G F 26
14
entures (5).
For projects under US$3 million, no debt
is allowed and the total amount of investment is to be
financed by equity capital. For projects involving
investments of over US$3 million, the debt to equity
ratios range from 1 : 1 to 3 : 1, depending on the size of
investment. Many joint ventures formed with Hong Kong
partners are likely to be affected by the tightening of
investment rules as they are generally small in scale and
some of them rely on loans from China to finance their
investment
28.
Partly due to the difficulty in raising
sufficient funds (which in turn was related to the control
on capital investment and the reduction in loans extended
by the People's Bank of China), Hopewell Holdings Ltd and the Shenzhen Special Economic Zone Development Company have decided to terminate a $2 billion agreement to
develop jointly an urban city, Futian, within Shenzhen.
(5) An equity joint venture operates under the Law of the
People's Republic of China on Joint Ventures using Chinese and Foreign Investment (the Joint Venture Law). An equity joint venture company is a limited company with a legal identity separate from those of the Chinese and foreign partners. The profits and losses of an equity joint venture are shared among the partners according to the share of equity contributed. The joint Venture Law, however, does not cover co-operative joint ventures. For these, the formation of a limited company with a separate legal identity is not necessary. Instead, an agreement stipulating the right and duties of the partners is a requirement. The profits are shared at an agreed ratio, which may not be in line with the share of the cash capital contributed by the parties involved, and payment of profits may be in the form of products manufactured or of cash.
CONFIDENTIAL #3