Implementing Regulations for the PRC Sino-foreign Equity Joint Venture Law (3rd Revision)

(Promulgated by the State Council on, and effective as of, July 22 2001.)

Part One: General Provisions

Article 1: These Regulations are formulated in order to facilitate the implementation of the PRC Sino-foreign Equity Joint Venture Law (hereafter, “Equity Joint Venture Law”).

Article 2: Sino-foreign equity joint ventures (hereafter, “Joint Ventures”) established in China in accordance with the Equity Joint Venture Law shall be Chinese legal persons and shall governed and protected by the laws of China.

Article 3: Joint Ventures established in China shall promote the development of China's economy and the raising of scientific and technological levels for the benefit of socialist modernisation and construction.

Industries in which the establishment of Joint Ventures is encouraged, permitted, restricted or prohibited by the State shall be handled in accordance with the provisions of the State for directing foreign investment and Foreign Investment Industrial Guidance Catalogue.

Article 4: Applications for the establishment of Joint Ventures shall not be approved in any of the following circumstances:

(1) where China's sovereignty would be harmed;

(2) where China's laws would be violated;

(3) where the requirements for the development of China's national economy would not be satisfied;

(4) where environmental pollution would be caused; or

(5) where there is obvious inequity in the agreement, contract or articles of association signed, causing harm to the rights and interests of one party.

Article 5: A Joint Venture shall have the right to conduct business operations autonomously within the scope of the stipulations of China's laws and regulations, and the agreement, contract and articles of association of the Joint Venture. The relevant departments shall provide support and assistance.

Part Two: Establishment and Registration

Article 6: The establishment of a Joint Venture in China is subject to examination and approval by the Ministry of Foreign Trade and Economic Cooperation of the People's Republic of China (hereafter, “Ministry of Foreign Trade and Economic Cooperation”). The Ministry of Foreign Trade and Economic Cooperation shall issue an Approval Certificate after approval.

Where any of the following conditions exist, the State Council shall authorise the people's governments of provinces, autonomous regions or municipalities directly under the central government or relevant department of the State Council to examine and approve:

(1) the total amount of investment is within the amount that the State Council has authorised the people's government in question to examine and approve, and the source of capital of the Chinese party has been ascertained; and

(2) no additional allocation of raw materials by the State is required and the national balance in such sectors as fuel, power, transportation and foreign trade export quotas is not affected.

A Joint Venture whose establishment is approved in accordance with the preceding paragraph shall report the matter to the Ministry of Foreign Trade and Economic Cooperation for the record.

The Ministry of Foreign Trade and Economic Cooperation and people's governments of the provinces, autonomous regions or municipalities directly under the central government or relevant department of the State Council are hereafter referred to as the “examination and approval authorities”.

Article 7: When applying for the establishment of a Joint Venture, both parties to the venture shall jointly submit the following documents to the examination and approval authorities:

(1) an application for the establishment of the Joint Venture;

(2) a feasibility study report jointly prepared by the parties to the venture;

(3) the Joint Venture agreement, contract and articles of association signed by the authorised representatives of the parties to the Joint Venture;

(4) a list of the persons appointed by the parties to the venture as chairman, vice-chairman and directors of the Joint Venture; and

(5) other documents specified by the examination and approval authorities.

The documents mentioned in the preceding paragraph shall be written in Chinese. The documents mentioned in Items (2), (3) and (4) may also be written in a foreign language agreed by the parties to the Joint Venture. The documents written in both languages shall have equal validity.

If the examination and approval authorities found that the submitted documents are not in order, they may order the documents to be rectified within a specified time limit.

Article 8: The examination and approval authorities shall, within three months of the date of receipt of the documents stipulated in Article 7 of these Regulations, decide whether or not to approve them.

Article 9: An applicant shall, within one month after receipt of the approval certificate, register with the administration authority for industry and commerce (hereafter, administration of registration organisation) in accordance with the relevant regulations of the State. The date of issue of business licence of the Joint Venture shall be the date of establishment of the Joint Venture.

