G.F. 326
CONFIDENTIAL # #
TEX
14
32.
The case of the American Motor Corporation (AMC) is well publicized. The Corporation is the major foreign partner of the Beijing Jeep Corporation (BJC), which is
engaged in the assembling of the imported kits of the
AMC's Cherokee model. In October 1985, in the midst of the foreign exchange crisis, all foreign exchange payments to BJC from the buyers was stopped. In March 1986, the joint venture company announced that it would suspend production for three months because of its inability to afford the imports of accessories and parts. Under the threat of a pull-out by the AMC, the Chinese authorities subsequently reached a compromise with the joint venture company and agreed to resume payments in US dollars.
33.
The concession to the AMC, however, is very rare. According to the Regulations on Joint Ventures' Balance between Foreign Exchange Revenue and Expenditure promulgated in January 1986, Sino-foreign joint ventures should export as much of their products as possible with a view to achieving foreign exchange balance. The Regulations do make provisions for certain measures which may help to ease the foreign exchange problem. For instance, they allow foreign partners who are involved in more than one joint venture in China to pool the foreign exchange earnings of the different joint ventures in case one of them runs into a foreign exchange deficit. However, according to officials met during EAD's visit to Guangzhou in March this year, such flexibility is only restricted to enterprises within the same province because of administrative difficulties.
34.
The Regulations also allow foreign investors to re-invest their Renminbi earnings in other enterprises which are capable of exporting and earning foreign exchange. Yet, considering that both the investment environment in China and the world trading environment are not particularly favourable at the moment, reinvesting Renminbi profits in yet another enterprise does not appear to be an attractive option.
CONFIDENTIAL # 2