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Unification
of the Laws of Enterprises with Foreign Investment |
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The Enterprises with Foreign Investment
(EFI) play an important role and contribute 2-3 percent
to the increase of the national economy. Since 1994,
China has been the country with the second biggest amount
of foreign investment for five years. Currently, among
the five hundred biggest transnational corporations,
there are three hundred ones having invested directly
in China, which is mainly attributed to the good investment
environment. The laws of EFI provide necessary legal
basis and protection for maintaining good and stable
investing environment and promote the rapid growth of
foreign funds in China.
The existing system of the laws of EFI includes mainly
the Law of Equity Joint Venture (hereinafter referred
to as EJV), the Law of Contractual Joint Venture (hereinafter
referred to as CJV) and the Law of Wholly-owned Enterprises
by Foreign Investors (hereinafter referred to as WEFI).
These laws regulate the three basic types of EFI and
they have respetively their own Implementation Rule
or Implementation Articles. Besides, there are all kinds
of supplementary regulations within the system.
With the development of economy and changing of reality,
the existing laws of EFI prove to be unsatisfactory
for the realistic needs whether in form or in substance,
modification of which turns to be an imminent task.
Necessity of modifying the laws of EFI
In view of domestic reform on economy institution into
socialist market economy, those stipulations in the
laws of EFI with the characteristic of planning economy
must be got rid of. And those legal standards for modern
enterprises shall be absorbed in the laws of EFI in
order for them to be gradually consistent with the principles
of the Company Law. Premier Jiang Zeming said on the
Conference of Central Economy Work held in 1996 that
the essential laws for foreign investment in China,
which were made when the policies of reform and door-open
began to be carried out and had played an important
role, need urgently now be revised and optimized in
accordance with newly-developed situations. The Report
on the meeting of the Fifteenth National Congress in
1997 also put forward to such requirement.
In view of world circumstances, modification of the
laws of EFI also turns to be necessary. Along with liberalization
and integration of international trade and investment
as well as the trend for China¡¯s access to WTO, the
investment legislation must conform to the international
customs and indicate the basic principle of national
treatment. The existing laws of EFI are greatly lagged
behind comparing the fundamental changes of the macro
backgrounds of legislation.
Meanwhile, some practical problems have come up and
reflect that the laws are unreasonable, contradictory
or of loopholes. For example, some stipulations on contribution
of investors need amendment, newly-born forms of investment
need legal resources, some favorable treatments to EFI
need adjustment, and so on. These practical issues need
to be solved by laws. And the flexibility of the existing
laws is so limited that they cannot reasonably cover
new situations and trends, therefore, the functions
of laws as to the rapid development of practice seem
to be week.
Besides, the unification and harmonization of the laws
of EFI and the Company Law is an important aspect to
be considered in the course of modifying the laws of
EFI. In spite of that the EFI is a special form of enterprise
different from other companies, the EFI shall adopt
standard company operation mechanism. On the other hand,
to certain extent the laws of EFI are of the nature
of Law shall be the standard for operation and organization
of EFI.
Thus, to modify the laws of EFI is necessary and immediate.
At the same time, how to carry out the modification
and what kind of mode to be adopted are very important.
As my point of view, to unify the existing laws of EFI
is a desirable way of modification and this kind of
unification is also necessary.
The necessity of unification
It¡¯s necessary to unify the Laws of EFI, which is expressed
in following aspects.
One of the most outstanding reasons of unification
is that there are lots of stipulations repeatedly made
in the Law of EJV, the Law of CJV, the Law of WEFI and
their respective Implementation Rules or Articles.
Many contents in the above mentioned laws are same
or similar, esp. in the law of EJV and law of CJV. For
examples, the aims of establishing an EJV, CJV and EWF
are same. The policy of protection on foreign investment
is also same. The form of EFI shall all be Limited Liability
Company when legal requirements are satisfied. Concerning
the examination and ratification of EFI, the authorities,
their authorization, the time limit for ratification,
and the procedure ect., are totally same. The provisions
of commercial registration applied to EFI are same.
