Implementing Regulations of the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures (Revised in 2014)

Order of the State Council No. 648

February 19, 2014

(Promulgated by the State Council on September 20, 1983, firsly amended by the State Council according to the Revision of Article 100 of the Implementing Regulations of the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures on January 15, 1986, and secondly amended according to the Revision of Paragraph 3, Article 80 of the Implementing Regulations of the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures on December 21, 1987, and further amended in accordance with the Decision of the State Council on the Revision of the Implementing Regulations of the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures on July 22, 2001, and finally amended in accordance with Decision of the State Council on Abolishing and Revising Some Administrative Laws and Regulations on January 8, 2011; amended for the fifth time according to Decision of the State Council on Repealing and Revising Certain Administrative Regulations on February 19, 2014)

Chapter I General Provisions

Article 1 These Regulations are formulated for the purpose of facilitating the smooth implementation of the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures (hereinafter referred to as the "Law on Sino-Foreign Equity Joint Ventures").

Article 2 Sino-foreign equity joint ventures (hereinafter referred to as "joint ventures") established within the territory of China in accordance with the Law on Sino-foreign Equity Joint Ventures are legal persons in China and are governed and protected by Chinese laws.

Article 3 Joint ventures established within the territory of China shall be able to promote the economic development of China and the enhancement of science and technology, and facilitate the socialist modernization and construction.
Industries in which the establishment of joint ventures is encouraged, permitted, restricted or prohibited by the State shall be determined in accordance with the provisions of the State in the Regulations on Foreign Investment Guidelines and the Guidance Catalogue of Foreign Investment Industries.

Article 4 An application for establishing a joint venture shall not be approved under any of the following circumstances:
1. damages China's sovereignty;
2. violates Chinese laws;
3. is not in conformity with the requirements of the development of China's national economy;
4. causes environmental pollution; or
5. there is obvious inequity in the agreements, contracts and Articles of association signed, impairing the rights and interests of one party to the joint venture.

Article 5 A joint venture shall have the right to independently conduct business 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 6 The establishment of joint ventures within the territory of China shall be subject to the examination and approval of the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China (hereinafter referred to as MOFTEC). Upon approval, MOFTEC shall issue a certificate of approval.
The State Council shall authorize the people's government in provinces, autonomous regions and municipalities directly under the Central Government and the relevant departments under the State Council the power to examine and approve the establishment of joint ventures which satisfy the following conditions:
1. Where the total amount of capital contribution is within the examination and approval authority as prescribed by the State Council and the source of capital of the Chinese party to the joint venture has been ascertained;
2. Where there is no need for the State to allocate additional raw materials, and the national balance of fuel, power, transportation and foreign trade export quota, etc. is not affected.
Joint ventures established upon approval as prescribed in the preceding paragraph shall be filed with MOFTEC for the record.
MOFTEC and the State Council authorized people's government in provinces, autonomous regions and municipalities directly under the Central Government and the relevant departments under the State Council shall hereinafter collectively referred to as the examination and approval authorities.

Article 7 When applying for the establishment of a joint venture, the Chinese party and the foreign party to the joint venture shall jointly submit the following documents to the examination and approval authorities:
1. an application for the establishment of a joint venture;
2. the feasibility study report jointly prepared by the parties to the joint venture;
3. joint venture agreements, contracts and
Articles of association executed by the representatives authorized by the parties to the joint venture;
4. lists of candidates for chairperson, vice chairperson and directors nominated by the parties to the joint venture;
5. other documents required by the examination and approval authorities.
Documents listed in the preceding paragraph shall be written in Chinese, and documents (2), (3) and (4) can be written simultaneously in a foreign language agreed upon by the parties to the joint venture. Documents written in both languages shall be equally authentic and effective.
Anything inappropriate in the submitted documents found by the examination and approval authorities shall be required to be amended within a specified time limit.

Article 8 Upon receipt of all the documents stipulated in Article 7 hereof, the examination and approval authorities shall, within 3 months, decide whether to approve or disapprove.

