(Adopted at the 13th Meeting of the Standing committee of the Eighth National People’s Congress on Mary 10,1995,promulgated by Order
No.49 of the President of the People’s Republic of China on Mary 10,1995,and effective as of January 1,1996)
Contents
Chapter ¢neral Provisions
Chapter ¢lls of Exchange
Section 1 Issue
Section 2 endorsement
Section 3 Acceptance
Section 4 Guaranty
Section 5 Payment
Section 6 Right of Recourse
Chapter ¢omissory Notes
Chapter ¢��eques
Chapter ¢��plication of Law to Negotiable Instruments Involving Foreign Elements
Chapter ¢��gal Responsibility
Chapter ¢��pplementary Provisions
Chapter ¢neral Provisions
Article 1 This Law is enacted to regulate acts involving negotiable instruments, protect the lawful rights and interests of parties engaged
in activities involving negotiable instruments, maintain public and economic order and promote the development of the socialist market
economy.
Article 2 This Law shall apply to activities, involving negotiable instruments, that are carried on within the territory of the People’s Republic
of China.
The term “negotiable instrument” as used in this Law means bill of exchange, promissory note and cheque.
Article 3 In activities involving negotiable instruments, people shall comply with law, and administrative rules and regulations and shall
not jeopardize public interests.
Article 4 When making a negotiable instrument, the drawer shall sign it pursuant to the requirements prescribed by law and shall be liable
according to its tenor.
When exercising the rights on a negotiable instrument, the holder shall sign it according to legal procedures and present it.
Other debtors signing the instrument shall be liable according to its tenor.
The right on a negotiable instrument as used in this Law means the right of a holder to demand from the person liable for the negotiable
instrument payment of the sum payable by the instrument, including the right of claim for payment and the right of recourse.
Liability on a negotiable instrument as used in this Law means the obligation of a debtor to pay the sum payable by the instrument
to the holder.
Article 5 A party to a negotiable instrument may authorize his agent to sign the instrument and the agency relationship shall be indicated
thereon.
A person who without authorization signs a negotiable instrument in the name of an agent shall be liable for the instrument. If an
agent goes beyond the authorization, he shall be liable for the instrument to the extent where he exceeds the authorization.
Article 6 If a person having no capacity or limited capacity for civil acts signs a negotiable instrument, the signature shall be null and
void, but this shall not affect the effect of others’ signatures.
Article 7 The signature on a negotiable instrument means an autograph, a seal or an autograph accompanied by a seal.
The signature put by a legal person or another entity issuing the negotiable instrument means the seal of the legal person or the
entity accompanied by the signature of its legal representative or authorized agent.
The signature on a negotiable instrument shall be the true name of the party thereto.
Article 8 The sum on a negotiable instrument shall be specified in both capital Chinese Characters and numerical figures, the two must be exactly
the same. Otherwise, the instrument shall be null and void.
Other particulars on a negotiable instrument may be altered by the person who recorded them, but he shall verify the alterations by
putting his signature thereto.
Article 10 The issue, acquisition and negotiation of an instrument shall follow the principle of good faith and reflect the true relationship
of transaction and between the creditor and the debtor.
A negotiable instrument shall be acquired by payment of consideration, that is, the price corresponding to what is agreed upon by
the two parties to the instrument.
Article 11 Acquisition of a negotiable instrument through taxation, inheritance or donation which, according to law, may be realized without
payment shall be exempted from payment of consideration. However, the holder’s rights to the instrument shall not exceed those of
his prior parties thereto.
The term “prior parties” means other persons liable for a negotiable instrument who put their signatures thereon prior to the current
signer or holder.
Article 12 A person who acquires a negotiable instrument by means of fraud, theft or coercion, or, with knowledge of the aforementioned situations,
acquires the instrument out of ill intention shall have no right thereon.
A holder who, by gross negligence, acquires a negotiable instrument that is not in conformity with the provisions of this Law, shall
have no right thereon, either.
Article 13 A person liable for a negotiable instrument may not set up against the holder such defenses that are available as between himself
and the drawer or between himself and the holder’s prior party or parties, unless the current holder acquires the instrument with
knowledge of the defenses.
