LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON ECONOMIC CONTRACTSINVOLVING FOREIGN INTEREST

Release time: 2016-12-21

Contents


Chapter I General Provisions

Chapter II The Conclusion of Contracts

Chapter III The Performance of Contracts and Liability for Breach of

Contract

Chapter IV The Assignment of Contracts

Chapter V The Modification, Rescission and Termination of Contracts

Chapter VI The Settlement of Disputes

Chapter VII Supplementary Provisions


Chapter I General Provisions


Article 1

This Law is formulated with a view to protecting the lawful rights and

interests of the parties to Chinese-foreign economic contracts and

promoting the development of China's foreign economic relations.

Article 2

This Law shall apply to economic contracts concluded between enterprises

or other economic organizations of the People's Republic of China and

foreign enterprises, other economic organizations or individuals.

(hereinafter referred to as "contracts"). However, this provision shall

not apply to international transport contracts.

Article 3

Contracts shall be concluded according to the principle of equality and

mutual benefit and the principle of achieving agreement through

consultation.

Article 4

In concluding a contract, the parties must abide by the law of the

People's Republic of China and shall not harm the public interest of the

People's Republic of China.

Article 5

The parties to a contract may choose the proper law applicable to the

settlement of contract disputes. In the absence of such a choice by the

parties, the law of the country which has the closest connection with the

contract shall apply. The law of the People's Republic of China shall

apply to contracts that are to be performed within the territory of the

People's Republic of China, namely contracts for Chinese-foreign equity

joint ventures, Chinese-foreign contractual joint ventures and Chinese-

foreign cooperative exploration and development of natural resources. For

matters that are not covered in the law of the People's Republic of China,

international practice shall be followed.

Article 6

Where an international treaty which is relevant to a contract, and to

which the People's Republic of China is a contracting party or a

signatory, has provided differently from the law of the People's Republic

of China, the provisions of the international treaty shall prevail, with

the exception of those clauses on which the People's Republic of China has

declared reservation.


Chapter II The Conclusion of Contracts


Article 7

A contract shall be formed as soon as the parties to it have reached a

written agreement on the terms and have signed the contract. If an

agreement is reached by means of letters, telegrams or telex and one party

requests a signed letter of confirmation, the contract shall be formed

only after the letter of confirmation is signed. Contracts which are

subject to the approval of the state, as provided for by the laws or

administrative regulations of the People's Republic of China, shall be

formed only after such approval is granted.

Article 8

Appendices specified in a contract shall be integral parts of the

contract.

Article 9

Contracts that violate the law or the public interest of the People's

Republic of China shall be void.

In case any terms in a contract violate the law or the public interest of

the People's Republic of China, the validity of the contract shall not be

affected if such terms are cancelled or modified by the parties through

consultations.

Article 10

Contracts that are concluded by means of fraud or duress shall be void.

Article 11

A party which is responsible for the invalidity of a contract shall be

liable for the losses suffered by the other party as a result of the

contracts becoming invalid.

Article 12

A contract shall, in general, contain the following terms:

(1) the corporate or personal names of the contracting parties and their

nationalities and principal places of business or domicile;

(2) the date and place of the signing of the contract;

(3) the type of contract and the kind and scope of the object of the

contract;

(4) The technical conditions, quality, standard, specifications and

quantity of the object of the contract;

(5) the time limit, place and method of performance;

(6) the price, amount and method of payment, and various incidental

charges;

(7) whether the contract is assignable and, if it is, the conditions for

its assignment;

(8) liability to pay compensation and other liabilities for breach of

contract;

(9) the ways for settling contract disputes; and

(10) the language(s) in which the contract is to be written and its

validity.


Article 13

So far as it may require, a contract shall provide for the limits of the

risks to be borne by the parties in performing the object; if necessary,

it shall provide for the coverage of insurance for the object.

Article 14

Where a contract needs to be performed continuously over a long period,

the parties shall set a period of validity for the contract and may also

stipulate conditions for its extension and its termination before its

expiry.

Article 15

In the contract the parties may agree to provide a guaranty. The guarantor

shall be held liable within the agreed scope of guaranty.


Chapter III The Performance of Contracts and Liability for Breach of Contract


Article 16

A contract shall be legally bindings as soon as it is established in

accordance with the law. The parties shall perform their obligations

stipulated in the contract. No party shall unilaterally modify or rescind

the contract.

Article 17

A party may temporarily suspend its performance of the contract if it has

conclusive evidence that the other party is unable to perform the

contract. However, it shall immediately inform the other party of such

suspension. It shall perform the contract if and when the other party

provides a sure guarantee for performance of the contract. If a party

suspends performance of the contract without conclusive evidence of the

other party's inability to perform the contract, it shall be liable for

breach of contract.

Article 18

If a party fails to perform the contract or its performance of the

contractual obligations does not conform to the agreed terms. which

constitutes a breach of contract, the other party is entitled to claim

damages or demand other reasonable remedial measures. If the losses

suffered by the other party cannot be completely made up after the

adoption of such remedial measures, the other party shall still have the

right to claim damages.

Article 19

The liability of a party to pay compensation for the breach of a contract

shall be equal to the loss suffered by the other party as a consequence of

the breach. However, such compensation may not exceed the loss which the

party responsible for the breach ought to have foreseen at the time of the

conclusion of the contract as a possible consequence of a breach of

contract.