Article 9 The applicant shall, within one month upon receipt of the certificate of approval, go through the registration formalities with the administrative authority for industry and commerce (hereinafter referred to as the registration authority) in accordance with the relevant provisions of the State. The date on which the business license of the joint venture is issued shall be the date of the establishment of the joint venture.

Article 10 For the purposes of these Regulations, "joint venture agreement" refers to the document agreed upon by the parties to the joint venture on some major points and principles regarding the establishment of the joint venture. "Joint venture contract" refers to the document in which a consensus is reached 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 purposes, organizational principles and methods of management of the joint venture in compliance with the principles of the joint venture contract. Where the joint venture agreement is in conflict with the joint venture contract, the latter shall prevail. The parties to the joint venture may agree to sign the joint venture contract and Articles of association only, without concluding a joint venture agreement.

Article 11 A joint venture contract shall include the following main particulars:
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. the name of the joint venture, its legal address, purposes and the scope and scale of business;
3. the total amount of capital contribution and registered capital of the joint venture, the amount, proportion and forms of capital contribution of each party to the joint venture, the time limit for making capital contribution, stipulations concerning contribution in default and equity transfer;
4. the proportion of profit to be distributed and losses to be borne by each party;
5. the composition of the board of directors, the number of directors to be appointed by each party, and the responsibilities, powers and means of employment of the general manager, deputy general manager and other 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;
8. the principles governing the handling of finance, accounting and auditing;
9. the stipulations concerning labor management, wages, welfare, and labor insurance;
10. the duration of the joint venture, its dissolution and the procedures for liquidation;
11. the liabilities for breach of contract;
12. the ways and procedures for settling disputes between the parties to the joint venture; and
13. the language(s) used in the contract and the conditions on which the contract comes into force.
The annex to a joint venture contract shall carry the same effect as the contract itself.

Article 12 Chinese laws shall apply to the conclusion, validity, interpretation and performance of a joint venture contract, as well as to the settlement of disputes.

Article 13 The Articles of association of a joint venture shall include the following main particulars:
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 capital contribution, registered capital of the joint venture, the amount and proportion of capital contribution of each party to the joint venture, the form of contribution, the contribution payment period, stipulations concerning equity transfer, 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. the principles governing financial, accounting and auditing systems;
8. dissolution and liquidation; and
9. procedures for amendment of the Articles of association.

Article 14 The agreement, contract and Articles of association of a joint venture shall come into force upon approval by the examination and approval authorities. The same applies to amendments thereto.

Article 15 The examination and approval authorities and the registration authority are responsible for supervising and checking the execution of the joint venture contract and Articles of association.

Chapter III Form of Organization and Registered Capital

Article 16 A joint venture shall be a limited liability company. The liability of each party to the joint venture is limited to the amount of capital contribution subscribed by it.

Article 17 The total amount of capital contribution (including loans) of a joint venture refers to the sum of basic construction funds and the liquidity funds for production required to be invested in conformity with the joint venture's production scale as set out in the contract and the Articles of association of the joint venture.

Article 18 The registered capital of a joint venture refers to the total amount of capital contribution registered with the registration authority for the establishment of the joint venture. It shall be the total amount of capital contribution subscribed by parties to the joint venture. The registered capital shall generally be denominated in Renminbi, or may be in a foreign currency agreed upon by the parties to the joint venture.


Article 19 The registered capital of the joint venture may not be reduced during the operation term of the joint venture. If there is a genuine need for reduction due to the changes in the total amount of capital contribution and the production and operation scale, it shall be subject to the approval of the examination and approval authorities.

Article 20 If one party to the joint venture intends to transfer all or part of its equity to a third party, consent shall be obtained from the other party to the joint venture, and approval from the examination and approval authorities is required. The formalities for change of registration shall be handled with the registration authority.
When one party transfers all or part of its equity to a third party, the other party shall have preemptive right.
When one party transfers its equity to a third party, the conditions for such transfer may not be more favorable than those for the other party to the joint venture.
Where the above stipulations are violated, no transfer shall be valid.

