CHAPTER I GENERAL PROVISIONS

Article 1. This Law is formulated in accordance with the Constitution of the People’s Republic of China with a view to ensuring the consolidation and development of the economic sector under

ownership by the whole people, defining the rights and obligations of industrial enterprises owned by the whole people, safeguarding their lawful rights and interests, enhancing their vitality and promoting socialist modernization.

Article 2. An industrial enterprise owned by the whole

people (hereinafter referred to as the enterprise) shall be a

socialist commodity production and operation unit which shall, in

accordance with law, make its own managerial decisions, take full

responsibility for its profits and losses and practise independent

accounting.

The property of the enterprise shall be owned by the whole

people, and shall be operated and managed by the enterprise with the

authorization of the state in line with the principle of the

separation of ownership and managerial authority. The enterprise

shall enjoy the rights to possess, utilize and dispose of, according

to law, the property which the state has authorized it to operate and

manage.

The enterprise shall obtain the status of a legal person in

accordance with law and bear civil liability with the property

which the state has authorized it to operate and manage.

Article 3. The fundamental task of the enterprise shall

be the development of commodity production, creation of wealth,

increase of savings and satisfaction of society’s growing

material and cultural requirements by acting in line with state plans

and market demands.

Article 4. While achieving socialist material growth, the

enterprise must persistently promote socialist cultural and

ideological progress and build up a contingent of well-educated

and self-disciplined staff and workers with high ideals and moral

integrity.

Article 5. The enterprise must observe the laws and

regulations and keep to the socialist orientation.

Article 6. The enterprise must effectively utilize the property

which the state has authorized it to operate and manage and

realize the multiplication of its assets; the enterprise must,

according to law, pay taxes and fees and hand in profits.

Article 7. The enterprise shall implement the system

whereby the factory director (manager) assumes overall

responsibility for the work of the enterprise.

The factory director shall exercise functions and powers according

to law, which shall be protected by law.

Article 8. The grassroots organization of the Chinese Communist

Party in the enterprise shall guarantee and supervise the

implementation of the guiding principles and policies of the

Party and the state in the enterprise.

Article 9. The state shall ensure that the staff and workers

enjoy the status of the masters, and the lawful rights and interests

of the staff and workers shall be protected by law.

Article 10. The enterprise shall, through the staff and

workers’ congress and other forms, practise democratic management.

Article 11. The trade union in the enterprise shall

represent and safeguard the interests of the staff and workers

and conduct its work independently according to law. The trade

union in the enterprise shall organize the staff and workers for

participation in democratic management and democratic supervision.

The enterprise shall bring into full play the role of the young

staff and workers, the women staff and workers and scientific and

technical personnel.

Article 12. The enterprise must strengthen and improve its

operation and management, implement the economic responsibility

system, promote scientific and technological progress, practise

economy, combat waste, improve economic results and further its own

transformation and development.

Article 13. The enterprise shall implement the

principle of distribution according to work. It may also

adopt other forms of distribution within the scope prescribed by law.

Article 14. The property which the state has authorized the

enterprise to operate and manage shall be protected by law and shall

not be infringed upon.

Article 15. The lawful rights and interests of the enterprise

shall be protected by law and shall not be infringed upon.

CHAPTER II THE ESTABLISHMENT, MODIFICATION AND TERMINATION OF THE

ENTERPRISE

Article 16. The establishment of the enterprise must conform to

the law and the relevant provisions of the State Council, and the

application for the establishment must be submitted to the

government or the competent department of the government for

examination and approval. The enterprise shall obtain the status of

a legal person after it is approved by, registers itself with

and receives a business license from the administrative

authorities for industry and commerce. The enterprise shall carry out

its productive and operational activities within the approved and

registered scope of operation.

Article 17. An enterprise must meet the following

qualifications for its establishment:

(1) Its products are needed by society;

(2) It has access to the required energy sources, raw and

processed materials, and communication and transportation facilities;

(3) It possesses a name of its own and premises for

production and operation;

(4) It possesses funds in conformity with state provisions;

(5) It possesses its own organizational structure;

(6) It has a definite scope of operation; and

(7) Other qualifications as provided by the laws and regulations.

