CHINESE JOINT VENTURE AMENDMENT DISCOUNTED LANGUAGE HELD TOO VAGUE

CHINESE JOINT VENTURE AMENDMENT DISCOUNTED LANGUAGE HELD TOO VAGUE

A draft amendment to the law governing equity joint ventures released Wednesday contains a provision allowing unlimited terms, but foreign analysts say the language is so vague as to be meaningless.

"It doesn't sound like it means anything," one foreign lawyer told The Journal of Commerce on condition of anonymity. "It is clear there is a lot of contention over this. The language is vague, so they can put further limitations on it."The proposed amendment was introduced by Zheng Tuobin, minister of foreign economic relations and trade, at the current meeting of the National People's Congress. That rubber-stamp body is expected to approve it formally next week.

Joint-venture contracts are now generally limited to 30 years although some special cases have been accorded 50 years.

The proposal reads: "Based on various lines of business and circumstances, the issue of operation periods of equity joint ventures may be handled differently.

"Equity joint ventures engaged in a certain line of business shall specify in the contracts their operation periods, while equity joint ventures engaged in another line of business may choose to or not to specify their operation periods."

The unlimited term was considered the only significant feature of the amendment. At least one company postponed signing a contract because it anticipated that the measure would succeed, according to diplomatic sources.

Most foreign observers expect even that woolly provision to be watered down.

"It's the only part that's real. That's why they'll probably quash it," said a Western diplomat who declined to be identified.

The provision is not expected to bring in new investment but is widely seen as a move prompted by China's desire to join the General Agreement on Tariffs and Trade.

"They are being compelled to do this," the lawyer said, because "they desperately want to become a member of GATT. This is one of the things they can do rather painlessly to look like they're taking a step in the right direction."

As also forecast previously in The Journal of Commerce, the amendment includes a prohibition against nationalization or expropriation of a joint venture company and a provision allowing foreign nationals to chair the boards of such companies.

Foreign joint venture partners and commercial analysts say the appropriation clause is similarly meaningless because of the vague language and in light of potential political upheaval.

"It's a nice concept," said John Frisbie of the U.S.-China Business Council, but the effectiveness of the measure "depends on the language. It's not clear what the terms are."

Another Western diplomat commented: "Nobody's sanguine about what's happening here. There's . . . a long-term question about the viability of the present government."

The draft amendment reads: "The state shall not nationalize or requisition any equity joint venture. Under special circumstances, when public interest requires, equity joint ventures may be requisitioned by legal procedures and appropriate compensation may be made."

Businessmen and observers also discount the idea of a foreign national heading a joint venture. A Chinese is deemed essential for cultivating the relationships necessary for getting things accomplished.