Article 10: The “Joint Venture agreement” referred to in these Regulations shall refer to the document concluded by the parties to the Joint Venture after agreement on certain main points and principles concerning the establishment of a Joint Venture. The “Joint Venture contract” shall refer to a document concluded by the parties to the Joint Venture after arriving at identical opinions on their rights and obligations. The “articles of association” shall refer to a document that, with the full agreement of the parties to the Joint Venture and in accordance with the principles stipulated in the Joint Venture contract, stipulates such matters as the purpose, organisation principles and methods of management and operation of the Joint Venture.

Where there is a conflict between the Joint Venture agreement and the contract, the contract shall prevail.

If the parties to a Joint Venture agree to sign only a contract and articles of association, the Joint Venture agreement may not be concluded.

Article 11: The Joint Venture contract shall include the following main contents:

(1) the names, the countries of registration and legal addresses of parties to the Joint Venture, and the names, professions and nationalities of their legal representatives;

(2) the name, legal address, purpose and the scope and scale of business of the Joint Venture;

(3) the total amount of investment and registered capital of the Joint Venture, the amount of capital contribution by the parties to the Joint Venture, the ratio of each party's capital contribution, the forms of capital contribution, the time limit for paying in capital contributions and stipulations concerning defaults on capital contributions, and assignment of equity interest;

(4) the ratio of distribution of profits to and bearing of losses by each party;

(5) the composition of the board of directors, the distribution of the number of directors, and the responsibilities, powers and method of employment of the general manager, deputy general manager and other senior management personnel;

(6) the main production equipment and technology to be adopted and their source;

(7) the method of purchasing raw materials and selling finished products;

(8) the principles concerning the handling of finance, accounting and auditing;

(9) the stipulations concerning labour management, wages, welfare and labour insurance;

(10) the term, dissolution and liquidation procedures for the Joint Venture;

(11) the liability for breach of contract;

(12) the methods and procedures for resolving disputes between the parties to the Joint Venture; and

(13) the language to be used in the contract and the conditions for effectiveness of the contract.

Appendices to a Joint Venture contract shall have equal validity with the contract itself.

Article 12: The conclusion, validity, interpretation and performance of a Joint Venture contract, and the resolution of disputes thereunder shall be governed by laws of China.

Article 13: Joint Venture articles of association shall include the following main contents:

(1) the name and legal address of the Joint Venture;

(2) the purpose, business scope and term of the Joint Venture;

(3) the names, the countries of registration and the legal addresses of parties to the Joint Venture, and the names, positions and nationalities of their legal representatives;

(4) the total amount of investment and registered capital of the Joint Venture, the amounts of capital contribution by each party, the ratio of capital contributions, stipulations concerning the assignment of equity interest, the ratio of distribution of profit to and the bearing of losses by parties to the Joint Venture parties;

(5) the composition, powers and rules of procedure of the board of directors, the term of office of the directors, and the responsibilities of its chairman and vice-chairman;

(6) the setting up of management organisations, administrative rules, the responsibilities of the general manager, deputy general manager and other senior management personnel, and the method of their appointment and dismissal;

(7) principles concerning finance, accounting and auditing;

(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 after approval by the examination and approval authorities. The same shall apply in the event of amendments.

Article 15: The examination and approval authorities and the administration of registration organisation shall be responsible for supervising and inspecting the execution of the Joint Venture contract and articles of association.

Part Three: Organisational Form and Registered Capital

Article 16: A Joint Venture shall be a limited liability company.

The liability of each party to a Joint Venture shall be limited to the amount of the capital that it contributes.

Article 17: The “total amount of investment (including loans)” of a Joint Venture shall refer to the sum of basic construction funds and the circulating funds needed in accordance with the scale of production scale stipulated in the contract and the articles of association of the Joint Venture.

Article 18: The “registered capital” shall refer to the total amount of capital registered at the administration of registration organisation for the establishment of the Joint Venture and shall be the total amount of investment subscribed by the Joint Venture parties.

The registered capital shall generally be expressed in renminbi, or may be expressed in a foreign currency agreed upon by the Joint Venture parties.

Article 19: A Joint Venture shall not reduce its registered capital during the term of the Joint Venture. Where it is necessary to make such reductions due to changes in total investment and production or the scale of operation or production, the reduction shall be subject to the approval of the examination and approval authorities.

