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27.
The foreign exchange position of these joint
ventures is less promising, however. Although joint
ventures in service industries in general, and in hotels in particular, have few problems in balancing their
foreign exchange accounts, half of the joint ventures
engaged in production activities are troubled by foreign exchange deficits. In 1985, joint ventures and wholly foreign owned enterprises operating in 19 provinces and
cities reported a total foreign exchange deficit of US$580 million (5).
Problems encountered by Sino-foreign joint ventures
28.
Although the statistics on foreign investment in China look impressive, there are various problems facing
the joint ventures in China and these problems are
discussed in detail below.
29.
(a) Foreign exchange
(i) Need to balance the foreign exchange account
Most investors consider that a central problem
is China's requirement that foreign joint ventures have to be self-sufficient in foreign exchange terms. As
mentioned in paragraph 27, most joint ventures in the
secondary production sector (mostly manufacturing) have
experienced foreign exchange deficits. The problem emanates from their inability to offset their foreign
(5) Of these 19 provinces and cities, only Qinghai
Province had a foreign exchange surplus of US$30 million; all others experienced shortfalls. Guangdong Province, where most joint ventures and wholly foreign owned enterprises are set up, accounted for almost half of the total deficit.
CONFIDENTIAL #2