Article 20

The parties may agree in a contract that, if one party breaches the

contract, it shall pay a certain amount of breach of contract damages to

the other party; they may also agree upon a method for calculating the

damages resulting from such a breach. The breach of contract damages as

stipulated in the contract shall be regarded as compensation for the

losses resulting from breach of contract. However, if the contractually

agreed breach of contract damages are far more or far less than is

necessary to compensate for the losses resulting from the breach, the

party concerned may request an arbitration body or a court to reduce or

increase them appropriately.


Article 21

If both parties breach the contract, each shall be commensurately liable

for the breach of contract that is its responsibility.

Article 22

A party which suffers losses resulting from a breach of contract by the

other party shall promptly take appropriate measures to prevent the losses

from becoming severer. If the losses are aggravated as a result of its

failure to adopt appropriate measures, it shall not be entitled to claim

compensation for the aggravated part of the losses.

Article 23

If a party fails to pay on time any amount stipulated as payable in the

contract or any other amount related to the contract that is payable, the

other party is entitled to interest on the amount in arrears. The method

for calculating the interest may be specified in the contract.

Article 24

If a party is prevented from performing all or part of its obligations

owing to force majeure, it shall be relieved of all or part of its

obligations.

If a party cannot perform its obligations within the contractually agreed

time limit owing to force majeure, it shall be relieved of the liability

for delayed performance during the aftereffect of the event.

Force majeure means an event that the parties could not have foreseen at

the time of conclusion of the contract, both parties being unable to

either avoid or overcome its occurrence and consequences.

The scope of force majeure may be specified in the contract.

Article 25

The party which fails to perform wholly or in part its contractual

obligations owing to force majeure shall promptly inform the other party

so as to mitigate possible losses inflicted on the other party, and shall

also provide a certificate issued by the relevant agency within a

reasonable period of time.


Chapter IV The Assignment of Contracts


Article 26

When a party assigns, wholly or in part, its contractual rights and

obligations to a third party, it must obtain the consent of the other

party.

Article 27

In the case of a contract which, according to the laws or administrative

regulations of the People's Republic of China, is to be formed with the

approval of the state, the assignment of the contractual rights and

obligations shall be subject to the approval of the authority which

approved the contract, unless otherwise stipulated in the approved

contract.


Chapter V The Modification, Rescission and Termination of Con- tracts


Article 28

A contract may be modified if both parties agree through consultation.

Article 29

A party shall have the right to notify the other party that a contract is

rescinded in any of the following situations:

(1) if the other party has breached the contract, thus adversely affecting

the economic benefits they expected to receive at the time of the

conclusion of the contract;

(2) if the other party fails to perform the contract within the time limit

agreed upon in the contract, and again fails to perform it within the

reasonable period of time allowed for delayed performance;

(3) if all the obligations under the contract cannot be performed owing to

force majeure; or

(4) if the contractually agreed conditions for the rescission of the

contract are present.

Article 30

For a contract consisting of several independent parts, some may be

rescinded according to the provisions of the preceding article while the

other parts remain valid.

Article 31

A contract shall be terminated in any one of the following situations:

(1) if the contract has already been performed in accordance with the

agreed terms;

(2) if an arbitration body or a court has decided that the contract shall

be terminated; or

(3) if the parties agree through consultation to terminate the contract.

Article 32

Notices or agreements on the modification or rescission of contracts shall

be made in writing.

Article 33

In the case of a contract which, according to the laws or administrative

regulations of the People's Republic of China, is to be established with

the approval of the state, any significant modification of the contract

shall be subject to the approval of the authority which approved the

contract, and the rescission of the contract shall be filed with the same

authority for the record.

Article 34

The modification, rescission or termination of a contract shall not affect

the rights of the parties to claim damages.

Article 35

The contractually agreed terms for the settlement of disputes shall not

become invalid because of the rescission or termination of a contract.


Article 36

The contractually agreed terms for the settlement of accounts and

liquidation of a contract shall not become invalid because of the

rescission or termination of the contract.


Chapter VI The Settlement of Disputes


Article 37

If disputes over a contract develop, the parties shall, as far as

possible, settle them through consultation, or through mediation by a

third party.

If the parties are unwilling to settle their dispute through consultation

or mediation, or if consultation or mediation proves unsuccessful, they

may, in accordance with the arbitration clause provided in the contract or

a written arbitration agreement reached by the parties afterwards, submit

the dispute to a Chinese arbitration body or any other arbitration body

for arbitration.

Article 38

If no arbitration clause is provided in the contract, and a written

arbitration agreement is not reached afterwards, the parties may bring

suit in a people's court.


Chapter VII Supplementary Provisions


Article 39

The time limit for filing suit or applying for arbitration in a dispute

over a contract for the purchase and sale of goods shall be four years,

counting from the day when the party was aware or ought to have been aware

of its rights' being infringed upon. The time limit for filing suit or

applying for arbitration in a dispute over any other contract shall be

stipulated separately by law.

Article 40

If new legal provisions are formulated while contracts for Chinese-foreign

equity joint ventures, Chinese-foreign contractual joint ventures, or

Chinese-foreign cooperative exploration and development of natural

resources, which have been concluded with the approval of the state, are

being performed within the territory of the People's Republic of China,

the performance may still be based on the terms of the contracts.

Article 41

This Law may apply to contracts concluded before it goes into effect if

this is agreed to by the parties through consultation.

Article 42

The State Council shall, in accordance with this Law, formulate rules for

its implementation.

Article 43

This Law shall go into effect on July 1, 1985.

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