Article 21 Any increase in or reduction of the registered capital of a joint venture shall be approved by the board meeting and submitted to the examination and approval authorities for approval. The formalities for change of registration shall be handled with the registration authority.

Chapter IV Forms of Capital Contribution

Article 22 A party to a joint venture may make its capital contribution in money or in the form of buildings, factory premises, machinery, equipment or other materials, industrial property, proprietary technology, or site use rights, the value of which shall be used as capital contribution. If the capital contribution is in the form of buildings, premises, machinery, equipment or other materials, industrial property or proprietary technology, the value thereof shall be determined by the parties to the joint venture through consultation and on the basis of fairness and reasonableness or shall be appraised by a third party agreed upon by the parties to the joint venture.


Article 23 The capital contribution in foreign currency made by the foreign party shall be converted into Renminbi or cross exchanged into a predetermined foreign currency at the standard exchange rate published by the People's Bank of China on the day the payment is made.
If there is a need for cash contribution in Renminbi made by the Chinese party to be converted into a foreign currency, it shall be converted at the standard exchange rate published by the People's Bank of China on the day the payment is made.

Article 24 The machinery, equipment or other materials contributed by the foreign party as capital contribution shall be those that are indispensable for the production of the joint venture.
The valuation of the machinery, equipment or other materials as mentioned in the preceding paragraph may not be higher than the current international market price of machinery, equipment and other materials of the same kind.

Article 25 The industrial property or proprietary technology contributed by the foreign party to a joint venture shall meet one of the following conditions:
1. capable of markedly improving the performance, quality of existing products and raising productivity; or
2. capable of notably saving raw materials, fuel or power.

Article 26 The foreign party to a joint venture who makes its capital contributions in the form of industrial property or proprietary technology shall deliver documentation relating thereto, including photocopies of the patent or trademark registration certificates, statements of validity, technical features and practical value thereof, the basis for calculating the value as well as the agreement signed with the Chinese party to the joint venture on the value thereof, as annexes to the contract.

Article 27 The machinery, equipment or other materials, industrial property or proprietary technology contributed by the foreign party to the joint venture shall be reported to the examination and approval authorities for further approval.

Article 28 Each party to the joint venture shall make its capital contribution in full and within the time limit stipulated in the joint venture contract. If a party delays in making its capital contribution or fails to make its contribution in full, it shall pay interest on such default or compensate for the losses pursuant to the provisions of the contract.

Article 29 The capital contribution made by each party to a joint venture shall be verified by a certified public accountant registered in China, who shall issue a capital verification report on the basis of which the joint venture shall issue a capital contribution certificate to the parties to the joint venture. The capital contribution certificate shall include the following particulars: name of the joint venture, the day, month and year of the establishment of the joint venture, the names of the parties to the joint venture and their capital contribution, the date, month and year on which their capital contribution is made, and the date, month and year of the issuance of capital contribution certificates.

Chapter V Board of Directors and Business Management Organization

Article 30 The board of directors shall be the highest authority of a joint venture, which shall decide all major issues concerning the joint venture.

Article 31 The board of directors shall consist of no less than three members. The number of directors to be appointed by each party shall be determined through consultation by the parties to the joint venture with reference to the proportion of their respective capital contribution.
The term of office for each director is four years, which may be renewed when a director is re-appointed by the original appointing party to the joint venture.

Article 32 The board meeting shall be convened at least once a 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 upon a proposal made by more than one-third of the total number of directors. A board meeting requires a quorum of over two-thirds of the directors. Should a director be unable to attend the meeting, he may issue a power of attorney to appoint a proxy to represent him and vote on his behalf.
A board meeting shall usually be held at the location of the joint venture's legal address.

Article 33 Resolutions on the following matters 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 reduction of the registered capital of the joint venture;
4. merger or division of the joint venture.
Resolutions on other matters may be made according to the rules of procedure stated in the Articles of association of the joint venture.


