Contracts, whether oral or written, are indispensable to doing business in all market economies. In China, if a foreign company and a state-owned enterprise want to establish an equity joint venture or cooperative joint venture, they must first conclude a joint venture contract. If a multinational corporation wants to set up a wholly foreign-owned subsidiary in China, it must prepare to conclude various types of contracts, including a lease for the use of a manufacturing plant, a sale contract with a supplier, and labor contracts with Chinese employees. Similarly, if a high-tech company wants to license a technology to a state-owned enterprise in China, the parties must enter into a technology transfer contract. In other words, a basic understanding of Chinese contract law is a prerequisite for foreign investors who are planning to do business in China.
Prior to 1999, China had three contract laws, namely, the Economic Contract Law, 1 the Foreign Economic Contract Law, 2 and the Technology Contract Law, and various regulations on contracts, such as the Regulations on Loan Contracts and the Regulations on Contracts for Construction and Installation Projects. Since the regulatory framework was piecemeal and many repetitions existed among the three contract laws, China found it necessary to enact a unified and comprehensive contract law. In 1999, the Contract Law was passed, 3 repealing the previous three contract laws. The Contract Law consists of 428 articles and is divided into two parts: general principles and specific provisions. The specific provisions section deals with 15 particular types of contracts and contains the following chapters: purchase and sale; supply and use of electricity, water, gas, or heat; gift; loan; lease; financial leasing; work; construction project; transportation; technology; safe keeping; warehousing; mandate; brokerage; and intermediary.
To provide an overview of contract law, this chapter first discusses the general principles of the Contract Law, that is, what constitutes a legally enforceable contract in China, what rights and obligations the contracting parties have, and what remedies one party has if the other party breaches the contract. Subsequently, it highlights four specific types of contracts - sale, lease, work, and technology - because foreign investors frequently encounter them. Before studying the details, however, it is worth noting that