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officials are supposed to have the power to give specific directions on production and the conduct of business. Yet, through other regulations, the government requires that the construction, investment, production and sales activities of joint ventures have to be integrated within the state economic programme. If a joint venture's plan does not fit in with the state plan, the joint venture will be in a very difficult position. At present, in practice, the Chinese members in top management, in their dual capacity as high ranking party and administrative officials, play an important role in reconciling possible
contradictions. It, however, remains difficult to see how
a joint venture can function as a truly independent economic unit.
62.
More worrying to foreign investors is that they
are facing an uncertain investment environment. China's economic policies have been characterized by a recurrent stop-go pattern. The huge capital investment programme in 1977 78 and the subsequent economic readjustment is just one of many examples. More recently, with the sharp reduction in foreign exchange reserves, controls over the use of foreign exchange have been partially
re-centralized. Domestic sales restrictions which were
partially relaxed in 1983 84 have been made more
G
stringent again. Very often the new regulations apply not only to new enterprises but also to existing enterprises. The fact that the ground rules within which a joint venture operates may be changed from time to time creates
uncertainty to foreign investors and makes forward
planning a difficult task.
63.
beyond doubt.
China's commitment to the open door policy seems
But frequent policy changes in specific areas create uncertainty. Further, the shadow cast by the past political turmoils has not disappeared completely. Although the present leadership is firm in power, the fact
CONFIDENTIAL # 3
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