The stipulations on joint venture agreement, contract,
articles of incorporation are identical. The similarity
is also shown in such stipulations as the definitions
of total investment and registered capital, and the
proportions thereof, the forms of contribution or cooperative
conditions as cash, object, land use right, and industrial
property right. Their also repeatedly stipulated concerning
the verification of contribution, the transfer or increase
or reduce of the registered capital, the management
of the enterprise. The legal rules for BOD and its legal
status, appointment of directors, meeting convening
and voting, are all same. Relative stipulations of dissolution
and liquidation and dispute settlement are similar.
It can be concluded that there are more similarities
than differences in the three laws of EFI and their
implementation rules. The repeat of laws is a kind of
waste of resource indicating the rough skill of legislation,
which is one direct reason for unifying the laws of
EFI.
The second consideration is that several supplementary
regulations are applied equally to the three types of
EFI without distinguish. The supplementary regulations
of the three laws of EFI are made in respective of certain
practical problems, most of which equally cover the
three types of EFI. Even if some regulations are made
subject to the Equity Joint Venture, they are also permitted
to be applied to the Contractual Joint Venture and Wholly-owned
Enterprise as reference. For examples, relevant regulations
in respect of the industries allowed for foreign investment,
in respect of contributions, contracting management
of joint ventures, liquidation, and land development
involving foreign funds and so on, are expressly applied
to all EFI.
Thirdly, the total amount of all kinds of supplementary
regulations is fairly big, causing the legal system
complex and difficult to be easily accessed, which is
necessarily to be reformed and unified to certain extent.
The unreasonable co-existence of many separate legal
regulations, notices, opinions, explanations and so
on, makes the law difficult to be accessed by the investors,
enterprises and government administrations. And the
unreadily availability of legal re-sources increases
the expense to inquire and get together legal in-formation
of investment in China, which prevents the laws from
smoothly implementing.
The above situation of legislation is partly owing
to the general principle of our legislation system,
which belongs to the Civil Law system. As we know, in
such a system laws are all made in form of code. In
relative long period after one law being made, only
the way of making certain regulations or rules or other
forms of law can be used to supplement or explain or
richen the law. Thus, the system of legislation is usually
a system consisting of one essential law providing basic
legal principles and several supplementary regulations
or rules as binding reference for implementing the law.
The current tendency of legislation is to make laws
concrete and practical other than theoretical and the
laws tend to include both basic principles and implementing
rules, such as our newly adopted Contract Law. As for
the laws of EFI, it is necessary to simplify the whole
system by unifying them to certain extent and at the
same time to optimize their enforceability by organically
unite the basic laws and supplementary rules in one.
Fourthly, most of relative branches of law in whole
legal system have been in form of unification, which
requires the legal branch of EFI to be unified so as
to be harmonious with them.
The relevant laws, such as our laws of tax, foreign
exchange control, accounting, import and export trade
administration, and so on, have been made or amended
in the centralized form and equally applied to the enterprises
with domestic funds and those with foreign funds without
discrimination. The Contract Law adopted recently similarly
unifies the former Law of Economic Contract, the Law
of Economic contract Involving Foreign Factors and the
Law of Technology Contract, and it is applied to enterprises
and persons of any nature involving in a contractual
transaction. The union of these laws provides the requirement
and as well the condition for the laws of EFI to unify.
The fifth factor is that many similar practical issues
emerge simultaneously in EJV and CJV and WEFI, and they
shall be equally solved by certain unified legal principles.
Most of the disputes arising in EFI concentrate on
respect of contribution and management of EFI. In spite
of that the Equity Joint Venture, Contractual Joint
Venture and Wholly Owned Enterprise have their own characteristics,
theses problems are generally come across by them. For
example, except for the defined forms of contribution
provided in the laws of EFI, some new form have been
developed in reality, such as contribution by net asset
sand by shareholding rights in other enterprises. These
new ways of investment appear in practice of different
types of EFI and require new general legal resources
for themselves. For another example, the BOD of EFI
can¡¯t make a valid resolution when the directors representing
one party of EFI do not attend the meeting and the number
of presenting directors has not reached the quorum.
