The Law of the People’s Republic of China on Joint Ventures Using Chinese and Foreign Investment (Joint Venture Law) was promulgated by the National People’s Congress on July 1, 1979, as part of the Chinese modernization program. The purpose of the Joint Venture Law is to attract foreign technology and expertise in the production of goods in order to satisfy the needs and expectations of the Chinese people.
To implement this law, the PRC has had to pass a number of additional laws, including labor, tax, and banking regulations – all of which are designed to help procure additional foreign investment. Moreover, to do business with the new foreign participants, the Chinese have had to establish a number of agencies to authorize and oversee the operations of the joint venture in the People’s Republic.
Types of Joint Ventures In China
China recognizes two forms of Joint Venture partnerships between foreign and Chinese firms.
- EJV or Equity Joint Venture
The first of these is the EJV or Equity Joint Venture with limited liability and in which the foreign partner invests no less than 25% of the registered capital of the new entity.
- CJV or Cooperative Joint Venture
The second type of joint venture is the CJV or Cooperative Joint Venture, which itself has two versions, limited and unlimited liability, where the former does not require a new entity to be formed and where both parties both assume unlimited liability.
PCL the regulating body of joint ventures in China
The PCL regulates all types of LLCs and joint-stock companies limited by shares (JSCs) in China in general. The PCL also applies to all types of foreign-invested enterprises (FIEs) incorporated in the form of LLCs or JSCs, including EJVs and CJVs, as they are required to be established in the form of an LLC, except that CJVs can be incorporated as an unincorporated contractual arrangement, although the special laws governing FIEs (such as the EJV Law and CJV Law) prevail in cases of conflict between the PCL and such special laws. It is noteworthy that a joint venture is no longer recognized as a distinct legal concept in the PCL.
Starting from January 1, 2020, when the new Foreign Investment Law came into effect, the EJV Law, together with the CJV Law, WFOE Law, and their implementing rules were all abolished. As a result, EVs are now required to comply with the Company Law, subject to a five-year transition period. Foreign investors who have existing EJVs in China should review their joint venture contracts (JVCs), articles of association (AOAs), and other corporate governance documents to identify necessary changes to comply with the Foreign Investment Law and Company Law.