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Forms of foreign investment
4.
Foreign investment in an enterprise or project anywhere in China (including the SEZs) can take one of three basic forms (although the precise arrangement seems still very much a question for the individual investor to agree on a contract by contract basis).
These are:
Accord-
(a) Joint-venture both Chinese and foreign. partners invest
in an enterprise and take part jointly in its management, with both parties sharing the risks and the profits under an arrangement also described as an "equity joint-venture." The "Law of the PRC on Joint-Ventures using Chinese and Foreign Investment" was promulgated on 1 July 1979. ing to this law, all joint-ventures have to be authorised by the Foreign Investment Commission in Peking and registered with the General Administration for Industry and
Commerce. It is also general practice for the Chairman of
any such venture to be Chinese and for the Chinese partner to retain at least 50% of the shares, although there are
exceptions to this rule.
(b) Compensation trade - the foreign partner provides the
technology, equipment and materials whilst processing is undertaken in China using Chinese buildings and labour.
The product is then made available to the foreign partner for export at a price which allows it to recoup its
investment. The arrangement does not appear to allow for
joint management or for joint equity.
(c) Co-operative production based on the same inputs of
foreign equipment and materials and Chinese land and
labour, co-operative production allows for more flexible
profit sharing. After the export of products and the
deduction of operating costs and capital investment by
the foreign partner, profits are shared according to
terms agreed by contract. This arrangement is also
referred to as a "contractual joint-venture."
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