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Book Chapter

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Foreigners participating in equity joint ventures in the PRC since such investments were authorized in 1979 have encountered a variety of problems. New legal institutions have been established to provide a framework for joint ventures but their reach and interpretation of the new rules in practice are still often uncertain. Changes in policy have affected, and will continue to affect, the operation of both joint ventures and the new legal rules. Potential investors need contractual protection against changes in laws, regulations and policies which may affect the joint venture. Some specific issues of importance to foreign investors in China include access to the domestic market for sale of joint venture products and for purchase of goods and services, convertibility and repatriability of profits earned on the domestic market, the joint venture's relationship to the state economic plan, valuation of land used by joint ventures, and the level of wages and benefits to be paid to Chinese employees. After ventures are established misunderstandings may arise because of differences between the parties' management styles as well as their different conceptions of the obligations created in their contract. Given variations in practice, changes in policy, and the limitations and continued flexibility of Chinese legal institutions, participants in joint ventures should carefully investigate each opportunity offered to them and insist on drafting contracts which adequately address likely problem areas. The Chinese leadership has taken important steps in creating a legal framework for foreign economic activity, but existing questions are likely to be solved only slowly.


International Law | Law