With the top legislative body of China beginning debate on an amendment to the law governing Chinese-foreign equity joint ventures last Friday, the future of China's numerous joint ventures has become a subject of wide concern at home and abroad.
The proposed amendment is a major move on the part of China to prepare for its expected accession to the World Trade Organization (WTO), after more than a decade of negotiations.
It also comes at a time when more and more foreign investment projects in China are partly or solely owned by foreign firms.
Since the founding of the Beijing Aviation Food Company, China's first joint venture, in 1980, the country has seen the registration of 150,000 Chinese-foreign joint ventures.
Before 1998, over 70 percent of the foreign investment in China was in the form of joint ventures. The growth of Chinese-foreign joint ventures, however, has been slowing down in recent years.
In 2000, the increase in wholly foreign-owned businesses exceeded that of Chinese-foreign joint ventures for the first time.
According to figures from the Ministry of Foreign Trade and Economic Cooperation (MOFTEC), wholly foreign-owned enterprises accounted for 45 percent of total foreign investment in China in 2000.
In the same year, however, defacto foreign investment in joint ventures recorded the first ever slowdown in growth, despite a 21 percent rise in the number of joint ventures for the year. In addition, more and more foreign partners have shown a strong interest to increasing their stake in joint ventures.
Beijing Jeep, the first joint venture in China's automobile industry, announced not long ago that its foreign partner, Daimler Chrysler, will increase its equity share in the joint venture at a proper time, and that the new management will be headed by a foreigner.
Procter & Gamble (Guangzhou) Ltd, a Sino-US joint venture, also reported drastic changes in the equity structure of many of its subsidiaries. In one of them, the stake of the Chinese side dropped from the original 50 to 1 percent.
Ma Yu, a senior researcher with the MOFTEC, attributed the change to new trends in China's economic environment.
With a sellers' market being replaced by a buyers' market in China, market competition has intensified, forcing joint ventures to expand their production scale and upgrade their technologies. In this situation, it is natural for the foreign side to seek a controlling stake to avoid potential conflicts with the Chinese partner, who may hold a different business philosophy and have a different operational style and a different goal, Ma said.
Analysts point out that it is crucial for China to establish modern corporate systems for its State-owned enterprises and improve its investment environment, including among its changes the establishment of a judicial system based on a market economy, if it is to reverse the situation of decreasing foreign investment in joint ventures.
China's draft outline of the 10th Five-Year Plan includes provisions for leveling the playing field for foreign-funded and domestic enterprises by creating unified and transparent market accession policies and removing equity structure restrictions in joint ventures, except for those that are related to national and economic security.
(Xinhua News Agency March 12, 2001)