Article 20: Where one party to a Joint Venture intends to assign all or part of equity interest to a third party, the other parties to the Joint Venture must give their consent, and approval from the examination and approval authorities must be obtained. Such change shall be registered with the administration of registration organisation.

When one party assigns all or part of its equity interest, the other party shall have a pre-emptive right of purchase.

When one party assigns its equity interest to a third party, the conditions shall not be more favourable than the conditions for assignment to the other party to the Joint Venture.

Any assignment in violation of the above stipulations shall be void.

Article 21: The increase or reduction of the registered capital of a Joint Venture shall be passed by a meeting of the board of directors and submitted to the examination and approval authorities for approval. Such change shall be registered with the administration of registration organisation.

Part Four: Methods of Investment Contribution

Article 22: Each investor to a Joint Venture may contribute capital in the form of currency, or may capitalise items such as building, factory premise, machinery, equipment or other materials, industrial property, proprietary technology, or right to the use of a site according to the monetary value of such items. Where building, factory premise, machinery, equipment or other materials, industrial property or proprietary technology is capitalised according to its value, the value shall be ascertained through consultation by the parties to the Joint Venture on the basis of fairness and reasonableness, or evaluated by a third party agreed by the parties to the Joint Venture.

Article 23: The foreign currency contributed by the foreign investor shall be converted into renminbi according to the base exchange rate announced by the People's Bank of China on the day of its payment or be cross exchanged into a predetermined foreign currency.

Where cash renminbi contributed by a Chinese investor is converted into foreign currency, it shall be converted according to the exchange rate announced by the People's Bank of China on the day of the payment of the funds.

Article 24: The machinery, equipment and other materials contributed as investment by the foreign investor shall be necessary for the production by the Joint Venture.

The value at which the machinery, equipment and other materials mentioned in the preceding paragraph is capitalised shall not be higher than the current price on the international market for the same kind of machinery, equipment and materials.

Article 25: The industrial property or proprietary technology contributed by a foreign investor as investment shall meet one of the following conditions:

(1) it must be capable of improving markedly the performance quality of existing products and raising productivity; and

(2) it must be capable of notable savings in raw materials, fuel or power.

Article 26: A foreign investor that capitalise industrial property or proprietary technology according to its value shall present relevant information on the industrial property or proprietary technology, including photocopies of the patent certificates or trademark registration certificates, statements of validity, its technical characteristics, practical value, the basis for conducting valuation and the price agreement signed with the Chinese investor. The above information shall be annexed to the contract.

Article 27: The machinery, equipment or other materials, industrial property or proprietary technology contributed by a foreign investor as investment shall be submitted to the examination and approval authority for approval.

Article 28: The parties to a Joint Venture shall pay in all the investment subscribed according to the time limit stipulated in the contract. Where there is a default in payment or partial default in payment, interest on arrears or compensation for losses shall be paid as stipulated in the contract.

Article 29: After the investment is paid by the parties to a Joint Venture, a Chinese chartered accountant shall verify it and provide a verification certificate, in accordance with which the Joint Venture shall issue an investment certificate, which shall include the following items: name of the Joint Venture; day, month and year of the establishment of the Joint Venture; names of the investors and the investment contributed; day, month and year of the contribution of the investment; and day, month and year of issuance of the investment certificate.

Part Five: Board of Directors and Management Office

Article 30: The board of directors shall be the highest authority of a Joint Venture and shall decide all major issues concerning the Joint Venture.

Article 31: A board of directors shall consist of no less than three members. The distribution of the number of directors shall be ascertained through consultation by the parties to a Joint Venture with reference to the proportion of investment contributed.

The term of office for the directors is four years. Their term of office may be renewed with the consent of the parties to the Joint Venture.

Article 32: The board of directors shall convene at least one meeting every year. The meeting shall be called and presided over by the chairman of the board. Where the chairman is unable to call the meeting, he shall authorise the vice-chairman or another director to call and preside over the meeting. The chairman may convene an interim meeting based on a proposal made by more than one-third of the directors.

The quorum for a board meeting shall be two-thirds of the directors. Where a director is unable to attend, he may present a power of attorney appointing a proxy to represent him and vote for him.