Article 18. The merger of enterprises or the division of an

enterprise shall be subject to approval by the government or the

competent department of the government in accordance with the

provisions of the laws and administrative rules and regulations.

Article 19. An enterprise shall be terminated for any of the

following reasons:

(1) being abolished due to its violation of the laws and regulations;

(2) being dissolved by decision of the competent department

of the government made in accordance with the provisions of

the laws and regulations;

(3) being declared bankrupt in accordance with law; or

(4) other reasons.

Article 20. When an enterprise is merged with another

enterprise or other enterprises or when it is divided or terminated,

its property must be protected and its claims and debts shall be

liquidated according to law.

Article 21. The modification of registered items such as the

merger of enterprises and the division or termination of the

enterprise, and the scope of operation shall be subject to approval

by and registration with the administrative authorities for industry

and commerce.

CHAPTER III RIGHTS AND OBLIGATIONS OF THE ENTERPRISE

Article 22. The enterprise shall, under the guidance of state

plans, have the right to arrange on its own the production of

products needed by society or the provision of services for society.

Article 23. The enterprise shall have the right to sell its

products on its own, except as otherwise stipulated by the State

Council.

An enterprise undertaking production according to a mandatory plan

shall have the right to market for itself products manufactured in

excess of the planned quota and products it retains as its share under

the plan.

Article 24. The enterprise shall have the right to choose the

suppliers for itself and purchase from them materials needed for

production.

Article 25. The enterprise shall have the right to determine for

itself the prices of its products and the charges for its services,

except for those which, as stipulated by the State Council, are

under the control of the price authorities and the relevant competent

departments.

Article 26. The enterprise shall have the right to negotiate

and sign contracts with foreign parties in accordance with the

provisions of the State Council.

The enterprise shall have the right to withdraw and use, according

to the provisions of the State Council, the foreign exchange

revenues it retains as its share.

Article 27. The enterprise shall have the right to budget and

use its retained funds in accordance with the provisions of the State

Council.

Article 28. The enterprise shall have the right, in accordance

with the provisions of the State Council, to lease out or

transfer against compensation the fixed assets that the state has

authorized it to operate and manage, but the proceeds therefrom

must be used for the renewal of equipment and technical transformation.

Article 29. The enterprise shall have the right to determine such

forms of wages and methods of bonus distribution as are

appropriate to its specific conditions.

Article 30. The enterprise shall have the right to employ or

dismiss its staff members and workers in accordance with the

provisions of the State Council.

Article 31. The enterprise shall have the right to decide

on its organizational structure and the size of its personnel.

Article 32. The enterprise shall have the right to reject the

exaction of its manpower, materials and financial resources in

the form of apportionment by any state organ or unit. Except as

otherwise stipulated by the laws and regulations, any demand made

on the enterprise by any state organ or unit in any form for the

provision of manpower, materials and financial resources shall be

exaction by apportionment.

Article 33. The enterprise shall have the right, in accordance

with law and the provisions of the State Council, to engage in joint

operations with other enterprises or institutions, to invest in

other enterprises or institutions and to hold shares in other

enterprises. The enterprise shall have the right to issue bonds

in accordance with the provisions of the State Council.

Article 34. The enterprise must perform the contracts concluded according to law.

Article 35. The enterprise must ensure the normal maintenance

of its fixed assets and upgrade and renew its equipment.

Article 36. The enterprise must observe state provisions

concerning finance, labour and wages,price control, etc., and

accept supervision by the financial, auditing, labour and wage,

price and other administrative

authorities.

Article 37. The enterprise must guarantee the quality of its

products and services and be responsible to users and consumers.

Article 38. The enterprise must raise labour efficiency,

economize the use of energy and of raw and processed materials and

strive to reduce costs.

Article 49. The enterprise must strengthen its security work,

maintain the order of production and protect state property.

Article 40. The enterprise must implement the system of safe

production, improve labour conditions, do good work in labour

protection and environmental protection, and carry on production in

a safe and civilized manner.

Article 41. The enterprise shall strengthen ideological and

political education, legal education, national defence education,

scientific and cultural education as well as technical and

vocational training so as to raise the quality of its staff and workers.

