Decision of the National Peoples Congress on Amending the Law of the Peoples Republic of China on Chinese-Foreign Equity Joint Ventures

¡¡¡¡Order of the President of the People's Republic of China
¡¡¡¡No.48

¡¡¡¡The Decision of the National People's Congress on Amending the Law of the People's Republic of  China on Chinese-Foreign Equity Joint Ventures, adopted at the Fourth Session of the Ninth National People's Congress of the People's Republic of China on March 15,2001, is hereby promulgated and shall go into effect as of the date of its promulgation.

¡¡¡¡ Jiang Zemin

¡¡¡¡President of the People's Republic of China

¡¡¡¡March 15,2001

¡¡(Adopted at the Fourth Session of the Ninth National People's Congress on Marth14, 2001)

¡¡¡¡During its Fourth Session, the Ninth National People's Congress decides to amend the Law of the People's of Chinese-Foreign Equity Joint Ventures as follows.

¡¡¡¡1£®The second paragraph of Article 2 is revised to read£º¡°In all its activities, an equity
joint venture shall comply with the provisions of the laws and regulations of the People's Republic
of China.¡±

¡¡¡¡2£®The fourth paragraph of Article 6 is revised to read£º¡°The employment, discharge,
remuneration, welfare benefits, occupational protection, labor insurance and other matters of the
workers and staff members of an equity joint venture shall be stipulated in accordance with law in
the contract concluded by the parties.¡±

¡¡¡¡3£®An article is added as Article 7, which reads£º¡°The workers and staff members an equity
joint venture shall, in accordance with law, establish a trade union to carry out trade union
activities and safeguard their lawful rights and interests.¡±

¡¡¡¡¡°The equity joint venture shall provide the necessary conditions for trade union there to
conduct activities.¡±

¡¡¡¡4£®Article 8 is changed to be Article 9 and the fourth paragraph is revised to read£º¡°The
various kinds of insurance coverage of an equity joint venture shall be furnished by insurance
companies established within the territory of China.¡±

¡¡¡¡5£®The first paragraph of Article 9 is deleted.

¡¡¡¡6£®Article 9 is changed to be Article 10, the second paragraph of the original Article 9 is
changed to be the first paragraph of Article 10, which is revised to read£º¡°An equity joint venture
may, in adherence to principles of fairness and rationality, purchase on both the Chinese and the
world market the raw and semi-processed materials, fuels and other materials it needs within the
approved scope of operation.¡±

¡¡¡¡7£®Article 14 is changed to be Article 15, and a paragraph is added as the second paragraph,
which reads£º¡°Where the parties to an equity joint venture fail to stipulate an arbitration clause
in the contract or does not reach a written arbitration agreement afterwards, they may bring a
lawsuit to the People's Court.¡±

¡¡¡¡8£®The sentence in Article 15 which reads£º¡°The power to amend this Law shall be vested in the National People's Congress¡±is deleted.

¡¡¡¡Besides, the order of part of the articles in this Law shall be readjusted correspondingly in
accordance with this Decision.

¡¡¡¡This Decision shall go into effect as of the date of its promulgation.

¡¡¡¡The Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures shall be
amended correspondingly in accordance with this Decision and shall be promulgated anew.

¡¡¡¡Appendix£º

¡¡¡¡Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures

¡¡¡¡(Adopted at the Second Session of the Fifth National People's Congress on July 1,1979, amended according to the Decision on Amending the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures made at the Third Session of the Seventh National People's Congress on April 4,1990, and amended for the second time according to the Decision on Amending the Law of the People's Republic of China on Chinese-Foreign Equity Joint Ventures adopted at the Fourth Session of the Ninth National People's Congress on March 15,2001)

Article 1 With a view to expanding international economic cooperation and technological
exchange, the People's Republic of China permits foreign companies, enterprises, other economic
organizations or individuals (hereinafter referred to as ¡°foreign joint ventures¡± ) to establish
equity joint ventures together with Chinese companies, enterprises or other economic organizations( hereinafter referred to as ¡°Chinese joint ventures¡± )within the territory of the People's Republic
of China, on the principle of equality and mutual benefit, and subject to approval by the Chinese
Government.

Article 2 The Chinese Government protects, according to the law, the investment of foreign joint ventures, the profits due them and their other lawful rights and interests in an equity joint venture, pursuant to the agreement, contract and articles of association approved by the Chinese
Government.

In its activities, an equity joint venture shall comply with the provisions of the laws and regulations of the People's Republic of China.

The State shall not nationalize or requisition any equity joint venture. Under special circumstances, when public interests require, equity joint ventures may be requisitioned by following legal procedures and appropriate compensation shall be made.

Article 3 The equity joint venture agreement, contract and articles of association signed by the
parties to the venture shall be submitted to the State's competent department in charge of foreign
economic relations and trade( hereinafter referred to as the examination and approval authorities )for examination and approval. The examination and approval authorities shall decide to approve or disapprove the venture within three months. When approved, the equity joint venture shall register with the State's competent department in charge of industry and commerce administration,acquire a business license and start operations.

Article 4 An equity joint venture shall take the form of a limited liability company.

The proportion of the foreign joint venture's investment in an equity joint venture shall be, in general, not less than 25 percent of its registered capital.

The parties to the venture shall share the profits, risks and losses in proportion to their contributions to the registered capital.

If any to the joint ventures wishes to assign its registered capital, it must obtain the consent of the other parties to the venture.

Article 5 The parties to an equity joint venture may make their investment in cash, in kind or in industrial property rights, etc.

The technology and equipment contributed by a foreign joint venture as its investment must be
really advanced technology and equipment that suit China's needs. In case of losses caused by a
foreign joint venture in its practicing deception through the intentional provision of outdated
technology and equipment, it shall compensate for the losses.