Article 34 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 35 A joint venture shall establish its business management organization, which shall be responsible for its day-to-day management and operation. The business management organization shall have a general manager and several deputy general managers who assist the general manager in his work.

Article 36 The general manager shall carry out the various decisions of the board meeting and organize and conduct the day-to-day management and operation of the joint venture. Within the authority given 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 granted by the board.

Article 37 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 invitation 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 the general manager or deputy general managers of another economic organization. They shall not join other economic organizations in commercial competition with their own joint venture.

Article 38 Where the general manager, a deputy general manager or other high-ranking managerial personnel conducts an act of graft or serious dereliction of duty, the board of directors may adopt a resolution to dismiss him at any time.

Article 39 Establishment of branches (including sales offices) outside China or in regions of Hong Kong or Macao is subject to approval of the MOFERT.

Chapter VI Introduction of Technology

Article 40 For the purpose of these Regulations, "introduction of technology" refers to the acquisition of necessary technologies by the joint venture by means of technology transfers from a third party or a party to the joint venture.

Article 41 The technology to be introduced by the joint venture shall be appropriate and advanced and enable the venture's products to display conspicuous social economic benefits domestically or to be competitive at the international market.

Article 42 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 43 The technology transfer agreements concluded by a joint venture shall be submitted to the examination and approval authorities for approval.
Technology transfer agreements shall comply with the following stipulations:
1. Fees for the use of technology shall be fair and reasonable.
2. Unless otherwise agreed upon by both parties, the technology exporting party shall not set any limit 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. Upon the expiry 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 to 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 which they deem suitable.
7. No irrational restrictive clauses prohibited by Chinese laws and regulations shall be included.

Chapter VII Site Use Right and Site Use Fees

Article 44 Joint ventures shall implement the principle of economizing on land in their use of sites. 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 being approved and entering into a contract. The area, 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 for breach of contract shall be stipulated explicitly in the contract.

Article 45 If the Chinese party to a joint venture already has the right to use the site needed by the joint venture, it may contribute such right as its investment in the joint venture. The amount appraised for such right shall be equivalent to the site use fee payable for acquiring the right to the use of a site of the same kind.

Article 46 The rate for the site use shall be set forth by the people's governments of the province, autonomous region or municipality directly under the Central Government where the site is located in the light of the purpose of site use, geographical and environmental conditions, expenses for land requisition, demolition of the houses on the site and relocation of the residents, and the joint venture's requirements in respect of the infrastructure, and be filed with the MOFERT and the competent land authority for the record.

Article 47 Joint ventures engaged in agriculture and animal husbandry may, subject to the consent of the people's governments of the province, autonomous region or municipality directly under the Central Government where they locate, 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 subject to the consent of the local people's government.

Article 48 The rates of site use fees shall not be subject to adjustment in the first 5 years 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 capital contribution made by the Chinese party to the joint venture shall not be subject to adjustment during the contract period.

Article 49 The fee for the right to the use of a site obtained by a joint venture according to Article 44 of these Regulations shall be paid annually from the day to use the land stipulated in the contract. For the first calendar 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 50 Joint ventures, in addition to obtaining site use right in accordance with this Chapter, may acquire site use right in accordance with relevant provisions of the State.

Chapter VIII Purchasing and Selling

Article 51 A joint venture shall have the right to decide for itself to purchase required machinery and equipment, raw materials, fuels, accessories and fittings, means of transport and office equipment, etc (hereinafter referred to as materials) in China or from abroad.

Article 52 The materials needed for office and daily use by a joint ventures can be purchased in China without any limit on quantity.

Article 53 The Chinese Government encourages joint ventures to sell their products to the international market.

Article 54 A joint venture has the right to export its products itself or entrust the sale-agencies of the foreign party to the joint venture or the Chinese foreign trade corporations with sales on a commission or distribution.

