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JV rules to relax
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DRAFT amendments to Law on Chinese-Foreign Equity Joint Ventures, which aim to lift certain restrictions on such enterprises, were submitted in Beijing on Friday to the ongoing session of the Nation People's Congress for adoption.
The amendments abolish stipulations in the law that require joint ventures to give priority to Chinese-made raw materials when purchasing components for manufacturing, and to report their production plans to government departments concerned.
Gu Angran, director of the Legislative Affairs Commission of the NPC Standing Committee, said when he explained the draft amendments to the lawmakers that the revisions are “a move aimed at making the country's laws consistent with principles of a market economy and compatible with its impending accession to the World Trade Organization".
Since the founding of the Beijing Aviation Food Company, China's first joint venture in 1980, the country has seen the registration of 150,000 Chinese-foreign joint ventures.
Before 1998, over 70 per cent of foreign investment in China took the form of joint ventures.
The growth of Chinese-foreign joint ventures, however, has been slowing down in recent years.
In 2000, growth of wholly foreign-owned businesses exceeded that of Chinese-foreign joint ventures, for the first time.
According to figures from the Ministry of Foreign Trade and Economic Co-operation (MOFTEC), wholly foreign-owned enterprises accounted for 45 per cent of total foreign investment in China in 2000 and the percentage is growing annually.
Meanwhile, actualized foreign investment in joint ventures recorded the first ever negative growth, despite a 21 per cent rise in the number of joint ventures last year.
Ma Yu, a senior researcher with the MOFTEC, attributed the change to new trends in China's economic environment.
With a sellers' market being replaced by a buyers' market in China, market competition has intensified, forcing joint ventures to expand their production scale and upgrade their technologies.
In this situation, it is natural for the foreign side to seek a controlling stake to avoid potential conflicts with the Chinese partner, who may harbour a different business philosophy and have a different operational style and a different goal, Ma said.
Analysts points out that it is crucial for China to establish a modern corporate system in its State-owned enterprises and improve its investment environment, including the establishment of a judicial system based on a market economy, if it is to reverse the situation of decreasing foreign investment in joint ventures.
China's draft outline of the 10th Five-Year Plan has provided for giving national treatment to foreign-funded enterprises, unified and transparent market accession policies and the removal of equity structure restrictions in joint ventures, except for those that are related to national and economic security.
As the biggest potential market in the world, China's accession to the WTO is expected to trigger off a new round of foreign investment.
“As long as China is not obsessed with having controlling stakes, Chinese-foreign joint ventures will remain the most important form of foreign investment in China, and will continue to contribute to the upgrading of China's State-owned enterprises and its traditional industries," Ma said.(SD-Xinhua)
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