In anticipation of entry into the World Trade Organization, a third round of amendments to China's foreign investment legislation took place on March 15, 2001, with the adoption of revisions to the Law of the People's Republic of China on Sino-foreign Joint Equity Enterprises (the "Equity JV Law").

First promulgated in 1979, the Equity JV Law was revised to create a more appropriate legal framework for China's entry into the World Trade Organization, as well as to complement other legal policy. The amendments to the Equity JV Law form an important part of the Chinese government's program to amend 140 laws and regulations this year, and to abolish a further 570.

One of the major themes in the recent amendments to the Equity JV Law is greater flexibility for joint ventures in relation to goods and services, as well as in the management of foreign currency. While the original Equity JV Law gave first priority to Chinese sources for purchases of raw materials and other items, the revised Equity JV Law stipulates that the raw materials, fuel, etc. required by equity joint ventures may be purchased on both the domestic and international markets, according to the principles of equity and reasonability. While the original Equity JV Law required sino-foreign joint ventures to obtain insurance through Chinese insurance companies, the revised Equity JV Law permits joint ventures to take insurance from "insurers in China", and not only Chinese insurers.

The revised Equity JV Law also adds new provisions to protect workers' rights and interests. A more formal, legalistic approach is required under the new law, imposing contractual requirements for such matters as recruitment, dismissal, remuneration, welfare, labor security, labor insurance, etc. The provisions on trade unions were further developed, stating, "Employees of equity joint ventures may establish trade unions according to law and develop trade union activities, so as to maintain the legal rights and interests of employees." Such revisions are in line with China's developing labor law.

Further information on the revised Equity JV Law and its ramifications for existing and new equity joint ventures in China may be obtained from the Beijing and Hong Kong Offices of Morrison & Foerster LLP.

Because of the generality of this newsletter, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.