Understanding China, One Blog at a Time

An American in China

The Truth About Business in China

Posted by w_thames_the_d on March 2, 2011


From Stanley Lubman
“Although according to national law the foreign investment in CJVs and EJVs must be at least 25% of the total invested capital, local governments have been willing to bypass or alter the rule in order to attract investors; at the same time, the rules that set a floor for minimum investment amounts have sometimes been disregarded with Beijing being none the wiser. D. Secret Side Agreements Another tactic for avoiding the impact of established policy has been an agreement by investors and investment authorities that an applicable policy would not be enforced at all. In one case, a foreign investor established a particular type of joint venture that was required by policy at the time to export a minimum percentage of its annual production. After negotiations, the local investment authorities proposed that despite the export quota stated in the project documentation, they should also enter into a secret side agreement. The agreement would have stated the foreigner’s export-related obligation as only being “responsible for assisting the joint venture with the sale of its products,” and would also have specified that the agreement would override any inconsistent contract provisions. This is only an example of the many types of violation of higher-level law and policy that local governments have been known to foster because of their desire to attract foreign investment.”

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