A person liable for a negotiable instrument may set up defenses against the holder who has a direct creditor-debtor relationship with
him and does not perform the obligations agreed upon.
“Defense” as used in this Law means refusal by a person liable for a negotialbe instrument to perform hi obligations to the creditor
in accordance with the provisions of this Law.
Article 14 Particulars recorded on a negotiable instrument shall be truthful and shall not be forged or altered. Whoever forges or alters the
signature or other particulars recorded on an instrument shall bear legal responsibility.
A forged or altered signature on a negotiable instrument shall not affect the effect of other true signatures thereon.
Where other particulars recorded on a negotiable instrument have been altered, a signer thereto before the alteration is made shall
be liable for the particulars originally recorded, a signer thereto after the alteration is made shall be liable for the altered
particulars. Where it is hard to tell whether a signature is put before or after the alteration, it shall be deemed as one put before
the alteration.
Article 15 In the event a negotiable instrument is lost, the person losing it may promptly notify the drawer of the loss for the latter to stop
payment thereof, unless no drawer is recorded on the instrument or it is hard to identify the drawer or his agent.
The drawer who receives notice to stop payment of the lost instrument shall suspend its payment.
The person who loses the instrument shall, within three days after serving the stop-payment notice or after losing the instrument,
apply to a People’s Court according to law for making this exigency known to the public or bring an action in a People’s Court.
Article 16 To exercise or preserve his rights on a negotiable instrument against the person who is liable for the instrument, the holder shall
do it on the business premises of the party concerned and within the business hours, or at his domicile in the absence of business
premises.
Article 17 The rights on a negotiable instrument lapse, unless exercised within the following time limits:
(1)two years from the date of maturity of the negotiable instrument for the holder against the drawer or acceptor; two years from
the date of issue of a bill or a promissory note payable at sight for the holder against the drawer or acceptor;
(2)six months from the date of issue of a cheque for the holder against the drawer;
(3)six months from the date of non-acceptance or non-payment for the holder’s right of recourse against the prior holders;or
(4)three months from the date of settlement or filing a lawsuit for the holder’s right of recourse against the prior parties.
The date of issue and the date of maturity of a negotiable instrument shall be determined by the parties thereto according to law.
Article 18 The holder of a negotiable instrument who forfeits his rights thereon by reason of limitation of time or defects in specified particulars
on the instrument still has civil rights and he is enpost_titled to demand the drawer or acceptor to make a refund equivalent to the sum
in the instrument not yet paid.
Chapter ¢lls of Exchange
Section 1 Issue
Article 19 A bill of exchange is a negotiable instrument, signed and issued by the drawer, who authorizes the drawer to pay unconditionally
a sum certain in money to the payee or the holder at sight or on a specified date.
Bills of exchange include banker’s bills and commercial bills.
Article 20 “issue” means a drawer’s signing of a bill of exchange and delivering of it to the payee.
Article 21 The drawer of a bill of exchange must maintain a bona fide relationship of entrusted payment with the drawer and have a reliable
source of funds to pay the amount of sum on the bill.
No one may sign and issue bills of exchange without consideration to defraud fund from a bank or other parties to the bills.
Article 22 The following particulars shall be specified on a bill of exchange:
(1)words expressing it to be a bill of exchange;
(2)an unconditional order to pay;
(3)a sum certain in money;
(4)name of the drawer;
(5)date of the payer;
(6)date of issue; and
(7)signature of the drawer.
A bill of exchange is void if any of the above-mentioned particulars is not specified thereon.
Article 23 The date of payment, place of payment and place of issue,if specified on a bill of exchange, shall be legible and unambiguous.
If the date of payment is not specified on a bill of exchange, the bill is payable at sight.
If the place of payment is not specified on a bill of exchange, the business premises, domicile or habitual residence of the drawer
is the place of payment.
If the place of issue is not specified on a bill of exchange, the business premises, domicile or habitual residence of the drawer
is the place of issue.
Article 24 Particulars relating to the issue of a bill of exchange other than those stipulated by this Law may be specified on a bill, however,
such particulars shall have no effect on the bill.