A board meeting shall generally be held at the location of the Joint Venture's legal address.

Article 33: Decisions on the following items shall be made only after being unanimously agreed upon by the directors present at a board meeting:

(1) amendment of the articles of association of the Joint Venture;

(2) termination and dissolution of the Joint Venture;

(3) increase or reduction of the registered capital of the Joint Venture; and

(4) merger or division of the Joint Venture.

Decisions on other items shall be made in accordance with the rules of procedure stipulated in the articles of association.

Article 34: A chairman of the board is the legal representative of the Joint Venture. Where the chairman is unable to exercise his responsibilities, he shall authorise the vice-chairman of the board or another director to represent the Joint Venture.

Article 35: A Joint Venture shall establish a management office which shall be responsible for daily management. The management office shall have a general manager and deputy general managers who shall assist the general manager in his work.

Article 36: A general manager shall implement the decisions of the board meeting and organise and conduct the daily management of the Joint Venture. The general manager shall, within the scope of power delegated to him by the board, represent the Joint Venture in outside dealings, have the right to appoint and dismiss his subordinates, and exercise other responsibilities and rights within the Joint Venture as authorised by the board.

Article 37: The general manager and deputy general managers shall be engaged by the board of directors of a Joint Venture. These positions may be held either by Chinese citizens or foreign citizens.

At the invitation of the board of directors, the chairman, vice-chairman or other directors of the board may concurrently serve as the general manager, deputy general manager or other senior management personnel of the Joint Venture.

When handling major issues, the general manager shall consult with the deputy general manager.

The general manager or deputy general manager shall not hold posts concurrently as general manager or deputy general manager of other economic organisations. They shall not participate in other economic organisations in commercial competition with their own Joint Venture.

Article 38: In cases of graft or serious dereliction of duty on the part of the general manager, deputy general manager or other senior management personnel, the board of directors shall have the power to dismiss them at any time.

Article 39: Establishment of branch offices (including sales offices) outside of China or in Hong Kong or Macao is subject to approval by the Ministry of Foreign Trade and Economic Cooperation.

Part Six: Technology Import

Article 40: Import of technology as referred to in these Regulations shall refer to the obtaining by the Joint Venture of necessary technology by means of technology transfer from a third party or investors.

Article 41: The technology acquired by the Joint Venture shall be appropriate and advanced and shall enable the venture's products to have clear domestic social and economic results or to be competitive on the international market.

Article 42: The right of a Joint Venture to independent business management shall be preserved when making technology transfer agreements. Relevant information shall be provided by the technology exporting party in accordance with the provisions of Article 26 of these Regulations.

Article 43: Technology transfer agreements signed by a Joint Venture shall be submitted to the examination and approval authority 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 by both parties, the technology exporting party shall not restrict the quantity, price or region of sale of products that are to be exported by the technology importing party;

(3) the term of a technology transfer agreement shall generally be no longer than ten years;

(4) after 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 of a technology transfer agreement shall be reciprocal;

(6) a technology importing party shall have the right to buy the required machinery, equipment, spare parts and raw materials from sources it considers suitable; and

(7) no unreasonable or restrictive clauses prohibited by the laws or regulations of China shall be included.

Part Seven: Site Use Rights and Fees

Article 44: A Joint Venture shall make economical use of land. A Joint Venture requiring the use of a site shall make an application to local departments of the municipal (county) government in charge of land and obtain the right to use a site only after receiving approval and signing a contract. The area, location, purpose and contract term and fee for the right to use a site (hereafter referred to as site use fee), rights and obligations of the parties to a Joint Venture and penalties for breach of contract shall be clearly stipulated in the contract.

Article 45: Where a Chinese investor already has the right to the use of site required for a Joint Venture, the Chinese investor may capitalise it for the Joint Venture. The value at which it is capitalised shall be the same as the site use fee paid for acquiring the same type of site.

Article 46: The standard for a site use fee shall be set by the people's government of the provinces, autonomous regions or municipalities directly under the central government where a Joint Venture is located according to the purpose of use, geographic and environmental conditions, expenses for requisition, demolishing and resettlement and the Joint Venture's requirements with regard to infrastructure, and shall be filed with the Ministry of Foreign Trade and Economic Cooperation and the State department in charge of land.

