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CONFIDENTIAL
prise by both Chinese and foreign investors have been the subject of a number of rules and regulations promulgated by the Chinese since July 1979. The first of these, 'The Law of the People's Republic of China on Joint Ventures using Chinese and Foreign Investment', was adopted by the second session of the 5th National People's Congress (NPC) on 1 July 1979 and established some of the groundrules and the basic framework for the establishment of joint ventures in which both Chinese and foreign partners invest in an enterprise and take part jointly in its management, with both parties sharing the risks and profits. Most clauses in the law were of a very general nature, leaving the particulars of joint venture association to the contracts agreed by the parties themselves. At the beginning of September 1980, further regulations were produced covering the implementation of various aspects of the 1979 law. The new regulations, in two parts, covered the registration and management of labour in equity joint ventures. Thus, the establishment, licensing and conduct of the ventures, including the opening of bank accounts, variations in the venture's equity and the return of tax statements, were covered in one set of regulations, whilst conditions of employment, wages, the handling of labour disputes and fringe benefits were covered in the other. However, the texts remained general and it was evident that considerable flexibility was permitted for the organization and structure of any particular joint venture.
7.
An interesting process in the formulation of law regarding the operation of joint ventures has also been illustrated. A pattern emerges in which the law itself establishes certain basic principles and guide- lines cast in very general terms. This is then followed up by interpretative, detailed rules and regulations on specific points. The law is then not only interpreted but amended and revised in the light
of reactions from interested parties and the practical implementation and application of the law.
8.
Such a process has been evident in the form- ulation of tax laws relating to joint ventures. Joint venture corporate and individual income tax laws were adopted by the NPC on 10 September 1980, with full texts published by the New China News Agency (NCNA) on
16 September. The company tax law provided for a levy of 30% on the income of joint ventures together with a local surtax of 10%. Profits remitted outside China would be taxed an additional 10%, whilst profits reinvested in China would qualify for a 40% rebate.
The tax
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