PROVISIONS OF THE SHENZHEN SPECIAL ECONOMIC ZONE
FOR FOREIGN ECONOMIC CONTRACTS

(Adopted by the Standing Committee of the Sixth
People's Congress of Guangdong Province on 11
January 1984 and promulgated by the People's
Government of Guangdong Province on 7
February 1984)

 

 

SUBJECT: SPECIAL ECONOMIC ZONES

ISSUING-DEPT: GUANGDONG PROVINCE

ISSUE-DATE: 01/11/1984

IMPLEMENT-DATE: 02/07/1984

LENGTH: 4102 words

TEXT:

Chapter I General Provisions

[Article 1] These Provisions are formulated in accordance with the pertinent laws, rules and regulations of the People's Republic of China and the "Regulations of the People's Republic of China on Special Economic Zones in Guangdong Province" to meet the needs of the economic activities in the Shenzhen Special Economic Zone (hereinafter referred to as the "special zone"), to protect the lawful rights and interests of the persons concerned with the foreign economic contracts, and promote the economic construction of the special zone.

[Article 2] These Provisions are applicable within the following scope:

1 Agreements under which the mutual rights and obligations are stipulated in accordance with the laws of the People's Republic of China by Chinese enterprises or other economic organisations in the special zone (hereinafter referred to as the "special zone side") on the one hand, and foreign enterprises and other economic organisations or individuals (hereinafter referred to as the "investors") on the other to develop economic and technological cooperation; and

2 Economic agreements which will be implemented in the special zone are signed between foreign enterprises registered in the special zone. Chinese-foreign joint ventures and cooperative enterprises (hereinafter referred to as "special zone enterprises"), between special zone enterprises and foreign enterprises and other economic organisations or individuals, as well as between special zone enterprises and Chinese enterprises and other economic organisations established in the special zone.

[Article 3] The signing of foreign economic contracts (hereinafter referred to as the "contracts") must be in compliance with the laws, rules and regulations of the People's Republic of China. All the contracts made in accordance with the law shall be protected by the laws of the People's Republic of China.

[Article 4] The signing of contracts must be in line with the principle of equality and mutual benefit as well as the principle of reaching unanimity through consultation. No one side may alter or terminate without authorisation the contract established in accordance with the law.

[Article 5] All the contracts shall go into force after they are approved by the People's Government of Shenzhen Municipality or its authorised departments in charge.

The People's Government of Shenzhen Municipality or its authorised departments in charge shall inform the applicants of the result of examination within three months after the date of presenting contracts for approval.

[Article 6] The contracts shall be declared invalid if they violate the laws, rules and regulations of the People's Republic of China, infringe upon China's sovereignty and the public interests of the society, or are signed by means of deception and coercion.

A void contract enters into no force from the time of its signing. If the confirmed invalid part of the contract does not affect the force of the other part, then the other part shall remain in force.

Power of confirmation of invalid contracts: the power of confirming those contracts which are approved by the People's Government of Shenzhen Municipality is vested in the Provincial People's Government or the people's court under its jurisdiction; the power of confirming those contracts which are approved by the department in charge authorised by the People's Government of Shenzhen Municipality is vested in People's Government of Shenzhen Municipality or the people's court under its jurisdiction.

Chapter II Making of a Contract and its Main Content

[Article 7] Contracts must be made in written form with clearly stipulated rights and obligations of the persons concerned of the two sides, and be signed by the persons concerned of the two sides or their authorised agents. All the relevant appendices confirmed in the contract as well as the letters, telegrams and documents concerning the amendment and supplement of the contract agreed upon by the persons concerned through consultation form part of the contract.

Trade agreements reached by the persons concerned through letters, telegrams or telexes shall be regarded as contracts in written form, if both sides do not request to sign a letter of confirmation.

[Article 8] Companies, enterprises and other economic organisations or individuals may entrust their agents to sign contracts. The agents shall exercise the agency power within the limit of power authorised by their bailors.

The agency activities carried out outside or beyond the agency power or after withdrawal of the agency power shall be nullified. But the activities subsequently confirmed by the bailors shall produce directly the rights and obligations of the bailors. The agents shall bear the responsibility for compensation for losses caused by their failure to perform the obligations in accordance with the letters of authorisation or by the nullification of their agency activities.