Article 47: A Joint Venture engaged in agriculture and animal husbandry may, with the consent of the people's government of the provinces, autonomous regions or municipalities directly under the central government where it is located, pay a percentage of the business revenue of the Joint Venture as site use fee to the local department in charge of land.

Development projects in economically undeveloped areas shall receive special preferential treatment in respect of site use fees with the consent of the local people's government.

Article 48: Site use fees shall not be subject to adjustment in the first five years that the land is used. The subsequent interval between adjustments shall not be less than three years in accordance with the economic development, supply and demand and changes in geographic and environmental conditions.

Where site use fees are part of the investment by the Chinese investor, they shall not be subject to adjustment during the contract period.

Article 49: The site use fee for the right to the use of site obtained by a Joint Venture in accordance with Article 44 of these Regulations shall be paid annually from commencement of use of the site according to the period of use as stipulated in the contract. Where in the first calendar year, the site is used for more than half a year, the fee will be calculated as six months. Where the land is used for less than six months, the site use fee shall be exempted. Where the rates of site use fees are adjusted during the contract period, the Joint Venture shall pay according to the new rates from the year of adjustment.

Article 50: A Joint Venture may obtain permission to use a site in accordance with the stipulations of this Part, and may also obtain permission to use a site in accordance with the relevant regulations of the state.

Part Eight: Purchases and Sales

Article 51: When purchasing required machinery, equipment, raw materials, fuel, accessories, means of transport and items for office use, etc. (hereafter, “Materials”), a Joint Venture shall have the right to decide whether to purchase them in China or from abroad.

Article 52: The amount of Materials needed by Joint Ventures for office and daily life purchased in China is not subject to restriction.

Article 53: The government of China encourages Joint Ventures to sell their products on the international market.

Article 54: A Joint Venture shall have the right to export its products itself or commission sales organisations of the foreign investor or Chinese foreign trade companies as agents or distributors.

Article 55: A Joint Venture may import machinery, equipment, spare parts, raw materials and fuel needed for its production within the scope of operations stipulated in the contract. The Joint Venture shall make a plan every year for items for which import licences are required according to state regulations, and shall apply for and receive such licences every six months. For machinery, equipment and other objects that a foreign investor contributes as foreign investment and that require import licences, it may apply directly for import licences on the strength of approval documents issued by the examination and approval authorities. For Materials imported outside the stipulated scope of the Joint Venture contract, a separate application for import licences according to State regulations is required.

A Joint Venture shall have the right to export its products by itself; for those products for which export licences are required according to state regulations, the Joint Venture shall apply for them every six months on the basis of its annual export plan.

Article 56: Prices for purchasing Materials within China as well as fees charged for water, electricity, gas, heat, goods transportation, labour services, engineering, consultation services and advertisements etc, paid by a Joint Venture, shall be the same as that paid by other enterprises in China.

Article 57: In economic exchanges between a Joint Venture and other Chinese economic organisations, the parties shall undertake economic responsibilities and settle contractual disputes in accordance with relevant laws and the contract concluded by the parties.

Article 58: Joint Ventures shall provide statistical information and submit statistical statements in accordance with the PRC Statistics Law and China's regulations for the system of keeping statistics concerning the use of foreign funds.

Part Nine: Taxation

Article 59: Joint Ventures shall pay taxes in accordance with the relevant laws of the People's Republic of China.

Article 60: The employees of Joint Ventures shall pay individual income tax in accordance with the PRC Individual Income Tax Law.

Article 61: Joint Ventures shall be entitled to tax reductions or tax exemptions in accordance with the relevant provisions of the tax laws of China when importing the following Materials: 

(1) machinery, equipment, spare parts and other materials (“other materials” shall include required materials for the Joint Venture's construction on the factory (site) and for installation and reinforcement of machinery) that serve as the capital contribution of the foreign investor as stipulated in the contract;

(2) machinery, equipment, spare parts and other materials that are imported by Joint Ventures with funds from their total amounts of investment;

(3) machinery, equipment, spare parts and other materials that are imported by Joint Ventures with additional capital following approval of the examination and approval authorities, and for which China cannot guarantee production and supply;

(4) raw materials, auxiliary materials, components, spare parts and packaging materials that are imported by Joint Ventures for production of export goods.

