CONFIDENTIAL
Hong Kong Economic Relations with Guangdong
Joint Enterprises
Most foreign investment in Guangdong Province has been in the form of 'compensation trade' or
'co-operative production'. In the latter, foreign businessmen provide capital, equipment. and technology whilst the Chinese side provides land and labour. After the deduction of production costs, profits are shared between the two parties according to terms agreed by contract. Ownership of the enterprise reverts to the Chinese side when the contracted co-operation terminates. The number of such projects in Guangdong is reported by the press to be more than 280, involving US$500 million investment. They include the construction of housing and offices, the improvement or construction of more than 40 hotels and restaurants, and fish breeding. Although there are no hard statistics most of these projects are probably being undertaken by Hong Kong interests.
2.
Compensation trade involves the same inputs of foreign capital and Chinese labour, except that there is no participation in either profits or management by the Chinese side. The investor recoups his outlay through the processing of goods for export. Such enterprises range from the production of plastic flowers and leather goods to the assembly of radios. Many such ventures have been attracted to the Special Economic Zones:
Special Economic Zones
3.
The State Council has given approval to the development of Special Economic Zones (SEZs) at Shenzhen, Zhuhai and Shantou in Guangdong and Xiamen in Fujian. SEZs offer preferential treatment to foreign investors in terms of favourable rates of land and income tax and greater flexibility in the management of their enterprises. According to statistics quoted by Shenzhen officials, 490 enterprises have now been established in that zone using some form of foreign investment (i.e. compensation trade or co-operative production), approximately 80% of it from Hong Kong. 70% of these are already in production.
Guangdong Provincial Investment in Hong Kong
4.
Although a number of China-controlled companies. have for some time been involved in purchases of land and other invostmant in Hong Kong, it is not possible to quantify the total or to assess the level of specifically Guangdong investment. Probably the most significant step
CONFIDENTIAL
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