A Chinese joint venture's investment may include the right to the use of a site provided for the
equity joint venture during the period of its operation. If the right to the use of the site is not
taken as a party of the Chinese joint venture's investment, the equity joint venture shall pay the
Chinese Government for its use.

The above-mentioned investments shall be specified in the contract and articles of association
of the equity joint venture, and their value (excluding that of the site) shall be assessed by all
parties to the venture.

Article 6 An equity joint venture shall have a board of directors; the number of the directors
thereof from each party and the composition of the board shall be stipulated in the contract and
articles of association after consultation among the parties to the venture; such directors shall be
appointed and replaced by the relevant parties. The chairman and the vice-chairman (vice-chairmen) shall be determined through consultation by the parties to the venture or elected by the board of directors. If the Chinese side or the foreign side assumes the office of the chairman, the other side shall assume the office(s) of the vice-chairman (vice-chairmen). The board of directors shall decide on important issues concerning the joint venture on the principle of equality and mutual benefit.

The functions and powers of the board of directors are, as stipulated in the articles of association of the equity joint venture, to discuss and decide all major issues concerning the venture, namely, the venture's development plans, proposals for production and business operations, the budget for revenues and expenditures, the distribution of profits, the plans concerning manpower  and wages, the termination of business, and the appointment or employment of the general manager, the vice-general manager(s), the chief engineer, the treasurer and the auditors, as well as the determination of their functions, powers and terms of employment, etc.

The offices of general manager and vice-general manager(s)(or factory manager and deputy
manager(s))shall be assumed by the respective parties to the venture.

The employment, discharge, remuneration, welfare benefits, occupational protection, labor
insurance and other matters of the workers and staff members of an equity joint venture shall be
stipulated in accordance with law in the contract concluded by the parties.

Article 7 The workers and staff members of an equity joint venture shall, in accordance with
law, establish a trade union to carry out trade union activities and safeguard their lawful rights
and interests.

The equity joint venture shall provide the necessary conditions for trade union there to conduct
activities.

Article 8 The net profit of an equity joint venture shall be distributed among the parties to the venture in proportion to their respective contributions to the registered capital, after payment out of its gross profit of the equity joint venture income tax, pursuant to the provisions of the tax laws of the People's Republic of China, and after deductions from the gross profit of a reserve fund, a bonus and welfare fund for workers and staff members and a venture fund, as stipulated in the venture's articles of association.

An equity joint venture may, in accordance with provisions of the relevant laws and administrative rules and regulations of the State on taxation, enjoy preferential treatment of tax reductions or exemptions.

A foreign joint venture that reinvests its share of the net profit within Chinese territory may apply for a partial refund of the income tax already paid.

Article 9 An equity joint venture shall, on the strength of its business license, open a foreign exchange account with a bank or any other financial institution which is permitted by the State agency for foreign exchange control to handle foreign exchange transactions.

An equity joint venture shall handle its foreign exchange transactions in accordance with the regulations on foreign exchange control of the People's Republic of China.

An equity joint venture may, in its business operations, directly raise funds from foreign banks.

The various kinds of insurance coverage of an equity joint venture shall be furnished by insurance companies established within the territory of China.

Article 10 An equity joint venture may, in adherence to the principles of fairness and rationality, purchase on both the Chinese and the world market the raw and semi-processed materials, fuels and other materials it needs within the approved scope of operation.

An equity joint venture shall be encouraged to market its products outside China. It may sell its export products on foreign markets directly or through associated agencies or China's foreign
trade agencies. Its products may also be sold on the Chinese market.

When necessary, an equity joint venture may set up branches and subbranches outside China.

Article 11 The net profit which a foreign joint venture receives as its share after performing
its obligations under the laws, and the agreements or the contract, the funds it receives upon the
expiration of the venture's term of operation or the suspension thereof, and its other funds may be
remitted abroad in accordance with foreign exchange control regulations and in the currency or
currencies specified in the contract concerning the equity joint venture.

A foreign joint venture shall be encouraged to deposit in the Bank of China the foreign exchange
which it is entitled to remit abroad.

Article 12 The wages, salaries or other legitimate income earned by a foreign worker or staff
member of an equity joint venture, after payment of the individual income tax under the tax laws of
the a People's Republic of China, may be remitted abroad in accordance with foreign exchange control regulations.

Article 13 Based on different lines of trade and different circumstances arrangements for the
duration of equity joint ventures may be made differently through agreement by the parties to the
venture. Equity joint ventures engaged in certain lines of trade shall specify their duration in the
contracts, while equity joint ventures engaged in certain other lines of trade may choose to or not
to specify their duration in the contracts. Where an equity joint venture has had its duration
specified and the parties to the venture agree to extend the duration, the venture shall file an
application for the purpose with the examination and approval authorities six months before its
expiration. The examination and approval authorities shall, within one month after receipt of the
application, decide on its approval or disapproval.

Article 14 In case of heavy losses, or failure of a party to perform its obligations under the contract and the articles of association, or force major, etc., the parties to the joint venture may, subject to their agreement through consultation, approval of their report by the examination and approval authorities and registration with the State's competent department in charge of industry and commerce administration, terminate the contract. In cases of losses caused by a breach of contract, the party that has breached the contract shall bear the economic responsibilities.

Article 15 Disputes arising between the parties to an equity joint venture which the board of
directors has failed to settle through consultation may be settled through conciliation or arbitration by an arbitration agency of China or through arbitration by another arbitration agency agreed upon by the parties.

Where the parties to an equity joint venture fail to stipulate an arbitration clause in the contract or does not reach a written arbitration agreement afterwards, they may bring a lawsuit to the People's Court.

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