Taxes shall be paid or made up according to regulations when the afore-mentioned tax-exempt Materialss are approved for sale inside China or are used for the production of items to be sold on the Chinese domestic market.

Article 62: Export products produced by Joint Ventures, except for those the export of which is restricted by China, shall be entitled to tax reductions, tax exemptions or tax refunds in accordance with the relevant provisions of the tax laws of China.

Part Ten: Exchange Control

Article 63: All matters concerning foreign exchange of Joint Ventures shall be handled in accordance with the PRC Foreign Exchange Control Regulations and other relevant regulations.

Article 64: Joint Ventures shall, on the strength of their business licences, open foreign exchange accounts and renminbi accounts with banks in China. The payments into and out of such accounts shall be supervised by the banks with which they have been opened.

Article 65: Joint Ventures shall obtain permission from the State Administration of Foreign Exchange or one of its bureaux to open a foreign exchange account with an overseas bank or one in Hong Kong or Macao, and report their foreign exchange receipts and expenditures, and submit bank check sheets to the State Administration of Foreign Exchange or one of its bureaux.

Article 66: Branches established by a Joint Venture in a foreign country or in Hong Kong or Macao shall submit their annual statements of assets and liabilities and annual profit reports to the State Administration of Foreign Exchange or one of its bureaux through the Joint Venture.

Article 67: Joint Ventures may apply to the financial institutions in China for foreign currency or renminbi loans according to the needs of business operation. Joint Ventures may also borrow foreign exchange as capital from banks abroad or in Hong Kong or Macao, and shall complete registration or filing with the State Administration of Foreign Exchange or one of its bureaux.

Article 68: Upon payment of tax in accordance with the law, the remainings of wages and other lawful income of the expatriate, Hong Kong and Macao employees of the Joint Venture may, after deduction of the living expenses in China, be purchased in foreign exchange and remitted outside China in accordance with the relevant regulations of the State.

Part Eleven: Financial Matters and Accounting

Article 69: Procedures for handling financial affairs and accounting of a Joint Venture shall be formulated in accordance with China's relevant laws and procedures on financial affairs and accounting, and in conjunction with the conditions of the Joint Venture, and then reported to local financial departments and tax authorities for the record.

Article 70: A Joint Venture shall employ a chief accountant to assist the general manager in handling the financial affairs of the enterprise. If necessary a deputy chief accountant may be appointed.

Article 71: A Joint Venture shall (a small venture need not) 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 in the Gregorian calendar.

Article 73: The accounting of a Joint Venture shall adopt the internationally used accrual basis and debit and credit accounting system in their work. All vouchers, account books, statistical statements and reports prepared by the enterprise shall be written in Chinese. A foreign language may be used concurrently by mutual consent of the parties.

Article 74: In principal, a Joint Venture shall adopt renminbi as the standard currency. In keeping accounts, however, another currency may be used after consultation and a decision by the parties concerned.

Article 75: In addition to the use of standard currency to record accounts, Joint Ventures shall record accounts in currencies actually used in payments and receipts, where such currencies in cash, bank deposits, funds of other currencies, creditor's rights, debts, gains, expenses, etc. are inconsistent with the standard currency in recording accounts.

Joint Ventures using a foreign currency in accounting shall prepare accounting statements with amounts converted into renminbi.

If a discrepancy occurs in the standard currency due to a difference in exchange rates, it shall be recorded as exchange losses or gains. The recorded changes in exchange rates and remaining sums shall be given accounting treatment in the year-end settlement in accordance with the relevant laws and provisions of the finance and accounting system of China.

Article 76: A Joint Venture shall distribute its profits after payment of taxes in accordance with the PRC Income Tax Law Concerning Foreign-invested Enterprises and Foreign Enterprises in accordance with the following principles:

(1) allocations for reserve funds, bonuses and welfare funds for employees and expansion funds of the Joint Venture and the proportion of allocations shall be decided by the board of directors;

(2) reserve funds may be used to make up the losses of the Joint Venture, and with the consent of the examination and approval authority, to increase the capital of the Joint Venture for expansion of production; and

(3) after the funds set out in Item (1) of this Article have been deducted and if the board of directors decides to distribute the remaining profit, it should be distributed according to the proportion of each investor's investment.