Article 55 Within the business scope 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 particulars 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 party to the joint venture has contributed as part of its capital contribution, import licenses can be applied for directly with the documents approved by the examination and approval 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 six months.

Article 56 With respect to prices of materials to be purchased in China and fees charged for the supply of water, electricity, gas and heat and the services such as cargo transportation, labor, project designing, consulting and adverting, etc. shall enjoy equal treatment accorded to other domestic enterprises.

Article 57 In the business intercourse between a joint venture and other Chinese economic organizations, the two parties shall undertake economic responsibilities and settle disputes in connection with their contract in accordance with relevant laws and the contract concluded between them.

Article 58 A joint venture shall provide statistical data and submit statistical statements in accordance with the Statistics Law of the People's Republic of China and Chinese regulations concerning the statistical system for the utilization of foreign capital.

Chapter IX Taxes

Article 59 Joint ventures shall pay taxes according to the stipulations of relevant laws of the People's Republic of China.

Article 60 Staff 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 61 Taxes on the following materials imported by the joint venture shall be reduced or exempted in accordance with the relevant provisions of Chinese tax laws:
1.machinery and equipment, spare parts and components, and other goods ("other goods" shall, herein and hereinafter, mean materials needed by a joint venture to build its factory or site and to install and consolidate the machinery) contributed by the foreign party to the joint venture as investment under the joint venture contract;
2. machinery and equipment, spare parts and components, and other goods imported with funds out of the total investment of a joint venture;
3. machinery and equipment, spare parts and components, and other goods imported by a joint venture with additional capital and upon approval by the examination and approval authority, the production and supply of which cannot be guaranteed in China;
4. raw materials, auxiliary materials, components, spare parts, and packing materials imported by a joint venture for production of export goods.
When the above-mentioned materials on which taxes are reduced or exempted are approved for resale in China or are used for products to be sold in China, taxes shall be paid or the balance in tax payment shall be made up in accordance with regulations and rules.


Article 62 Taxes on export products manufactured by joint ventures other than those restricted by China, shall be reduced, exempted or refunded in accordance with the relevant provisions of Chinese tax law.

Chapter X Foreign Exchange Control

Article 63 All matters concerning foreign exchange of joint ventures shall be handled according to the Administrative Regulations of the People's Republic of China on Foreign Exchange and the provisions of relevant administrative measures.

Article 64 A joint venture can, on the strength of its business license, open accounts in foreign exchange and in Renminbi with banks in China, which shall supervise its receipts and payments.

Article 65 A joint venture shall obtain the approval of 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 66 Any branch office set up by a joint venture in a foreign country or in Hong Kong or Macao 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 67 A joint venture may, in light of its operation needs, apply with the financial institutions in China for loans in foreign exchange and in Renminbi. It may also borrow funds in foreign exchange from banks abroad or in Hong Kong SAR or Macao SAR in accordance with the provisions of the State, and register or file for a record with the State Administration of Foreign Exchange Control or one of its branches.

Article 68 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 remit the remainder of their foreign exchange out of China in accordance with the relevant provisions of the State.

Chapter XI Financial Affairs and Accounting

Article 69 The rules and regulations for a joint venture's financial affairs and accounting shall be formulated in accordance with relevant Chinese 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 70 A joint venture shall have 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 71 A joint venture shall (a small enterprise may have no need to) 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 72 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 73 The accounting of a joint venture shall adopt the internationally accepted accrual system and debit and credit accounting bookkeeping method to keep accounts. All vouchers, account books and statements prepared by the enterprise shall be written in Chinese. They may simultaneously be written in a foreign language agreed upon by the parties.

Article 74 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 75 In addition to keeping accounts in the standard currency, a joint venture shall record the actual receipts and payments of cash, bank deposits, sums in other currencies, and claims, liabilities, incomes, expenses, etc. in other currencies other than the standard currency.
Where a foreign currency is used to be the standard currency for accounting, the joint venture shall convert such currency into Renminbi when it prepares its financial and accounting statements.
Differences arising from conversion into the standard currency for accounting due to different exchange rates shall be entered as losses or gains on exchange. Balance on foreign exchange accounts due to changes in the exchange rate in account keeping shall be handled at the year-end settlement of account in accordance with the relevant Chinese laws and rules for financial affairs and accounting.

