Laws of the People's Republic of China

The State Science and Technology Commission

Interim Measures on the Establishment of Chinese-foreign Equity Joint Research and Development Institutions and Chinese-foreign Contractual Joint Research and Development Institutions

the State Science and Technology Commission

September 10,1997

Chapter I General Provisions

Article 1

These Measures are formulated in accordance with the provisions of Article 36 of the Law of the People's Republic of China on Progress of Science and Technology for the purposes of safeguarding the lawful rights and interests of Chinese-foreign (overseas) equity joint research and development institutions and Chinese-foreign (overseas )contractual joint research and development institutions (hereinafter referred to as "Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions"), enhancing basic research, applied research and experimental developments, and fostering international scientific and technological cooperation and exchange.

Article 2

These Measures are applicable to Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions established by foreign and overseas organizations or individuals (hereinafter referred to as "the foreign party") with Chinese scientific research institutes and research and development institutions of higher education institutions (hereinafter referred to as "the Chinese party") within the territory of the People's Republic of China.

Article 3

A Chinese-foreign equity joint research development institution refers to a research and development institution which is jointly established by a Chinese party and a foreign party on the basis of a joint venture agreement where both parties invest capital, equipment and scientific and technological resources. The investment amount of the foreign party in a Chinese-foreign equity joint research and development institution must account for no less than 25 per cent of the total investment amount. A Chinese-foreign equity joint research and development institution shall have the qualification of an institution legal person.

Article 4

A Chinese-foreign contractual joint research and development institution refers to a research and development institution which is established in cooperation by a Chinese party and a foreign party on the basis of a contract. A Chinese-foreign contractual joint research and development institution shall not have the qualification of a legal person.

Article 5

The establishment of a Chinese-foreign equity or Chinese-foreign contractual joint research and development institution shall abide by the laws, regulations and policies of the People's Republic of China and implement the principles of equity and mutual benefit, honesty and trustworthiness, sharing of achievements, joint assumption of risk, protection of intellectual property and respect for international practices.

Article 6

Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions shall, in the fields of natural science and its interrelated scientific and technological fields, engage in basic research, applied research, high scientific and technological research, social public welfare-related scientific research, and in technological developments and experimental developments within the above mentioned fields.

Where a Chinese-foreign equity or Chinese-foreign contractual joint research and development institution is to engage in production or business operations, it must obtain approval from its competent department in advance, then separately undertake enterprise legal person registration with the local administrative department for industry and commerce and apply for the relevant business license.

Article 7

To establish a Chinese-foreign equity or Chinese-foreign contractual joint research and development institution, the foreign party to the equity or cooperation shall supply advanced scientific and technological achievements, information materials and testing equipment or send highly skilled scientific and technological personnel to participate in the joint research and development work.

Article 8

The State Science and Technology Commission shall be responsible for macro-administration, coordination and guidance in respect of Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions throughout the country. The various departments and directly affiliated organizations of the State Council shall centrally administer Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions within their respective departments. The science and technology commissions of the provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed in the State plan shall centrally administer Chinese-foreign equity and Chinese-foreign contractual join research and development institutions within their respective administrative areas.

Chapter II Establishment, Alteration and Termination

Article 9

The establishment of a Chinese-foreign equity or Chinese-foreign contractual joint research and development institution must meet the following requirements:

(1)

complying with the overall arrangements of the State's allocation of scientific and technological resources;

(2)

its research and development shall be in a direction which complies with technology and industry policies of the State;

(3)

possessing articles of association complying with China's laws, regulations and policies;

(4)

possessing necessary scientific research funds, testing equipment, intelligence information and other scientific research requirements;

(5)

possessing a certain number of scientific research personnel;

(6)

possessing fixed premises and organizational structure;

(7)

other requirements stipulated by the competent department.

Article 10

The establishment of a Chinese-foreign equity or Chinese-foreign contractual joint research and development institution shall be examined and approved according to the following jurisdictions:

(1)

When a research and development institution under the jurisdiction of a department or a directly subordinate institution of the State Council applies to establish a Chinese-foreign equity joint research and development institution, the matter shall be approved by the competent department, and reported to the State Science and Technology Commission for examination and verification, and then examined and approved by the Office of the State Commission for Public Service Structure and Establishment Administration.

(2)

When a research and development institution under the jurisdiction of a province, autonomous region, municipality directly under the Central Government or municipality separately listed in the State plan applies to establish a Chinese-foreign equity joint research and development institution, the matter shall be approved by the local competent department, and reported to the science and technology commission of the province, autonomous region, municipality directly under the Central Government or municipality separately listed in the State plan for examination and verification, and then examined and approved by the local departments for public service structure and establishment administration.

(3)

When a research and development institution applies to establish a Chinese-foreign contractual joint research and development institution, the matter shall be examined and approved by the competent department in accordance with the subordination framework, and then reported to the science and technology committee at the same level for the record.

Article 11

To establish a Chinese-foreign equity joint research and development institution, the joint venture agreement shall specify the following items:

(1)

the names, addresses and countries or regions of the two parties to the joint venture;

(2)

the name and domicile of the research and development institution;

(3)

the field, specialization and direction of research and development;

(4)

the total capital amount of the institution;

(5)

the means of investment, investment amounts and conditions for the transfer of investment in respect of all parties;

(6)

the organizational structure of the research and development institution;

(7)

the entitlement to and sharing of scientific and technological achievements and intellectual properties;

(8)

the life of the joint venture and liquidation procedures after its termination;

(9)

liability for breach of contract;

(10)

measures for resolving disputes;

(11)

the language(s) to be used in the agreement and the conditions required for the agreement to take effect.