Article 77: Profits may not be distributed before any losses of previous years are made up. Remaining profits from the previous year (or years) may be distributed together with that of the current year.

Article 78: Joint Ventures shall submit quarterly and annual accounting reports to parties to the Joint Venture, the local tax authority, and the financial department.

Article 79: Only after being examined and certified by a Chinese chartered accountant may the following documents, certificates and reports be considered valid:

(1) certificates of investment from all parties to a Joint Venture (lists of assessed value shall be attached to documents on investments involving Materials, site use rights, industrial property and proprietary technology);

(2) annual accounting reports of the Joint Venture; and

(3) accounting reports on liquidation of the Joint Venture.

Part Twelve: Employees

Article 80: The employment, recruitment, dismissal and resignation of employees of Joint Ventures, and their wages, welfare benefits, labour insurance, labour protection, labour discipline and other matters shall be handled in accordance with the relevant labour and social security provisions of the state.

Article 81: Joint Ventures shall make efforts to conduct professional and technical training of their employees and establish a strict examination system so that they can meet the requirements of production and managerial skills in a modernised enterprise.

Article 82: The wage and bonus systems of Joint Ventures shall be in accordance with the principle of distribution to each according to his work, and more pay for more work.

Article 83: Wages and remuneration of the general manager, deputy general manager, chief engineer, deputy chief engineer, chief accountant and deputy chief accountant, auditor and other senior management personnel shall be decided by the board of directors.

Part Thirteen: Labour Unions

Article 84: Employees of Joint Ventures shall have the right to establish basic-level labour unions and carry on labour union activities in accordance with the PRC Labour Union Law and the articles of association of the All-China Federation of Labour Unions.

Article 85: The labour unions of Joint Ventures shall represent the rights and interests of the employees. They shall have the right to enter into labour contracts with Joint Ventures on behalf of employees and to supervise the implementation of such contracts.

Article 86: The basic tasks of the labour unions of Joint Ventures shall be to protect the democratic rights and material interests of the employees in accordance with the law; to assist the Joint Ventures with the organisation and rational use of welfare and bonus funds; to organise political, scientific, technical and professional studies, and carry out cultural and sports activities; and to educate the employees to observe disciplinary rules for labour and strive to fulfil the economic tasks of the enterprises.

Article 87: When the board of directors of a Joint Venture holds a meeting to discuss important issues such as development plans, production and operational activities of the Joint Venture, a representative of the labour union shall have the right to attend the meeting of the board of directors to reflect the opinions and demands of the employees.

When the board of directors holds a meeting to discuss and decide on awards and punishment to employees, wage systems, welfare benefits, labour protection and labour insurance, etc., a representative of the labour union shall have the right to attend the meeting. The board of directors shall heed the opinions of the labour union and obtain its cooperation.

Article 88: Joint Ventures shall actively support the work of their labour unions, and, in accordance with stipulations of the PRC Labour Union Law, provide accommodation and facilities for the labour union's office work, meetings, and welfare, cultural and sports activities. Joint Ventures shall each month allocate funds at the rate of 2% of the total take-home wages of their employees. Such funds shall be used by the labour unions of the Joint Ventures in accordance with the provisions for the use of labour union funds formulated by the All-China Federation of Trade Unions.

Part Fourteen: Term, Dissolution and Liquidation

Article 89: The terms of operation of Joint Ventures shall be decided in accordance with the Tentative Provisions on Terms of Operation of Sino-foreign Equity Joint Venture.

Article 90: A Joint Venture may be dissolved in the following situations:

(1) where its terms of operation has expired;

(2) where the enterprise suffers heavy losses and is unable to continue operations;

(3) where one of the contracting parties fails to fulfil the obligations prescribed by the agreement, contract or articles of association and the enterprise is unable to continue operating;

(4) where it suffers heavy losses due to an event of force majeure such as a natural disaster or war, resulting in its inability to continue operations;

(5) where the enterprise fails to obtain the desired operational objectives and has no prospects for future development; or

(6) where other reasons for dissolution prescribed by the contract and articles of association occur.