Article 25 The date of payment may be specified in one of the following manners;
(1) payable at sight;
(2) payable at a fixed date;
(3) payable at a fixed period after the date of issue; or
(4) payable at a fixed period after sight.
The date of payment stipulated in the preceding paragraph is the date of maturity of a bill of exchange.
Article 26 A drawer who signs and issues a bill shall bear the liability for guaranteeing the acceptance and payment of the bill. In the event
the bill is not accepted or paid, the drawer shall pay off the sum and expenses, as stipulated in Articles 70and 71of this Law, to
the holder of the bill.
Section 2 endorsement
Article 27 A holder may transfer his rights on the bill of exchange to another person or authorize another to exercise certain part of the rights
on the bill.
Where a drawer writes “non-negotiable” on a bill of exchange, the bill shall not be negotiated.
A holder shall endorse and deliver the bill of exchange when exercising the right stipulated in the first paragraph of this Article.
“Endorsement” means the writing down of relevant particulars and signing on the back of a negotiable instrument or on and allonge.
Article 28 Where more space on a negotiable instrument is needed by the endorser for making entries, the instrument may be extended by an allonge
annexed to it.
The first entry maker of the allonge shall sign on the abutting edge.
Article 29 An endorsement shall be signed and the date of endorsement specified by the endorser.
An endorsement without a specified date is deemed to be made prior to the date of maturity.
Article 30 The name of endorsee shall be specified when a bill of exchange is endorsed to negotiate or when the exercise of certain part of
the right thereon is endorsed to another.
Article 31 Where a bill of exchange is negotiated by endorsement, the endorsements shall be in succession. The holder shall prove his rights
on the bill by an uninterrupted series of endorsements. A person who acquires a bill of exchange by lawful means other than endorsement
shall provide evidence according to law to prove his rights thereon.
The term “uninterrupted series of endorsements” as used in the preceding paragraph means that, in the course of negotiation of an
instrument, the signature of each endorser negotiating the bill and that of the immediate prior endorsee acquiring the bill shall
be the same person’s.
Article 32 Where a bill of exchange is negotiated by endorsement, the subsequent party shall be liable for the authenticity of the endorsement
of his immediate prior party.
A subsequent party means a person liable for an instrument who puts his signature thereto after it is signed by another.
Article 33 No condition may be attached to the endorsement. Any conditions attached to the endorsement shall have no effect of a bill.
An endorsement which transfers a part of the sum payable by the bill of exchange or separately transfers the sum payable by the bill
to two or more endorsees shall be void.
Article 34 Where an endorser writes “non-negotiable” on a bill of exchange and his subsequent party negotiates it by endorsement, the endorser
shall not bear responsibility for guaranty to the endorsee of the said subsequent party.
Article 35 Where in an endorsement “by procuration” is written, the endorsee is enpost_titled to exercise the mandated rights on the bill by endorsement.
A bill of exchange may be laid in pledge, provided that “value in pledge” is written in the endorsement when the bill is laid in pledge.
The endorsee may exercise the right on the bill when exercising his right of pledge according to law.
Article 36 A bill of exchange may not be negotiated by endorsement, if it is not accepted or paid or if the time limit for presentment for payment
expires. The endorser shall bear liability on the bill if it is negotiated in spite of all this.
Article 37 An endorser is liable for guaranteeing the acceptance and payment of the bill of exchange held by his subsequent party after he negotiates
the bill by endorsement. The endorser shall pay off the sum and expenses, as stipulated in Articles 70 and 71 of this Law, to the
holder in case of non-acceptance or non-payment of the bill.
Section 3 Acceptance
Article 38 “acceptance” is the act of a drawer of a bill of exchange who promises to pay the sum on the bill at the maturity of the bill.
Article 39 Where a bill of exchange is drawn payable at a fixed date or at a fixed period after the date of issue, the holder shall present
the bill to the drawer for acceptance before the date of maturity.
“Presentment for acceptance” is the act of a holder who presents the bill of exchange to the drawer and demands a promise of payment
from the drawer.