[Article 9] The persons concerned of each side to the contract should present the following documents to the other side for examination:

1 A copy or photocopy of the lawful document registered with the government of the country or region from which they come;

2 A list of recent assets and liabilities of the company or enterprise checked by a registered accountant and a letter of capital credit issued by a monetary institution which has business links with the company or enterprise;

3 A letter of guarantee verified by a notary institution; and

4 A certificate of authorisation or entrustment given by the company or enterprise to its representative or authorised agent who shall sign contracts.

[Article 10] The entrustment of an agent must be conducted in written form and go through notarisation.

A certificate of authorisation or an agency letter should include name, sex, age and nationality of the agent, authorised matters, limits of authority, effective period and the date of authorisation, signature and seal of the bailor or a competent institution.

[Article 11] With regard to a contract which needs to be implemented continuously within a rather long period, the persons concerned of the two sides shall agree on a duration of the contract and the conditions for extending or terminating the contract before expiration.

[Article 12] The persons concerned of the two sides to the contract should provide a guarantee in the following forms:

1 Down payment or performance bond;

2 Guarantee of property mortgage;

3 Bank guarantee;

4 Guarantee of a company or enterprise; and

5 Other guarantees.

[Article 13] When the guaranteed person fails to implement his contractual obligations, the guarantor shall bear the joint responsibility for violation of contract or implement the obligations for the guaranteed person.

[Article 14] After the persons concerned of one side who have paid to the other side a down payment or performance bond have implemented the contract, the down payment or performance bond should be returned or transferred as a payable fund.

If one side having paid a down payment or performance bond fails to implement the contract, it has no right to ask for the return of the down payment or performance bond. If the other side having accepted the down payment or performance bond fails to implement the contract, it should pay back double the amount of the down payment or performance bond.

[Article 15] A joint venture contract constitutes a written agreement on the establishment of an enterprise or undertaking with the joint investment of the special zone side and investors. The parties to the joint venture shall share the profits or losses in proportion to their respective contributions and bear the limited responsibility. This kind of contract should include the following main items:

1 Names of the parties to the joint venture, their countries (or regions) of registration, official addresses, names of legal representatives and their functions and nationalities:

2 Name of the joint venture, its address and purpose, area of land used by it, scope and size of its business;

3 Total investment value and registered capital of the joint venture, amount and proportion of investment contributed by the parties to the joint venture respectively, mode of investment, time limit for payment of funds, and stipulation for handling the assignment of arrears of the payable funds;

4 Main equipment and techniques to be used in production and their sources;

5 Ways of purchasing raw materials and selling products;

6 Schedule for the construction of the joint venture and the responsibilities of the parties to the joint venture in the fields of preparatory work, construction, production and management;

7 Operation period of the joint venture, its dissolution, clearing procedures and the ownership of the properties after termination;

8 Principles of handling finance, accounting and auditing;

9 Stipulations for labour management, wages, welfare benefits, labour protection, labour insurance and other matters;

10 The composition of the board of directors, its term of office and functions;

11 The procedures for employment of general manager and deputy general manager, the composition of personnel and their functions and limits of power;

12 Sharing of profits or losses and the limited responsibility;

13 Guarantee and responsibility for violation of the contract;

14 Arbitration agreement or other measures for the settlement of disputes;

15 Place and date of signing the contracts; and

16 Other items which the two sides deem necessary.

[Article 16] A cooperative management contract constitutes a written agreement on the cooperative production, management or establishment of an enterprise or undertaking for which the special zone side provides the right to the use of land and to the exploitation of resources, factory buildings, labour force and labour service, and the investors provide funds, equipment, materials and technology, as well as on the proportions of sharing profits or products among the parties concerned and their respective rights and obligations including the liability for risks. The main content of the contract is similar to that prescribed in Article 15.

[Article 17] A compensation trade contract constitutes a written agreement under which the investors provide technology, equipment and materials for production, and the special zone side repays the investors with products. This kind of contract should include the following main items:

1 Names, specifications (models), quality, quantity, price and packing of the technology, equipment and materials supplied by the investors, date and point of delivery, standard and procedures for examination and acceptance, total value of compensation and procedures of compensation;

2 Name, quantity, specifications, quality, price, packing, date and point of delivery, standard and procedures for examination of the compensation products of the special zone side;

3 Bank for settlement, currency, interest rate and mode of payment;

4 Guarantee and responsibility for violation of contract;

5 Duration of contract and period of compensation;

6 Arbitration agreement or other measures for the settlement of disputes;

7 The right of the special zone side to utilise idle production capacity after the fulfilment of the tasks set forth in the contract;

8 Place and date of signing the contract; and

9 Other items which the two sides deem necessary.

[Article 18] A contract of processing on order constitutes a written agreement under which the investors provide raw materials, spare parts and components elements (or certain equipment and technology), and the special zone side on its part is in charge of processing or assembling in accordance with the requirements of the investors and delivering the finished goods to the investors for sale, and receives processing fees. This kind of contract should include the following main items:

1 Names of processed components and spare parts and materials, their specifications (models), quality, quantity, rate of wastage, point of delivery, freight, standard and procedures for examination and acceptance, time and schedule requirements, etc.