Article 42. The enterprise shall support its staff and

workers in scientific research, invention and creation and

activities for technical innovation, for making rationalization

proposals and for socialist labour emulation, and reward them for such

endeavours.

CHAPTER IV THE FACTORY DIRECTOR

Article 43. Except as otherwise stipulated by the State

Council, the selection of the factory director shall be made by the

competent department of the government in the light of the specific

conditions of the enterprise by one of the following methods:

(1) appointment by the competent department of the government or

choice of an applicant on a competitive basis by the same department; or

(2) election by the staff and workers’ congress of the

enterprise. With respect to the person to be appointed or the

applicant to be chosen as factory director by the competent

department of the government, the opinions of the staff and

workers shall be solicited, with respect to the person elected as

factory director by the staff and workers’ congress of the

enterprise, his appointment shall be reported to the competent

department of the government for approval.

The removal or dismissal of the factory director appointed or

chosen from applicants by the competent department of the government

shall be decided upon by such department, while the opinions of

representatives of the staff and workers shall be solicited; the

recall of the factory director elected by the staff and workers’

congress of the enterprise shall be decided by such congress and

reported to the competent department of the government for approval.

Article 44. The factory director shall be the legal

representative of the enterprise.

The enterprise shall establish a system of production,

operation and management headed by the factory director. The

factory director shall occupy the central position in the

enterprise and assume overall responsibility for building up a

materially developed and culturally and ideologically advanced

enterprise.

The factory director shall exercise leadership in the production,

operation and management of the enterprise by exercising the

following functions and powers:

(1) to decide on the various plans of the enterprise or report

them for examination and approval in accordance with law and the

provisions of the State Council;

(2) to decide on the administrative setup of the enterprise;

(3) to propose to the competent department of the

government the appointment or removal, employment or dismissal of

leading administrative cadres at the level of a vice-director of the

factory, except as otherwise stipulated by law and the provisions of

the State Council;

(4) to appoint or remove, employ or dismiss the intermediate-level

leading administrative cadres of the enterprise, except as otherwise

stipulated by

law;

(5) to propose plans for wage adjustment and bonus

distribution and important rules and regulations, and refer them to

the staff and workers’ congress for examination and approval; to

propose programmes for the use of the welfare fund and make

suggestions regarding such other matters as are important for the

well-being and benefits of the staff and workers, and to refer them

to the staff and workers’ congress for deliberation and

decision; and

(6) to reward or punish the staff members and workers according to

law; to submit to the competent department of the government

proposals for rewarding or punishing leading administrative

cadres at the level of a vice-director of the factory.

Article 45. The factory director must rely on the staff

members and workers for the fulfilment of the obligations of the

enterprise prescribed in this Law, support the work of the staff and

workers’ congress, the trade union and other public organizations,

and implement the decisions made according to law by the staff and

workers’ congress.

Article 46. The enterprise shall establish a management

committee or some other forms of organization to assist the factory

director in making decisions on important issues of the enterprise.

The management committee, with the factory director as its

chairman, shall be composed of leading persons in charge of various

aspects of the enterprise and representatives of the staff and workers.

The important issues as mentioned in the preceding paragraph shall

include:

(1) the policy of operation, long-term and annual plans,

programmes for capital construction and major technical

transformation, plans for the training of the staff and workers,

plans for wage adjustment, programmes for the distribution and use

of the retained funds and programmes for contract and leasing systems

of managerial responsibility.

(2) the size of the personnel of the enterprise whose wages are

counted as cost of the enterprise and the establishment and

adjustment of administrative organs; and

(3) programmes for the formulation, revision and abrogation of major

rules and regulations.

Proposals for discussion of the foregoing important issues shall

all be made by the factory director.

Article 47. Factory directors who have made outstanding

achievements in leading the enterprises in fulfilling their plans,

raising product or service quality, improving economic results or

promoting cultural and ideological progress shall be rewarded by

the competent department of the government.

CHAPTER V THE STAFF AND WORKERS AND THE STAFF AND WORKERS’ CONGRESS

Article 48. The staff and workers of the enterprise shall

have the right to participate in its democratic management; the right

to put forward opinions and suggestions concerning its production

and work; the right to enjoy, according to law, labour protection,

labour insurance, rest and vacation; and the right to report the

true situation to state organs and make criticisms and charges

against the leading cadres of the enterprise. Women staff and

workers shall have the right to enjoy special labour protection

and labour insurance in accordance with the provisions of the

state.