In any of the circumstances described in Items (2), (4), (5) and (6) of the preceding paragraph, the board of directors shall submit an application for dissolution to the examination and approval authorities for approval. In the circumstance described in Item (3), the party that performed its obligations stipulated in the contract shall make an application.

In the circumstance described in Item (3) of the first paragraph of this Article, the party that failed to fulfil its obligations stipulated in the agreement, contract or articles of association shall be liable for the losses thus caused.

Article 91: A Joint Venture, upon announcement of the dissolution, shall carry out liquidation. The Joint Venture shall, in accordance with the stipulations of the Measures for the Liquidation of Foreign-invested Enterprises, establish a liquidation committee. The liquidation committee shall be responsible for the liquidation matters.

Article 92: Members of a liquidation committee shall usually be selected from among directors of the Joint Venture. In case the directors cannot serve or are unsuitable to be members of the liquidation committee, the Joint Venture may invite accountants and lawyers registered in China to participate. When the examination and approval authorities deems it necessary, it may send personnel to supervise the process.

Payment of liquidation expenses and remuneration to members of the liquidation committee from the existing assets of the Joint Venture shall have priority.

Article 93: The tasks of the liquidation committee shall be to conduct a thorough check of the property of the Joint Venture, its claims and debts; to work out a balance sheet and a property list; to put forward the appraisal of property and the basis for calculation; and to prepare a liquidation plan. All these shall be carried out upon approval of the board of directors.

During the process of liquidation, the liquidation committee shall represent the Joint Venture when it sues or is being sued.

Article 94: A Joint Venture shall be liable for its debts to the extent of all of its assets. The balance of the property after the clearance of debts shall be distributed among parties to the Joint Venture according to the proportion of each party's investment unless otherwise provided by agreement, contract and articles of association of the Joint Venture.

In case of a dissolution of a Joint Venture, after deducing the undistributed profits, all types of funds and liquidation expenses of the enterprise from its net assets or the balance of the property, the portion in excess of the paid capital shall be the income of liquidation, and income tax shall be paid on this portion in accordance with the law.

Article 95: On completion of the liquidation of a dissolved Joint Venture, the liquidation committee shall submit a liquidation report approved by a meeting of the board of directors to the original examination and approval authority, go through formalities for canceling its registration and hand in its business licence to the original registration authority.

Article 96: After dissolution of a Joint Venture, the Chinese party shall take custody of the account books and documents shall be left in the care of the Chinese investor.

Part Fifteen: Dispute Resolution

Article 97: Disputes arising over the interpretation or execution of the agreement, contract or articles of association between the parties to a Joint Venture shall, where possible, be resolved through friendly consultation or mediation. Disputes that cannot be resolved through these means may be resolved through arbitration or legal proceedings.

Article 98: Parties to a Joint Venture may, in accordance with the relevant written agreement, apply for arbitration to the arbitration organisations in China, and may also carry out arbitration through other arbitration organisations.

Article 99: Where there is no written arbitration agreement between the parties to a Joint Venture, a party may file a suit with the people's court.

Article 100: During the process of resolving disputes, except for those matters in dispute, parties to a Joint Venture shall continue to carry out other provisions stipulated in the agreement, contract and articles of association of the Joint Venture.

Part Sixteen: Supplementary Provisions

Article 101: The Chinese authorities in charge of visas shall give convenient service by simplifying procedures for employees from foreign countries or from Hong Kong and Macao (including their family members) who frequently enter and leave China.

Article 102: Chinese employees that need to leave the country for study tours, business negotiations or training shall carry out the procedures for leaving the country in accordance with the relevant State regulations.

Article 103: Expatriate employees and employees from Hong Kong and Macao of Joint Ventures may bring in required means of transport and items for office use, and shall pay tax in accordance with the relevant provisions of the tax laws of China.

Article 104: Joint Ventures set up in Special Economic Zones shall abide by any other relevant provisions of the laws and administrative regulations.

Article 105: These Regulations shall be effective as of the date of promulgation.