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CONFIDENTIAL & B
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China's objectives in setting up joint ventures
5.
To obtain a better understanding of joint ventures, it is important to understand the role they are expected to play in China's economic reforms. It is obvious that a prime objective of establishing joint ventures is the transfer of advanced technology. Compared with simpler forms of industrial co-operation such as processing arrangements and compensation trade, joint ventures are considered to be a better means for acquiring foreign technology. In the first place, profit-sharing with foreign partners means that it is in their interest to ensure that the transferred technology is both up to date and properly used. Second, through joint management, the Chinese managers can learn the business administration techniques practised in advanced countries. Third, the training provided in the joint ventures will be of value in the upgrading of labour skills.
6.
Apart from acquiring foreign technology, another objective is to encourage the inflow of foreign capital. The presence of foreign investment in China has caused concern among some Chinese leaders about the possible danger of segments of the Chinese economy being dominated by foreign interests. The legal and institutional framework governing the setting up and operation of joint ventures may be seen as an endeavour to strike a balance between reaping the benefits of foreign capital and preventing the possible undermining of national economic independence.
7.
Joint ventures can also help to broaden China's export base. Through making use of the marketing network of the foreign partners, China hopes that its knowledge about the rapidly changing pattern of demand in the world market, and hence its ability to export goods which suit the demand, will be enhanced.
CONFIDENTIAL #3
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