Article 40. The staff and workers should approach their work

as the masters of the country that they are, observe labour

discipline and the rules and regulations, and fulfil their tasks in

production and work.

Article 50. The staff and workers’ congress shall be the basic

form for the practice of democratic management in the enterprise and

the organ for the staff and workers to exercise their powers of

democratic management.

The working organ of the staff and workers’ congress shall be the

trade union committee of the enterprise. The trade union

committee of the enterprise shall be responsible for the

day-to-day work of the staff and workers’ congress.

Article 51. The staff and workers’ congress shall

exercise the following functions and powers:

(1) to hear and deliberate the factory director’s reports on the

policy of operation, long-term and annual plans, programmes for

capital construction and major technical transformation, plans for the

training of the staff and workers, programmes for the distribution

and use of the retained funds and programmes for contract and

leasing systems of managerial responsibility, and to put forward

opinions and suggestions;

(2) to examine and endorse or to reject the enterprise’s

programmes for wage adjustment, programmes for bonus distribution,

measures for labour protection, measures for awards and penalties and

other important rules and

regulations;

(3) to deliberate and decide on the programmes for the use of the

staff and workers’ welfare fund, programmes for the allocation

of the staff and workers’ housing and other important matters

concerning the well-being and benefits of the staff and workers;

(4) to evaluate and supervise the leading administrative cadres at

various levels of the enterprise and put forward suggestions for

rewarding or punishing them and for their appointment or removal; and

(5) to elect, by decision of the competent department of the

government, the factory director and report to such department for

approval.

Article 52. Democratic management shall be practised in

workshops through the general meetings of the staff and workers,

through the staff and workers representative groups or through other

forms; the workers shall participate directly in the democratic

management of shifts and groups.

Article 53. The staff and workers’ congress shall support the

factory director in exercising his functions and powers according to

law and shall educate the staff and workers for the fulfilment

of their obligations specified in this Law.

CHAPTER VI THE RELATIONSHIP BETWEEN THE ENTERPRISES AND THE GOVERNMENT

Article 54. The relevant departments of the government

shall, in conformity with the objective that the state regulates the

market and the market guides the enterprises, provide services for

the enterprises and exercise administration and supervision over the

enterprises in line with their respective functions and in

accordance with the provisions of the laws and regulations. These

departments shall:

(1) formulate and adjust industrial policies, and guide the

enterprises in working out their development plans;

(2) provide advice and information for the enterprises to make

their operational decisions;

(3) coordinate the relations between the enterprises and other units;

(4) safeguard the normal production order of the enterprises, and

protect from infringement the state property operated and

managed by the enterprises; and

(5) gradually improve the public facilities related to the enterprises

Article 55. The local governments at or above the county level

in the locality of an enterprise shall provide it with the needed

materials which are subject to local planning and control, coordinate

the relations between the enterprises and other units in the locality,

and strive to run well the public welfare undertakings related to the

enterprises.

Article 56. No state organ or unit shall be permitted to

encroach on the right which the enterprise enjoys according to

law to make its own decisions in operation and management, or to

exact manpower, materials or financial resources from the

enterprise by way of apportionment, or to demand the establishment

of an organ by the enterprise or to determine the size of the personnel

of an organ.

CHAPTER VII LEGAL LIABILITY

Article 57. Whoever has conducted productive and operational

activities in the name of an enterprise in violation of the

provisions of Article 16 of this Law, without prior examination and

approval by the government or the competent department of the

government and without approval by and registration with the

administrative authorities for industry and commerce, shall be

ordered to suspend his business operations, and his illegal

earnings shall be confiscated.

An enterprise that practises fraud in dealing with the

registration authorities and conceals the true situation from

them shall be given a warning or punished with a fine; where the

circumstances are serious, its business license shall be revoked.

