Author: Tong, Man-chung William
Title: Managing an equity joint venture project in the People's Republic of China : problems and solutions
Degree: M.B.A.
Year: 1997
Subject: Joint ventures -- China
Investments, Foreign -- China
Hong Kong Polytechnic University -- Dissertations
Department: Department of Management
Pages: x, 111 leaves ; 30 cm
Language: English
Abstract: The People's Republic of China (the PRC) has made great strides in economic development since the beginning of this decade. Drastic changes in the legal system of the country has been made to keep up with this incredibly fast pace of development. A lot of effort was put to simplify, synchronize and unify the complex legal and government administration system to support the economic growth. Despite all these efforts, the investment environment today is still far from synchronized and settled. Evolution continues positively towards a more open and receptive direction. Adding to the deep-rooted incompatible business practices between the PRC market and those overseas, a foreign investor needs to identify and team up with a suitable local partner to assist them in managing their investments in this unfamiliar business climate. Emerging from this need, equity joint venture (EJV), which is the closest resemblance to a business corporation in Western concept, becomes the most common form of corporate partnership investment in the PRC nowadays. Unlike a business corporation in a free economy where there is minimum government intervention, an EJV in the PRC has to face numerous issues under the influence of the unique Chinese culture and the local government. Among the many important issues are those relating to capitalization, finances, foreign exchange control, personnel, guanxi, tax planning and profit repatriation. This research focused on these seven issues because they covered a wide spectrum of a joint venture business framework from making investment to reaping profits. Research in these issues will provide the foreign investor a good comprehension of the common management problems and their possible solutions. They were studied in depth in the context of three EJVs engaged in hotel project management. These EJVs, in particular, was selected because the researcher's personal involvement as the regional financial controller in these EJVs made possible the collections of first hand opinion of project personnel and government officials involved. The availability of such scarce information would help the researcher to decipher the problems / uncertainties these EJVs encountered so as to provide pragmatic solutions to them. Opinions were collected in non-contrived settings. Interviews and questionnaires were used to facilitate the analysis. Common problems specific to these joint ventures were flushed out and appropriate solutions were discussed. Moreover, recommendations made were also meant to benefit the management of investments in other projects within the same foreign investor group. In addition, it is hoped that other foreign investors may find the study a useful reference to their own management problems. The study also threw light on other relating problems / issues which would be of research value to further studies. The research covers issues that a foreign investor is much concerned about, such as how much stake to take, how should the project be financed, what are the common problems in foreign exchange control, what are the recommended ways to recruitment and training local project staff, what guanxi actually means to the project personnel and the government officials, how far is depreciation a flexible tool in tax planning, and what to watch out for in profit repatriation. The findings of the study indicated that a foreign investor managing an equity joint venture in the PRC requires a great deal of direct involvement and particular close attention in order to make prompt and effective business decisions. One has to be alert of the latest news in the intricacies of the ever changing market environment and legal system, and respond appropriately. Maintaining a "balance of interests" has become just as significant as the business itself on the management's agenda: the balance between partners, between the joint venture and the local government, and between the joint venture and its employees. As seen from this study, "negotiation" and "human skill" have been the common attributes of success to maintain that balance. They are often the prescribed cure to the morbidity in the progressing PRC market.

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