But if the directors involved refuse to attend the meeting
just because of some disagreement rising between the
Sino-foreign parties? This is a generally-met problem
in practice of EFI when disputes emerge. There is no
definite way of settlement provided by laws.
In summing up, the existing substantial laws and regulations
of EFI are necessary to be modified into a unified law
of EFI for the above considerations.
Advantages and Disadvantages Analysis
The unification of the laws of EFI is to unify the
material laws and rules and regulations of EFI, which
will be totally carried out within the system of the
laws of EFI. In course of the unification, what shall
also be done is to reasonably modify relative articles
and to increase or reduce certain provisions so as to
make an organically unified law of EFI.
The advantages of adopting this way of unification
are as follows. Firstly, the special characteristic
of EFI distinguished from other domestic enterprises
can be maintained. In spite that the principle of national
treatment is definite to be adopted in future, the specialty
of EFI¡¯s treatment exists objectively and needs to be
more clear and logical and practical as well after eliminating
those repeated and unreasonable contents.
Thirdly, the stability and continuance of laws and
confidence of investors in legal environment shall be
guaranteed because the form of unification is not tending
to make a fundamental change in the laws.
Fourthly, in view of legislation technique, the way
of unification is much easier to be carried out.
Of course, there are disadvantages at the same time
in the way of unification, such as it has historical
limitation that the possible elements in future cannot
be enough foreseen and covered under this form.
Meanwhile, in current times, whether to directly unify
the laws of EFI and the company Law or not is an important
topic to be considered and discussed. If yes, the national
treatment can be immediately realized in legislation,
which conforms to the advanced legal and economic principles
in the west world. However, it cannot be realized practically
now.
First, the national economy development level restricts
the realization of national treatment and relevant favorable
or unfavorable measures shall be maintained until the
macro situation matures. Therefore, the modification
hereof shall be in consistent with the history development
and background, in which the distinction between the
laws of EFI and the Company Law is necessary subject
to the reality. Second, even if the relative special
stipulations of EFI may be reserved in the Company Law,
the latter one, due to its nature, shall not include
such provisions as concerning the EFI which are not
incorporated as legal person. Third, those stipulations
showing the policies of attracting, controlling and
managing foreign funds shall have no way to stand in
the system of Company Law. Fourth, the Company Law itself,
which has been adopted and implemented only for five
years, is far away from perfection and cannot provide
stable and mature basis for readily substituting the
laws of EFI. Besides, it is not reasonable to simultaneously
carry out both the modification of the Company Law and
that of the laws of EFI at present and the latter one
is more urgent. Therefore, to unify the laws of EFI
only inside its existing system is a reasonable and
practical way of modification.
Realization of Unification
To realize the unification, the three basic laws of
EFI and their respective implementing rules and bylaws
shall be firstly unified in accordance with the present
similar orders of chapters and articles they have respectively.
Then the material regulations, such as the regulation
of contribution, transfer of capital, verification,
liquidation and so on, shall be consolidated after reasonable
adjustment. Those macro principles indicating the policies
on foreign investment in China shall be maintained in
the unified law together with those micro principles
regulating enterprises¡¯ management and operation, which
helps keep the stability of laws. And some interim regulations
such as Investment Industries Guide Index, which will
change from time to time along with the development
of economy, shall be kept separately other than unified.
Finally, necessary amendments shall be made and new
stipulations shall be reasonably added, such as those
for newly developed ways of foreign investment including
but not limited to the franchise project venture with
foreign funds and joint stock company with foreign investment.
The work of modifying the laws of EFI
has been considered and recently carried out. The way
of unification within the system is generally accepted.
But there is disagreement on the extent of unification.
Whatever form and method to be taken in modification,
to rationalize, standardize and optimize the substantial
contents of the laws of EFI is the most important so
as to ensure the new law of EFI enforced effectively
and kept stable and long-lasting.
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