TNAG-1457-FCO40-1981-Relations-between-Hong-Kong-and-China-1986 — Page 85

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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