2 Names of finished goods after processing or assembling, their specifications, quality, quantity, methods of examination, point, time and speed of delivery, freight, packing requirements, etc.

3 Per-unit price and total price of processing charges, cost of test samples in trial production;

4 Bank for settlement, currency and mode of payment;

5 Duration of contract;

6 Guarantee and responsibility for violation of contract;

7 Arbitration agreement or other measures for the settlement of disputes;

8 The right of the special zone side to utilise the idle production capacity after the fulfilment of the tasks prescribed in the contract;

9 Place and date of signing the contract; and

10 Other items which the two sides deem necessary.

[Article 19] Investors who desire to establish independent enterprises or undertakings in the special zone with their own investment may sign the contracts on the use of land, personnel service, the use of water and electricity and others with the departments or enterprises concerned in the special zone after their applications are approved by the People's Government of Shenzhen Municipality.

[Article 20] The contracts on land use, personnel service, technology imports, house rent, property mortgage and others must be signed in accordance with the pertinent rules and regulations of the special zone.

The contracts on property rent, purchase and sale of goods, warehouses, construction projects, water and electricity supply, transportation, insurance and others must be signed in accordance with the pertinent laws, rules and regulations of the People's Republic of China.

Contracts which are not mentioned in these Provisions can be signed in accordance with the principles stipulated in these Provisions.

Chapter III Implementation of a Contract and Responsibility for Violation

[Article 21] The persons concerned of the two sides should strictly abide by the provisions of the contract and implement all obligations. Any side which fails to implement the obligations and therefore causes losses to the other side, should compensate for the losses.

In case of failing to deliver goods or pay funds on time, the liable side, in addition to compensating for the losses of the other side, shall pay a charge for the violation of contract equal to 0.1 per cent of the total overdue value for each overdue day.

[Article 22] Two or more persons concerned of one side shall bear joint rights and obligations. Any one of them has the right to request the other side to implement all or part of the obligations. If one of the persons concerned has accepted the implementation of all or part of the obligations by the other side, the other persons lose all or part of their right of request; if any one of them fails to implement his obligations, the others must implement all the obligations and bear the responsibility for violation of the contract.

[Article 23] The persons concerned of one side, after implementing all or part of the obligations, may provisionally stop implementing their obligations, have a lien upon properties of the other side and claim for the losses, if the persons concerned of the other side fail to implement all or part of the obligations.

When the persons concerned of one side fail to implement all or part of the obligations, the persons concerned of the other side may defer implementing their obligations and claim for the losses.

When the persons concerned of one side failing to implement their obligations have guaranteed to implement their obligations, the persons concerned of the other side shall implement their own obligations immediately.

[Article 24] When persons concerned of one side fail to implement all or part of their obligations as a result of force majeure, they should inform the other side of the fact in good time and shall be excused from the liability for the violation of contract in whole or part, if they have produced legally effective evidence.

Force majeure means:

1 Severe natural calamity;

2 War; and

3 Other incidents beyond the control of the parties as specified in the contract.

[Article 25] When a contract has been confirmed to be entirely invalid in the process of implementation, the whole contract shall be cancelled.

When the individual clauses of the contract which contravene the laws, rules and regulations of the People's Republic of China have been cancelled or modified with the consent of the persons concerned through consultation, the force of the whole contract shall not be affected.

A contract which is signed by means of deception or coercion shall be confirmed invalid and the liable side shall compensate for the losses arising therefrom.

Chapter IV Modification, Cancellation and Termination of a Contract

[Article 26] A contract shall be modified or cancelled upon approval by the authorities of ratification due to one of the following reasons:

1 The contract shall not be able to be implemented in whole or part as a result of force majeure;

2 The persons concerned of one side have lost actual ability to implement the contract;

3 The conditions for modification or cancellation as agreed upon in the contract have emerged;

4 The violation of the contract by one side has seriously affected the economic interests of the other side and has thus made the implementation of the contract unnecessary; and

5 The persons concerned on all sides have agreed, through consultation, to modify or terminate the contract because of the change of the situation.