Article 40 Where a bill of exchange is drawn payable at a fixed period after sight, the holder thereof shall present the bill to the drawer
for acceptance within one month after the date of issue.
Where a bill of exchange is not presented for acceptance within the prescribed period, the holder thereof shall lose the right of
recourse against his prior parties.
No presentment for acceptance is needed for a bill of exchange payable at sight.
Article 41 In respect of a bill of exchange presented for acceptance, the drawer shall accept or refuse to accept it within three days after
receipt of the bill.
On receiving a bill of exchange presented for acceptance by the holder, the drawer shall write out a receipt to the holder. The receipt
shall specify the date of presentment for acceptance and shall be signed.
Article 42 When accepting a bill of exchange, the drawer shall write “accepted” and the date of acceptance on the front of the bill and sign
it. In the case of a bill of exchange payable at a fixed period after sight, the date of payment shall be recorded at the time of
acceptance.
Where the date of acceptance is not specified on a bill of exchange, the last day of the period specified in the first paragraph of
the preceding Article is the date of acceptance.
Article 43 When accepting a bill of exchange, the drawer may not attach any conditions thereto. An acceptance to which a condition is attached
is deemed non-acceptance.
Article 44 After accepting a bill of exchange, the drawer shall bear the liability for paying the bill at its maturity.
Section 4 Guaranty
Article 45 The liability on a bill of exchange may be guaranteed by a guarantor.
The guarantor shall be any person other than the one already liable for the bill.
Article 46 A guarantor must specify the following particulars on the bill of exchange or on an allonge:
(1) the word “guaranteed”;
(2) the name and domicile of the guarantor;
(3) the name of the guarantee;
(4) date of guaranty; and
(5) signature of the guarantor.
Article 47 Where the guarantor fails to specify Item(3) of the preceding Article on the bill of exchange or on the allonge, the acceptor is
the guarantee for an accepted bill, and the drawer is the guarantee for a bill not yet accepted.
Where the guarantor fails to specify Item (4) of the preceding Article on the bill of exchange or on the allonge, the date of issue
is the date of guaranty.
Article 48 No condition may be attached to a guaranty. A guaranty with conditions attached shall not affect the liability of guaranty on the
bill of exchange.
Article 49 The guarantor shall be liable for guaranteeing the holder’s rights on the bill of exchange which the holder acquires lawfully, except
for where the guarantee’s debt is invalid because the particulars specified on the bill are incomplete.
Article50 Where a bill of exchange is guaranteed, the guarantor shall., together with the guarantee, undertake joint and several liability
to the holder thereof. Where payment is not made at the maturity of such bill, the holder is enpost_titled to demand payment from the
guarantor and the latter shall pay the bill in full.
Article 51 Where there are two or more guarantors, they shall undertake joint and several liability.
Article 52 After the guarantor pays off the debt 9of the bill of exchange, the guarantor may exercise th eright of recourse as enjoyed by the
holder against the guarantee and his prior parties.
Section 5 Payment
Article 53 The holder shall present the bill of exchange for payment within the following time limits:
(1)one month after the date of issue for a bill payable at sight to be presented to the drawee; and
(2)ten days after the date of maturity for a bill payable at fixed date, at a fixed period after the date of issue or at a fixed
period after sight to be presented to the acceptor.
Where the holder fails to present the bill for payment within the prescribed period, the acceptor or drawee shall remain liable
for the payment of the bill after the holder explains the situation.
Presentment for payment made to the drawee through an authorized collecting bank or at a clearing system is deemed as presentment
made by the holder.
Article 54 The drawee shall pay the bill in full on the day when the holder presents the bill for payment in accordance with the provisions
of the preceding Article.
Article 55 The holder shall receipt the bill and surrender it to the drawee when he receives payment. Where a holder authorizes a bank to receive
payment on his behalf, the bill is deemed as receipted when the authorized bank credits the collected sum to the holder’s account.
Article56 the liability of the bank authorized by the holder to receive payment shall be limited to crediting the sum on the bill
to the holder’s account according to the particulars specified on the bill.
