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G.F. 326
ONFIDENTIAL #3
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57. Also, many low level cadres, who do not want to be accused of wrongdoing, tend to be rigid in dealing with foreigners' requests. To many businessmen, wrestling with low level cadres is a waste of time. Establishing links with powerful party members and arranging visits for influential Chinese 'officials are in many cases essential moves to secure business and to facilitate operations.
58. Another problem encountered by foreign investors is that they are sometimes restricted by regulations not commonly applied elsewhere. The guidelines on
equity-to-debt ratios issued recently is a case in
point
(6)
•
So far the Chinese authorities have not made
clear whether the ratios are to be maintained throughout the life of the joint ventures. If so, this may seriously affect a joint venture's ability to seek further financing
in the future.
59.
(ii) Confusing and changing tax system
Foreign investors are particularly confused about the taxation system in China. Many investors find themselves facing unpredictable tax levies because different tax offices compute their figures in different ways as rules and regulations are so diverse. Information
obtained from various EAD visits to China reveals that
(6)
According to the guidelines, where total joint venture investment is below US$3 million, no debt is allowed. For investment between US$3 million and US$10 million, the debt to equity ratio must not exceed 1 to 1; for investment between US$10 million and US$30 million, it must not exceed 2 to 1; and for investment over US$30 million, it must not exceed 3 to 1.
CONFIDENTIAL # 3