The investment laws are made strict in nature due to its communist nature. The investment laws that are former in China are made keeping in view that more developed and technology oriented companies enter into the Chinese market and the export business strengthens up. There are 3 types of law prevails for 3 types of investment category- The Law of People’s Republic Of China on Chinese-Foreign Contractual Joint Ventures, The law of people’s republic of china on Chinese-Foreign Equity joint Ventures, The Law of PEOPLE’S republic of china on Wholly Foreign-Owned Enterprises.
The laws related to these areas described below:
Law of People’s Republic of China on Chinese-Foreign Contractual Joint Ventures:
The purpose behind this law is to encourage export oriented and technologically advanced joint ventures. The law has been formed to protect the rights and interest of the Chinese and foreign parties. Both parties in the contract have to disclose matters like investment or condition for cooperation, the distribution of earning and profit, sharing of risk and losses, the management and ownership and liquidation of the joint venture.
In this type of venture the agreement, article of association etc. has to be submitted to the State Council for approval, once the state council approves the venture; application has to be made to Administrative department of Trade and Commerce for the trade license. Failure to abide by the rules will lead to the intervention of examination and approval authority.
The law of People’s Republic of China on Chinese-Foreign Equity joint Ventures: The Joint venture agreement along with the contract and article of association has to be submitted to the competent authorities of Foreign Economic and Trade for approval. Within three months the authority has to either approve or disapprove the project. The venture has to take a form of a limited liability company. The proportion of the investment of the foreign counterparty should not be less than 25% of the authorised capital of the joint venture. The investment can be made in cash, in kind or in Industrial Property Rights. The failure of the venture due to use of backward technology shall force the foreign counterparty to compensate the losses.
The Law of People’s Republic of China on Wholly Foreign-Owned Enterprises:
This enterprises are sole foreign investment establishes within Chinese territory. The state encourages this due to import of advanced foreign technology and it in turn develops the backbone of China in Export. Application for the establishment of such enterprises should be submitted to the Foreign Economic Trade and Relations, A decision is made within 90 days to approve or disapprove such initiatives. Once the approval is received a business licence is received from the Industrial and Commercial Administrative authority. This type of organisation is encouraged to purchase the raw materials from China, but there is no longer restriction on obtaining it from other countries.