CONFIDENTIAL
Government. Similarly the UK might commit itself to provide a support package to the joint venture company (probably to the Project Management Company) to help
with technical specifications and design, project management, construction and
commissioning of the station as well as the training of personnel. Equally the
Chinese contributions to joint venture projects could be in the form of land and labour and materials (valued at cost plus 30 per cent to 50 per cent) as joint
venture projects were unlikely to be able to borrow RMB in any significant amounts. In view of this the size of equity is likely to be directly determined by the size
of the local costs unless the joint venture is permitted to borrow overseas to
finance some of the local costs. We know the Chinese for obvious reasons are not
currently willing to borrow in the Eurodollar market at commercial rates and this
is likely to be the only lending source available for local costs.
A further uncertainty is that in view of the scale and importance of the Nuclear
project we cannot be sure that the Chinese will necessarily wish to apply their
joint venture law to it.
Department of Trade have detailed information on only five joint ventures approved
by the Foreign Investment Control Commission in 1980 but they show a considerable
variation in the equity participation required of the overseas partner. In one
case, the Changcheng Hotel project in Beijing, the US partner makes no equity
contribution; the US partner funds 100% of the costs of the project, but is to be
repaid in full, with interest, over the first ten years of the hotel's life. On the
other hand, for another Beijing hotel project, the Jianguo, the Hong Kong partner is putting up 49% of the equity (precise details of this contribution are unknown).
Foreign equity participation for the other three projects varies from 25% (the
lowest admissible figure under the new Joint Ventures Law) for the China-
Schindler Elevator Company project to 49% for Japan's joint venture in cashmere
yarn and Hong Kong's joint venture with CAAC, in in-flight catering. There is also considerable variation in the form which the equity participation takes; Schindler's contribution of $4m is, probably in cash, while China Air Catering (Hong Kong's) contribution is equipment, machinery and expertise, with no cash injection. The cashmere project falls between these two extremes with elements
of both cash and equipment, raw materials and expertise provided by the Japanese.
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