China’s Law on Joint Ventures

by Peter Nehemkis, Alexis Nehemkis



This article examines the law on joint-ventures adopted by the fifth National People's Congress, parliament of China on July 1, 1979. It became effective on July 8, 1979, on the order of Ye Jianying, one of China's legendary leaders, a survivor of the historic Long March, No. 3 in-the party hierarchy and chairman of the Standing Committee of the National People's Congress. The joint venture law includes features commonly found in the codes of investment seeking countries in Western Europe and the Third World. Liu Yiu-chu, a Harvard-educated Hong Kong lawyer who advises the Chinese government on international business law, observes that overseas Chinese have an edge over foreign companies for three reasons: (1) Communication is easier because both sides speak Chinese; (2) Misunderstandings are not so likely to occur because both share a common cultural heritage; (3) An overseas Chinese willing to make concessions because of his desire to see China prospers. The joint venture law is a bold first step in the creation of a favorable investment climate for foreign investment. Nevertheless, there is a danger that the Chinese experiment could become a version of the U.S.-Mexican border plants, the Mexican maquiladores that attract U.S. entrepreneurs in search of cheap labor. A second danger lies in the delusions about the China market entertained by American businessmen. Long-term business transactions with the People's Republic of China are, with those of the Soviet Union, freighted with much political risk. The joint venture code, nevertheless, merits the thoughtful consideration of U.S. managements that are interested in the China trade. With patience, staying power and a realistic comprehension of the China market, U.S. companies may establish a foothold in that market as well as a base for the export of Chinese products to the U.S. It is in the interest of the international business community to help make the joint venture experiment a success.

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