The administrative punishment prescribed in this Article shall be

decided upon by the administrative authorities for industry and

commerce at or above the county level. If the party in question

refuses to accept the decision on punishment in the form of a fine,

the suspension of operations, the confiscation of illegal earnings

or the revocation of the business license, it may file a suit in

a court within 15 days of receiving the notification on the decision;

if no suit is filed by the time limit and the decision is not

complied with, the authorities that made the decision on punishment

may apply to the court for compulsory enforcement.

Article 58. An enterprise that produces and sells substandard

products and thereby causes property damage or physical injury

to users and consumers shall be liable for damages; if a crime

is constituted, the person or persons directly responsible shall be

investigated for criminal responsibility according to law.

An enterprise whose product quality does not conform to the terms

agreed upon in the economic contract shall be liable for breach of

contract.

Article 59. If a decision of the government or the relevant

department of the government violates the provisions of Article 58

of this Law, the enterprise shall have the right to apply to the

authorities that made the decision for rescission. If no rescission

is granted, the enterprise shall have the right to appeal to the

authorities at the level next higher to the authorities that made

the decision or to a supervisory department of the government. The

authorities that accepts the appeal shall make a ruling and notify the

enterprise of it within 30 days of receiving the appeal.

Article 60. Any leading cadre of the enterprise, who

violates the lawful rights and interests of the staff and workers by

abusing his power, where the circumstances are serious, shall be

given an administrative sanction by the competent department of the

government; any leading cadre of the enterprise who retaliates

against and frames up charges against staff members or workers by

abusing his power and using his public office for private ends shall

be investigated for criminal responsibility in accordance with the

provisions of Article 146 of the Criminal Law of the People’s Republic of China.

Article 61. Any leading cadre of the enterprise or of the

relevant department of the government who, due to faults in

his work, causes relatively heavy losses to the enterprise and the

state, shall be given an administrative sanction by the competent

department of the government or the relevant state organ at a higher

level.

Any leading cadre of the enterprise or of the relevant department

of the government who, due to neglect of duty, causes the

property of the enterprise or the interests of the state and the

people to suffer heavy losses, shall be investigated for criminal

responsibility in accordance with the provisions of Article 187

of the Criminal Law of the People’s Republic of China.

Article 62. Whoever obstructs, without resorting to violence or

threat, the enterprise leaders from carrying out their functions

according to law, shall be punished by the public security organ

in the locality of the enterprise in accordance with the

provisions of Article 19 of the Regulations of the People’s Republic of China on Administrative Penalties for Public Security;

whoever by means of violence or threat obstructs the enterprise

leaders from carrying out their functions according to law shall be

investigated for criminal responsibility in accordance with the

provisions of Article 157 of the Criminal Law of the People’s Republic of China.

Whoever disturbs the order of the enterprise, thereby making it

impossible for production, business operations and work to go on

smoothly, but has not caused serious losses, shall be punished by

the public security organ in the locality of the enterprise in

accordance with the provisions of Article 19 of the Regulations of the People’s Republic of China on Administrative Penalties for Public Security; if the circumstances are so serious that production,

business operations and work cannot be carried on and serious losses

are caused, he shall be investigated for criminal responsibility in

accordance with the provisions ofArticle 158 of the Criminal Law of the People’s Republic of China.

CHAPTER VIII SUPPLEMENTARY PROVISIONS

Article 63. The principles of this Law shall be

applicable to enterprises owned by the whole people in communications

and transportation, the postal and telecommunications service,

geological exploration, construction and installation, commerce,

foreign trade, materials supply, agriculture, forestry and water

conservancy.

Article 64. If the enterprise implements the contract and

leasing systems of managerial responsibility, the party awarding the

contract and the contractor, the lessor and the lessee, with regard

to their respective rights and obligations, shall implement the

relevant provisions of the State Council, apart from abiding by the

provisions of this Law.

With respect to the system of leadership in jointly operated

enterprises, large-scale associated enterprises and stock

enterprises, the relevant provisions of the State Council shall be

implemented.

Article 65. The State Council shall, in accordance with

this Law, formulate rules for implementation.

Article 66. The standing committees of the people’s congresses

of the autonomous regions may, in accordance with the principles of

this Law and the Law of the People’s Republic of China on Regional

National Autonomy and in the light of the special features of

their respective localities, formulate rules for implementation

and report them to the Standing Committee of the National People’s

Congress for the record.