[Article 27] The persons concerned who request to modify or terminate the contract should submit an application and relevant certificates to the authorities of ratification. If there is a guarantor, his written document must also be attached. The contract shall remain in force until the application is approved.

The liable side shall, apart from being exempt from the responsibility according to the law, pay compensation for the losses of the other side caused by the modification or termination.

[Article 28] If the persons concerned of one side desire to transfer to other persons all or part of the rights and obligations stipulated in the contract, they must obtain the consent of the other side beforehand, sign an agreement and submit an application to the ratification authorities for approval. The transfer shall be invalid before approval.

[Article 29] If the two sides have agreed to extend the contractual period upon the expiration of the contract, they must sign a new agreement and submit an application to the ratification authorities for approval six months before the expiry of the contract. The ratification authorities shall reply within one month starting from the date of receipt of the application.

[Article 30] Settlement and clearance must be carried out prior to the cancellation or termination of the contract. The clauses concerning the settlement and clearance after termination as stipulated in the contract shall remain in force in spite of the termination of the contract.

After the cancellation or termination of the contract, the clauses concerning the settlement of disputes and the right of requesting arbitration as stipulated in the contract, shall remain in force within the legally effective period of arbitration or law suit.

Chapter V Management and Supervision of Contracts

[Article 31] The Shenzhen Municipal Administrative Bureau for Industry and Commerce is an institution for management of contracts.

After approval of a contract, the persons concerned shall, in accordance with the relevant regulations of the special zone, register with the Shenzhen Municipal Administrative Bureau for Industry and Commerce and the Shenzhen taxation authorities by presenting copies of the approval contract.

Any enterprise or undertaking established according to the contract must open an account with the Shenzhen Branch Office of the Bank of China or with other banks established in the special zone with the consent of the Chinese authorities in charge of foreign exchange control.

[Article 32] The institution for management of contracts has the right to supervise the implementation of the contracts by the persons concerned of the two sides, mediate in disputes caused by the breach of contract, stop and redress the illegal activities of persons concerned of the two sides and fine those persons who have conducted illegal activities.

Those who bear the direct responsibility for violating the "Criminal Law of the People's Republic of China" shall be prosecuted according to their criminal liability in accordance with the law.

[Article 33] The Shenzhen Branch Office of the Bank of China and the Shenzhen Branch Office of the State General Administration of Foreign Exchange Control have the right to supervise the implementation of the contracts through the bank business and control of foreign exchange.

Chapter VI Mediation and Arbitration of Disputes

[Article 34] Disputes arising between the persons concerned during the implementation of the contract shall be settled through consultation or mediation in line with the principle of equality and mutual benefit. If consultation or mediation cannot resolve the matter, the persons concerned may request arbitration by an arbitration agency in accordance with the arbitration agreement.

[Article 35] With regard to the contracts on joint ventures, cooperative enterprises and joint exploration of natural resources which are implemented in the special zone and closely related to China's sovereignty, the arbitration and treatment of disputes must conform with the law of the People's Republic of China. The arbitration shall be held in China and by an arbitration agency established in the special zone or by another agency agreed upon by the two sides.

[Article 36] In the event that there is no arbitration agreement between the persons concerned of the contract, after the persons concerned of one side have requested the arbitration agency for arbitration and the persons concerned of the other side have accepted the law suit in written form, such an action is regarded as an arbitration agreement reached by both sides.

In spite of the absence of an arbitration agreement being reached between the persons concerned, either side may file a law suit in the people's court under whose jurisdiction it lies in accordance with the law.

[Article 37] If the persons concerned of one side fail to implement the arbitration award within the fixed period, the persons concerned of the other side may send a request for implementation of the arbitration award to the people's court in accordance with the "Law on Civil Procedure of the People's Republic of China (for trial implementation)".

[Article 38] Persons concerned of one side should submit their application for arbitration to the arbitration agency within two years from the day when they have known or should know that their rights have been encroached upon, otherwise, beyond the effective period their application will not be accepted.

Chapter VII Supplementary Provisions

[Article 39] These Provisions are applicable to the economic contracts signed by overseas Chinese Xianggang (Hong Kong), Aomen (Macao) and Taiwan compatriots or their companies and enterprises on the one hand, and the special zone side and the special zone enterprises on the other.

[Article 40] Each side shall hold an original copy of the contract, in addition to sending one original copy to the ratification authorities. If a contract is done both in Chinese and a foreign language, the Chinese text shall be deemed to be the original.

[Article 41] These Provisions shall come into effect on the day of promulgation.