A feasibility proof and assessment report, the articles of association of the research and development institution and a capital verification certificate shall be attached to the joint venture agreement.

Article 12

To establish a Chinese-foreign contractual joint research and development institution, the contractual venture contract shall specify the following items:

(1)

the names, addresses and countries or regions of the two parties to the contractual venture;

(2)

the type of the research and development institution and its name and domicile;

(3)

the fields of scientific experimentation, research and development or technological innovations in which the institution is to engage;

(4)

the conditions of cooperation;

(5)

the means of cooperation;

(6)

the entitlement to and sharing of scientific and technological achievements and intellectual properties;

(7)

the life of the contractual venture and relevant matters after its termination;

(8)

liability for breach of contract;

(9)

measures for resolving disputes;

(10)

the language(s) to be used in the contract and the conditions required for the contract to take effect.

A feasibility study report and the articles of association of the research and development institution shall be attached to the contract.

Article 13

No Chinese-foreign equity or Chinese-foreign contractual joint research and development institution may be established in any fields which involve State security or vital interests where confidentiality is essential, or in any fields in which investment in China by foreign or overseas organizations is prohibited in accordance with the laws, regulations or policies of the State.

Article 14

A Chinese-foreign equity joint research and development institution which is to be divided or merged, or to alter its articles of association, relocate or amend its name, etc., must obtain approval from its original examination and approval organ. Its claims and debts shall be borne by the altered research and development institution.

A Chinese-foreign contractual joint research and development institution which is to alter the contents of its contract must report the matter to its original examination and approval organ for the record.

Article 15

A Chinese-foreign equity or Chinese-foreign contractual joint research and development institution may apply for renewal with its original examination and approval organ 60 days before the expiry of the joint venture agreement or contract.

Article 16

To establish a Chinese-foreign equity or Chinese-foreign contractual joint research and development institution, the two parties may use currency, factories, equipment, instruments and other assets as investment; they may also use intellectual properties, scientific and technological achievements, land-use rights and other intangible assets as investment. These assets shall be assessed by an assets assessment institution recognized by the administration department of State-owned assets.

Chapter III Rights and Obligations

Article 17

A Chinese-foreign equity joint research and development institution shall enjoy the following rights:

(1)

enjoying legal person property rights;

(2)

formulating research and development plans, deciding research and development topics;

(3)

deciding internal organizational structures and personnel allocations;

(4)

employing scientific and technological personnel and deciding their wages and remuneration on its own;

(5)

obtaining intellectual properties and entering into technology transfer contracts with other parties in respect of these intellectual properties.

Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions may apply to undertake science and technology projects listed in State plans or science and technology projects commissioned by enterprises or society.

Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions meeting the requirements stipulated by the State may, upon approval by the relevant departments, recruit students with masters or doctorate degree.

Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions may open their laboratories, research centers, experimental bases, etc., to domestic and foreign parties.

Article 18

Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions shall, in accordance with the provisions of the laws and regulations of the People's Republic of China, stick to their research and development direction, and promote the progress of science and technology, the transformation of scientific and technological achievements and the popularization of scientific and technological knowledge.

Article 19

A Chinese-foreign equity joint research and development institution which employs scientific and technological personnel shall enter into a contract of appointment with these personnel. The contract shall specify the appointment, dismissal, wage and remuneration, welfare benefits, labor protection, personal insurance, intellectual properties and other issues. When appointing part-time personnel, an agreement shall be concluded with the unit to which the personnel belong.

Article 20

For scientific and technological achievements and intellectual properties which result from the work of a Chinese-foreign equity or Chinese-foreign contractual joint research and development institution, their entitlement to and sharing shall be handled in accordance with the provisions of the joint venture agreement or contractual contract. If no relevant provisions are included in the joint venture agreement or contractual contract, the above-mentioned achievements shall be jointly owned by the two parties, and the Chinese party shall enjoy priority right of usage and transfer.

Chapter IV Awards and Penalties

Article 21

The inventions, discoveries and other scientific and technological achievements which are completed by Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions within the Chinese territory may, subject to the recommendation by the competent department, receive a State Natural Science Prize, Invention Prize or Scientific and Technological Progress Prize of the People's Republic of China.

Foreign joint venture partners and contractual venture partners in Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions, who have made an important contribution in promoting China's scientific and technological advancement, may be awarded an International Science and Technology Cooperation Prize in accordance with the provisions of Article 54 of the Law of the People's Republic of China on Progress of Science and Technology.

Article 22

Where a Chinese-foreign equity or Chinese-foreign contractual joint research and development institution departs from its research and development direction and violates the laws or regulations of China, it shall be ordered by the competent department to rectify the situations within a prescribed time limit; if the rectification is ineffective, the institution shall be dismantled.

Where a Chinese-foreign equity or Chinese-foreign contractual joint research and development institution infringes upon or steals other's intellectual properties or encroaches other's technological and economic rights and interests, it shall bear the corresponding legal liability.

Article 23

Where any of the relevant administrative departments or their staff neglect their duties, commit illegalities by fraudulent means or for personal gains, or oppress or obstruct research and development activities, penalties shall be imposed in accordance with the laws and administrative regulations.

Chapter V Supplementary Provisions

Article 24

Financial administration and accounting practices of Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions shall be governed in accordance with relevant provisions of the Ministry of Finance.

Article 25

Chinese-foreign equity and Chinese-foreign contractual joint research and development institutions established before the promulgation of these Measures shall undertake examination and approval procedures again in accordance with the provisions of these Measures.

Article 26

The State Science and Technology Commission shall be responsible for the interpretation of these Measures.

Article 27

These Measures shall enter into force as of the date of promulgation.