PRC Law on Sino Foreign Joint Ventures

Topics: Joint venture, People's Republic of China, Currency Pages: 5 (1261 words) Published: December 17, 2013
a)What aspects of its regulation has China liberalized in order to conform to international standards?

Before and after joining in WTO, China has liberalized aspects of its regulation to conform to international standards. First aspect is the law that China permits wholly foreign owned operations in its territory. The Joint Venture now is an important vehicle for foreign investors to obtain Chinese market sensitivity, capability, and experience. Second is the capital source control. The JV in China can borrow capital funds from banks outside China. Third is the company management method. The chairperson and deputy chairperson shall be selected by equity joint venture partners through consultation or election. And these two positions will be filled by different partners. Forth is that China requires JVs to provide assistance to the union organization establishment. Fifth is the foreign exchange control. The employee in JV can remit their money (income after tax) abroad. Sixth is the way to solve arguments between partners in JV. The dispute will be handled by the board of directors. If fail, it will go to the Chinese arbitral body or an arbitral body which agreed by all parties of a JV.

b) Identify five major Chinese Policy Goals contained within the PRC Law Sino-Foreign joint ventures, and the reasoning that would lie behind them.

The Policy Goal 1: Setup some rules to attract foreign investors For example, Article 1 says PRC permits foreign companies to establish Joint Venture (JV) in China. At here the foreign investors may think: ‘ok, that is good for us since China has a huge market. Let’s have a look deeply.’ And then, Article 2 tells that no expropriation in China (if it happens, government will pay compensation). The foreign investors will be happy to hear this rule. After that, Article 3 and Article 4 come out more detail establishment rules like: ‘3 months to get an authority or approval’, and ‘the form of JV should be Limited Liability company’, etc.

The purpose of all these four Articles is to encourage foreigners to invest in China. Also, the China government wants to develop its economy and increase employment rate.

The Policy Goal 2: Import new technologies
In Article 5, the China government requires that the technology and equipment import to China have to be advance or suit to China’s needs. The foreign partner has to pay compensation if there is any loss caused by any outdated technologies.

What the China government wants is new technology and equipment. The government wants to increase its technology in production. And then the productivity increase.

The Policy Goal 3: Provide better benefits to China workers
In Article 7, China government rules that the employee in JV has the right to establish a union.

Functions of union include: raise wages, reduce wage inequality, ‘provide employees more fringe benefits’, ‘more chance to receive paid leave’, ‘more generous health benefits’, ‘more vacation time’, ‘better pension plans’, etc. (Lawrence Mishel 6)

So, obviously, the reason behind this Article is that the China government wants the employees in JV would have a better salary, working environment, bonus, etc.

The Policy Goal 4: Encourage the foreigner to reinvest
The Article 8 regulates how to distribute the profit. Also, it states that the JV may enjoy preferential treatment in the form of tax reductions or exemptions. In addition, if an investor reinvest his/her profit within China territory, he/she may get the rebate of the income tax already paid.

The reason for these rules is that China government wants to encourage the foreign investor to make more investments and reinvestments. When the foreign investors make investments, they will have some tax reductions. This increases their profit and competitive ability. After that, if the foreign investor puts the profit into reinvestment, he/she will safe that portion of income tax already paid. As a...
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