Article 57 When paying a bill, the drawee or his agent shall examine the uninterruptedness of the series of endorsement and the lawful identity
certificate or the valid certificate of the person presenting the bill.
The drawee or his agent who mades payment out of ill intention or with gross negligence shall bear liability on his own.
Article 58 Where the drawee makes payment before the date of maturity for a bill of exchange payable at a fixed date,. at a fixed period after
the date of issue, or at a fixed period after sight, the drawee shall bear the liability deriving therefrom on his own.
Article59 When the sum on a bill of exchange is expressed in a foreign currency, the sum shall be paid in renminbi according to the
market exchange rate on the day of payment.
Where the parties to a bill of exchange have agreed otherwise regarding the type of currency in payment, such agreement shall be complied
with.
Article 60 After the drawee pays the bill in full according to law, all persons liable for the bill of exchange are discharged from liabilities.
Section 6 Right of Recourse
Article 61 Where the payment of a bill of exchange is refused at the date of maturity, the holder may exercise the right of recourse against
the endorsers, the drawer and other persons liable for the bill.
Prior to the date of maturity, the holder may also exercise the right of recourse under any of the following circumstances;
(1) the bill is dishonoured by non-acceptance;
(2) the acceptor or the drawee has died or escaped; or
(3) the acceptor or the drawee is declared bankrupt according to law or is ordered to stop business activities for violation of law.
Article 62 When exercising the right of recourse, the holder shall provide relevant evidence of non-payment.
Where the presentment for acceptance or the presentment for payment by the holder is rejected, the acceptor or the drawee must provide
proof of dishonour or statement on reasons for dishonour. The acceptor or te drawee, who does not provide proof of dishonour or a
statement on reasons for dishonour, shall bear civil liabilities deriving therefrom.
Article 63 Where the holder is unable to obtain proof of dishonour on account of the death or escape of the acceptor or the drawee or for other
reasons. The holder may obtain other relevant evidence to law.
Article 64 Where an acceptor or a drawer is declared bankrupt by a People’s Cour in accordance with law, the relevant judicial documents of
the People’s Court shall have the effect as proof of dishonor.
Where an acceptor or a drawer is ordered to stop business activities for violation of law, the decision on punishment made by a competent
administrative department shall have the effect as proof of dishonour.
Article 65 A holder who is unable to present proof of dishonour, a statement on reasons for dishonour or other lawful evidence within the prescribed
period of time loses the right of recourse against his prior parties. However, the acceptor or the drawer shall remain liable to
the holder.
Article 66 The holder shall, within three days after receiving the relevant evidence of nonacceptance or non-payment, notify his prior parties
in writing of the fact of dishonour; the said prior parties shall, within three days after receiving the notice, notify his prior
parties about the matter. Or, the holder may simultaneously notify in writing all persons liable for the bill of exchange.
In case of failure to do what is stipulated in the preceding paragraph, the holder may still exercise the right of recourse. Where
losses are caused to the prior parties or the drawer by delayed notice, the party to the bill of exchange failing to notify the relevant
parties within the prescribed time limit shall be liable for compensation of the losses, but the damages shall be limited to the
sum payable by the bill.
If a notice is mailed to a legal address or to an address agreed upon within the prescribed period of time, the notice is deemed to
have been dispatched.
Article 67 In the written notice made according to the first paragraph of the preceding Article the main particulars specified on the bill of
exchange shall be recorded and the fact that the said bill has been returned shall clearly be stated.
Article 68 The drawer, endorser, acceptor and guarantor of a bill of exchange are jointly and severally liable to the holder.
The holder may exercise the right of recourse against any or several or all of the persons liable for the bill of exchange in disregard
of the order of precedence.
The holder, who has exercised the right of recourse against one or several of the persons liable for the bill of exchange, may still
exercise the right of recourse against other persons liable for the bill. After clearing off the liabilities, the person against
whom the right of recourse is exercised has the same right as the holder thereof.
Article 69 Where the holder is the drawer, he has no right of recourse against the prior parties. Where the holder is an endorser, he has no
right of recourse against the subsequent parties.