Article 76 Principles of profit distribution after payment of taxes in accordance with the Income Tax Law of the People's Republic of China on Foreign-invested Enterprises and Foreign Enterprises are as follows:
1. A reserve fund, A bonus and welfare fund for staff and workers and an enterprise expansion fund shall be drawn, and the proportion of such drawing shall be decided by the board of directors.
2. In addition to its use in making up the losses of the joint venture, the reserve fund may be used to increase the capital of the joint venture and expand its production upon approval by the examination and approval authorities; and
3. Any distributable profit remaining after the drawing of the three funds in accordance with the provision (1) of this Article shall be distributed to the parties to the joint venture in proportion to their capital contribution when the board of directors decides to distribute such profit.

Article 77 No profit may be distributed before the losses of the previous year have been made up. Undistributed profit from the previous year (or years) may be distributed together with the profit of the current year.

Article 78 The joint venture shall submit quarterly and annual accounting statements to the parties to the joint venture and the local taxation bureaus and financial department.

Article 79 Only after being verified by a certified public accountant registered in China and verification certificates thereof have been issued shall the following documents, certificates and reports become valid:
1. certificates of the capital contribution made by the parties to a joint venture (in case materials, site use rights, industrial property or proprietary technology is used as capital contribution, a detailed list of the assessed value of such property and the written agreement thereon signed by the parties to the joint venture shall be included);
2. annual accounting statements of the joint venture;
3. accounting statements on liquidation of the joint venture.

Chapter XII Staff and Workers

Article 80 The employment, recruitment, dismissal and resignation of staff and workers of joint ventures, and their salary, welfare benefits, labor insurance, labor protection, labor discipline and other matters shall be handled in accordance with the relevant provisions of the State on labor and social security.

Article 81 Joint ventures shall make every effort to conduct professional and technical training of their staff and workers and establish a strict assessment system so as to enable them to meet the requirements of a modernized enterprise in respect of production and managerial skills.

Article 82 The salary and incentive systems of a joint venture shall be in conformity with the principle of distribution according to work and more pay for more work.

Article 83 Salaries and benefits 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 by the board of directors.

Chapter XIII Trade Union

Article 84Staff and workers of a joint venture have the right to set up a grass-roots trade union to carry out 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 Constitution of the Trade Unions of China.

Article 85 The trade union in a joint venture represents the interests of the staff and workers. It has the power to sign, on behalf of the staff and workers, labor contracts with the joint venture and supervise the execution of these contracts.

Article 86 The basic tasks of the trade union in a joint venture is: to protect the democratic rights and material interests of the staff and workers according to law; to help the joint venture 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 labor discipline and strive to fulfill the economic tasks of the joint venture.

Article 87 Trade union representatives have the right to attend, without the right to vote, meetings of the board of directors held in order 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 in order to discuss and decide on awards and penalties to staff and workers, salary and wage system, welfare benefits, labor protection and labor insurance, etc. The board of directors shall heed the opinions of the trade union and enlist its co-operation.

Article 88 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 totaling 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 Term, Dissolution and Liquidation

Article 89 The duration of a joint venture shall be determined by the Tentative Regulations on the Duration of the Sino-foreign Equity Joint Ventures.

