreign equity joint ventures does not involve the implementation of special access administrative measures prescribed by the state, the approval items stipulated in Article 3, Article 13 and Article 14 of this Law are 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 16 Any dispute between the parties to a joint venture that its board of directors fails to resolve through consultation may be resolved through conciliation or arbitration by an arbitral body in China or through arbitration by an arbitral body agreed upon by the parties.
Where the parties to a joint venture have not included an arbitration clause in their contract or have not subsequently reached an arbitration agreement in writing, they shall be entitled to institute legal proceedings in a people's court.

Article 17 This Law shall come into force on the date of issue hereof.