Article 70 When exercising the right of recourse, the holder may demand the person against whom the right of recourse is exercised to pay the
following sum and expenses:
(1) the sum payable by the bill of exchange dishonoured;
(2)interest, calculated at the rate prescribed by the People’s Bank of China, on the sum payable by the bill of exchange, from
the date of maturity or from the date of presentment for payment to the date of payment; and
(2) the expenses for obtaining relevant evidence of dishonour and for dispatching notices.
When the person against whom the right of recourse is exercised settles the liabilities, the holder shall surrender the bill of exchange
together with the relevant evidence of dishonour and issue a receipt of interest and expenses paid.
Article 71 When the person against whom the right of recourse is exercised has settled the debt in accordance with the provisions of the preceding
Article, he may exercise the right of recourse against other persons liable for the bill of exchange and request them to pay the
following sum and expense:
(1) th entire sum he has paid;
(2) interest, calculated at the rate prescribed by the People’s Bank of China, on the said sum from the day when he made the payment
to the day when the said sum is reimbursed after seeking re-recourse; and
(3) te expenses for the dispatch of notices.
When the person who exercises the right of re-recourse is reimbursed, he shall surrender the bill of exchange and relevant evidence
of dishonuor and issue a receipt of interest and expenses paid.
Article 72 When the person against whom the right of recourse is exercised has settled the debt according to the provisions of the preceding
two Articles, he shall be discharged from liabilities.
Chapter ¢omissory Notes
Article 73 A promissory note is a negotiable instrument signed and issued by the maker promising to pay unconditionally the payee or bearer
a sum certain in money at sight.
A promissory note as used in this Law means a banker’s note.
Article 74 The maker of a promissory note shall possess a reliable source of funds to pay the sum of the note and guarantee its payment.
Article 75 The qualifications of the maker of a promissory note shall be examined and decided by the People’s Bank of China and the specific
measures for the administration thereof shall be prescribed by the People’s Bank of China.
Article 76 The following particulars shall be specified on a promissory note:
(1) words expressing it to be a promissory note;
(2) a promise of unconditional payment;
(3) a sum certain in money;
(4) the business or personal name of the payee;
(5) the date of issue; and
(6) the signature of the maker.
A promissory note is invalid if any of the particulars mentioned in the preceding paragraph is not specified thereon.
Article 77 Particulars such as the place of payment and the place of issue specified on a promissory note shall be legible and unambiguous.
Where the place of payment is not specified on a promissory note, the business premises of the maker is the place of payment.
Where the place of issue is not specified on a promissory note, the business premises of the maker is the place of issue.
Article 78 The maker of a promissory note shall bear the liability for payment when the bearer presents the note for visa.
Article 79 The time limit for the payment of a promissory note shall not exceed two months from the date of issue.
Article 80 The bearer of a promissory note loses the right of recourse against his prior parties other than the maker, if he fails to present
the note for visa within the prescribed period of time.
Article 81 In addition to the provisions of this Chapter, the provisions of Chapter ¢this Law regarding bills of exchange shall
be applicable to endorsement, guaranty, payment and the exercise of the right of recourse in respect of promissory notes.
Chapter ¢��eques
Article 82 A cheque is a negotiable instrument that is signed and issued by the drawer, who authorizes the bank or other financial institution
handling check deposit to pay unconditionally a sum certain in money to the payer or the bearer at sight.
Article 83 When opening a cheque account, the applicant must use the true personal or business name and submit legitimate document to prove
the identity.
When opening a cheque account and asking for cheque books, the applicant shall have reliable financial credebility and deposit a certain
amount of money.
When opening a cheque account, the applicant shall reserve a specimen of the signature of his true name and the seal.
Article 84 A cheque may be cashed or transferred into another’s account. If a cheque is transferred to another’s account, this should be clearly
indicated on the face of the cheque,
A form of cash cheque may be specially designed and made to be paid only in cash and a cash cheque can only be cashed.