Article 90 A joint venture may be dissolved under the following circumstances:
1. the joint venture term expires;
2. the joint venture incurs serious losses, rendering it unable to continue operation;
3. a party to the joint venture fails to perform its obligations under the joint venture agreement, contract and/or Articles of association, making it impossible for the joint venture to continue operation;
4. the joint venture cannot continue operation due to heavy losses caused by an event of force majeure such as natural calamity, war, etc.;
5. the joint venture fails to achieve its business objectives, with no prospects for its development; or
6. any other cause for dissolution of the joint venture under the joint venture contract and Articles of association has cropped up.
In the cases of (2), (4), (5) and (6) of the preceding Paragraph, the board of directors shall file an application for dissolution of the joint venture and submit it to the examination and approval authority for approval; in the case of (3), the party which performs the contract shall file such application and submit it to the examination and approval authority for approval.
In the case of (3), Paragraph 1 of this Article, the party which fails to perform the obligation under the joint venture agreement, contract and/or Articles of association shall be liable for indemnifying the joint venture for its losses arising therefrom.

Article 91 A joint venture announcing its dissolution shall undergo liquidation procedures. The joint venture shall set up a liquidation committee in accordance with the provisions of the Measures for Liquidation of Foreign Investment Enterprises. The liquidation committee shall be in charge of liquidation matters.

Article 92 Members of the liquidation committee shall generally be selected from among the directors of a joint venture. In case the directors cannot serve as or are unsuitable to be members of the liquidation committee, the joint venture may invite accountants and lawyers registered in China to the committee. When the examination and approval authorities deems necessary, it may dispatch personnel to supervise the process.
Liquidation expenses and remuneration to members of the liquidation committee shall be paid in priority from the existing assets of the joint venture.

Article 93 The tasks of the liquidation committee are to conduct a thorough check of the property, claims and liabilities of the joint venture, work out the balance sheet and an inventory of the property, put forward the 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 liquidation process, the liquidation committee shall represent the joint venture concerned in the institution of and defense in legal proceedings.

Article 94 A joint venture shall be liable for its debts to the full extent of its assets. The remaining property after liquidation of the debts of the joint venture shall be distributed to the parties in proportion to their capital contribution unless otherwise provided for in the joint venture agreement, contract and/or Articles of association.
At the time when the joint venture is dissolved, any portion of its net assets or the balance of its residual property less the undistributed profits, various funds and liquidation expenses that is in excess of the paid-in capital shall be income derived from liquidation, which shall be subject to income tax according to law.

Article 95 Upon completion of the liquidation of a joint venture, the liquidation committee shall submit a liquidation report to the board meeting. After the report has been approved, the joint venture shall report to the original examination and approval authorities, go through the formalities for cancelling its registration with the original registration authorities and hand in its business license.

Article 96 After a joint venture is dissolved, its account books and documents shall be kept by the Chinese party to the original joint venture.

Chapter XV Dispute Settlement

Article 97 Disputes arising from the interpretation or performance of the joint venture agreement, contract or Articles of association between the parties to the joint venture shall, if possible, be settled through friendly consultation or mediation. If such consultation or mediation comes to no avail, the parties shall submit the dispute to arbitration or a law court for settlement.

Article 98 The parties to a joint venture may apply for arbitration in a Chinese arbitration institution or another arbitration institution in accordance with their agreement on arbitration.

Article 99 In the absence of a written agreement on arbitration between the parties to a joint venture, either party may bring a suit in a people's court.

Article 100 In the course of dispute resolution, the parties to a joint venture shall continue to perform other provisions of the joint venture agreement, contract and Articles of association of the joint venture, except for matters in dispute,

Chapter XVI Supplementary Provisions

Article 101 The Chinese departments in charge of visas shall provide facility by simplifying the procedures for staff and workers from foreign countries or from Hong Kong or Macao (including their family members) who need to come to or leave China frequently.

Article 102 Chinese employees of a joint venture shall go through formalities for exit of China (Chinese territory) in accordance with the relevant provisions of the state when there is a need in their work for them to go abroad for investigation, business negotiation, study or training.

Article 103 Staff and workers from foreign countries or from Hong Kong or Macao of a joint venture may bring in means of transport and office equipment they need and pay taxes in accordance with Chinese tax laws.

Article 104 Where laws and administrative regulations otherwise provide for in respect of joint ventures set up in Special Economic Zones, such provisions shall prevail.

Article 105 These Regulations shall come into effect as of the date of promulgation.