A form of transfer cheque may be designed and made for cheq
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The Ministry of Foreign Trade and Economic Cooperation
Circular of the Ministry of Foreign Trade and Economic Cooperation on Issuing the Interpretation on Implementing Certain Articles
of the Rules for the Implementation of the Law of the People’s Republic of China on Chinese-foreign Contractual Joint Ventures
WaiJingMaoFaFa [1996] No.658
October 22, 1996
The commissions (departments, bureaus) of foreign trade and economic cooperation of all provinces, autonomous regions, municipalities
directly under the Central Government, Shantou, Zhuhai and municipalities separately listed on the State plan:
The Rules for the Implementation of the Law of People’s Republic of China on Chinese-foreign Contractual Joint Ventures has been adopted
by the State Council on August 7,1995, and promulgated by the Ministry of Foreign Trade and Economic Cooperation in the Decree No.6
on September 4,1995. We often receive requirements about some articles. The MOFTEC explained some articles of the Rules for the Implementation
of Law of the People’s Republic of China on Chinese-foreign Contractual Joint Ventures after negotiation with related departments,
and it is hereby promulgated. Attachment:Interpretation on Implementing Certain Articles of the Rules for the Implementation of the Law of the People’s Republic of China on
Chinese-foreign Contractual Joint Ventures
The Rules for the Implementation of the Law of the People’s Republic of China on Chinese-foreign Contractual Joint Ventures (hereinafter
referred to as the Rules) were promulgated on and took effect as of September 4, 1995. Issues on the implementation of certain articles
of the Rules are hereby interpreted as follows:
I.
Article 14 of the Rules stipulates:
“A contractual joint venture which has attained the status of a Chinese legal person in accordance with the law shall be a limited
liability company. The parties to the venture shall bear liability for the contractual joint venture to the extent of their investment
or of the conditions for cooperation they contribute, with the exception of those cases otherwise agreed in the contract. The contractual
joint venture shall be liable for covering the debts of the venture with all its assets.”
Interpretation: In accordance with the provisions of Paragraph 1 of this Article and Article 18 of the Company Law of the People’s
Republic of China, the organizational form of a contractual joint venture which has been established upon approval with the status
of a Chinese legal person shall be a limited liability company.
II.
Article 18 of the Rules stipulates:
“The investment or conditions for cooperation contributed by the parties to the contractual joint venture may be provided in cash,
in kind, industrial property rights, know-how technology, the right to the use of land or other property rights. In cases where the
investment or conditions for cooperation contributed by the Chinese parties are parts of the State assets, they shall be valued according
to the provisions of the relevant laws and administrative regulations. In cases where the contractual joint venture has attained
the status of a Chinese legal person in accordance with the law, the investment contributed by foreign parties shall usually not
be less than 25% of the registered capital of the contractual joint venture. In cases where the contractual joint venture has not
attained the status of a Chinese legal person, the specific requirements as to the investment or conditions contributed by the parties
to the contractual joint venture shall be stipulated by the Ministry of Foreign Trade and Economic Cooperation.”
Interpretation: Investment as mentioned in Paragraph 1 of this Article refers to contributions made by the parties to the contractual
joint venture in the form of cash, buildings, machinery and equipment, other goods and materials, industrial property rights, know-how
technology, the right to the use of land, etc. upon being evaluated. Conditions for cooperation as mentioned in Paragraph 1 of this
Article refer to real estate and other property rights provided by the parties to the contractual joint ventures, including the right
to the use of land, ownership or the right to the use of buildings and other structures attached to the land and auxiliary equipment
attached to buildings, industrial property rights, know-how technology and other property rights. Conditions for cooperation provided
by the parties to the contractual joint venture are the property of the contractual joint venture and shall not be expressed in a
monetary form, however, there must be auxiliary registration of these conditions which shall be used for assuming liability for the
debts of the enterprise. Where the investment or conditions for cooperation provided by the Chinese parties must be valued in accordance
with the provisions of relevant laws and administrative regulations, the valuation shall be conducted. The valuation result shall
be treated as the basis of the negotiation for cooperation so as to prevent loss of the State assets. In cases where the contractual
joint venture has not attained the status of a Chinese legal person, the investment contributed by foreign parties shall not be less
than 25% of the total amount of the investment contributed by the Chinese and foreign parties.
III.
Article 44 of the Rules stipulates:
“Where it is agreed upon by the Chinese and foreign parties in the contract of the contractual joint venture that upon the expiration
of the period of venture’s operation all the fixed assets of the contractual joint venture shall be returned gratis to the Chinese
party, the foreign party may, within the period of the ventures operation, apply to recover the investment ahead of time in the following
ways: (1) to reach agreement in the contract of the contractual joint venture to enlarge the foreign party’s proportion in the distribution
of earnings on the basis of distribution according to the investment or conditions for cooperation provided; (2) when examined and
approved by the financial and tax authorities in accordance with relevant tax provisions of the State, to recover its investment
prior to the payment of income tax by the contractual joint venture; (3) to recover the investment by other methods which have been
approved by the financial and tax authorities and the examination and approval authorities. If the foreign party is to recover its
investment ahead of time during the period of the venture’s operation according to the provisions of the preceding paragraph, the
Chinese and foreign parties shall be liable for the debts of the contractual joint venture according to the provisions of the relevant
laws and the agreement in the contractual joint venture contract.”
Interpretation: All fixed assets of the contractual joint venture as mentioned in Paragraph 1 of this Article refer to the part of
fixed assets among the residual assets after the contractual joint venture has conducted liquidation of assets, claims and debts
of the contractual joint venture in accordance with the provisions of Article 24 of the Law of the people’s Republic of China on
Chinese-foreign Contractual Joint Venture and repayment of the debts of the enterprise. Upon expiration of the period of cooperation
of the contractual joint venture, the Chinese party shall not distribute the fixed assets of the contractual joint venture ahead
of time until the enterprise’s liquidation expenses and debts have been paid.
Item 3 of Paragraph 1 of this Article refers to that the foreign party is allowed to recover its investment within the period of cooperation
by taking the depreciation expenses for the fixed assets of the contractual joint venture upon approval by the financial and tax
authorities and the examination and approval authorities. Where the assets of a contractual joint venture decrease as a result of
the foreign party’s drawing of the depreciation expenses for fixed assets of the contractual joint venture, the foreign party must
provide a letter of guarantee for the equivalent amount issued by a bank or a financial institution within the territory of China
(including branch banks or branches established within the territory of China by banks or financial institutions outside the territory
of China) as security for the enterprise’s ability to repay its debts.
Procedures for Submission for Approval:
Where it is agreed in a contractual joint venture contract before the establishment of a contractual joint venture that the foreign
party is to take the way as mentioned in Item 3 of Paragraph 1 of Article 44 of the Rules, the Chinese party shall first lodge an
application with the financial authority pursuant to procedures and submit the letter of guarantee mentioned above. After the application
being consented upon examination and verification by the financial authority, it shall be reported to the examination and approval
authority for examination and approval in accordance with the provisions of Article 7 of the Rules.
Where during the operation of the contractual joint venture the foreign party wants to recover its investment ahead of time in the
way as stipulated in Item 3 of Paragraph 1 of this Article, the contractual joint venture shall lodge an application with the examination
and approval authority pursuant to procedures and submit the letter of guarantee mentioned above. The examination and approval authority
shall, in conjunction with the financial authority, examine and verify the application and decide whether or not to approve it within
60 days of receipt of the relevant documents mentioned above.
If a contractual joint venture needs to accelerate the depreciation of its fixed assets so that the foreign party can recover its
investment ahead of time, in addition to observing the provisions of the preceding paragraph, the enterprise shall also, in accordance
with the relevant provisions of the Rules for the Implementation of the Income Tax Law of the People’s Republic of China for Enterprises
with Foreign Investment and Foreign Enterprises, obtain the approval of the State Administration of Taxation in advance.
“The examination and approval authority” as mentioned in this version refers to the Ministry of Foreign Trade and Economic Cooperation
or a department authorized by the State Council and the local people’s governments at the provincial level (the competent departments
of foreign trade and economic cooperation).
“The financial and tax authorities” refer to the financial and tax authorities at the same level as the examination and approval authorities
mentioned above.
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