sino-foreign joint ventures: contemporary developments and historical perspective

SINO-FOREIGN JOINT VENTURES: CONTEMPORARY DEVELOPMENTS AND HISTORICAL PERSPECTIVE

David G. Brown

INTROD UCTION

The inauguration of China's "open door" (rnenhu kaifang) policy after nearly two decades of economic isolation has opened a new chapter in the history of foreign interaction with China. This change has engen- dered tremendous interest in foreign investment in China and led to a blossoming of many forms of Sino-foreign economic cooperation. Shared equity joint ventures have received particular emphasis and are taken here as archetypical of these contemporary cooperative arrangements. This paper presents a brief review of their genesis and continued evolution in post-Mao China and of their likely future significance.

In order to better understand those recent developments, it is useful to view them within the context of past patterns of Sino-foreign commercial cooperation. The sudden development of joint venture arrangements may appear similar to Sun Wukong's birth by bursting forth from a boulder; however, it may be traced to much more natural ancestry. Consideration of the historical experience yields a valuable perspective from which to view the current situation: many of the same elements affecting Sino-foreign cooperation in the 19th and early 20th centuries and even much earlier appear significant today.

CONTEMPORARY DEVELOPMENTS

With the fall of the Gang of Four in October 1976, the Chinese retreat into economic autarky was dramatically reversed under the re- newed influence of Deng Xiaoping. Placing increased emphasis on the importance of foreign trade for modernization, Deng released the Chi- nese economy from the fetters of the previous "self-reliance" policy, allowing both long-term loans and increased foreign influence in the preparation of exports. This latter quickly developed into full-fledged compensation trade. In the quest for capital and expertise to fuel the modernization process, foreign equity participation in joint ventures was authorized, and development was begun of a new legal framework to

DAVID G. BROWN is a physicist with the U.S. Public Health Service. Over the past ten years he has been an occasional contributor on the subject of Far Eastern Affairs to Asian Survey and the Far Eastern Economic Review.

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attract and control a greatly expanded flow of foreign investment. Visions of a new Great Leap Forward, based this time on foreign technology, soon had to be abandoned; however, during the time of re- trenchment which has extended to the present, emphasis has continued on the desirability of utilizing foreign skills and capital through the joint-venture mechanism.

Precursors to this period are found in the years immediately pre- ceding. From 1971 to 1975 under Premier Zhou Enlai's direction, steps to modernize the economy were undertaken, including a significant expansion of foreign trade. The concept of the four modernizations, for example, found expression in Zhou's report to the fourth National Party Congress:

. . . . accomplish the comprehensive modernization of agriculture, industry, national defense, and science and technology before the end of the century so that our national economy will be advancing in the front ranks of the world. 1

Foreign trade policy shifted "from what might be generally described [as] a strategy of minimization of imports to what appeared to be a strategy of minimizing reliance on foreign credits."2 The effect on trade volume was dramatic, and the Chinese even began to accept "medium- term loans under the rubric of 'deferred p a y m e n t s ' . . . , so that in 1974 and 1975 the Chinese accumulated a foreign trade deficit of about U.S. $1 billion.'3 Deng Xiaoping was the most outspoken advocate of the new trade liberalization policy, going so far as to advocate compensation trade arrangements for the development of the nation's natural resources:

We may consider importing foreign technical equipment for coal mining. We may sign long-term contracts with them and pay in coal. This does not mean external borrowing. 4

For these heretical convictions he was branded purveyor of a "slavish comprador philosophy," and in April 1976, shortly after the death of his mentor Zhou Enlai, he was stripped of his government office. 5

The death of Mao Zedong in September and the fall of the Gang of Four a month later ushered in a new period of political consolidation behind the modernization effort as it had been expressed by Zhou and developed by Deng. Although Deng himself was not officially rehabil- itated until July 1977, the rectitude of his ideas and his own personal authority were accepted considerably before that. He has succeeded in placing men of similar persuasion in most major positions of power and in putting into operation the plans which he had begun to develop in the early 1970's. In the economic arena this has meant an unheralded expansion in Sino-foreign commercial relations. Chinese importers expanded their contribution to China's development through the acquisition of foreign technology, and Chinese exporters developed a new sensitivity to the desires of foreign customers. In 1978 compensation trade arrange-

S1NO-FOREIGN JOINT VENTURES 27

ments (the payment for capital goods with the product which they are used to produce) became accepted, and in the following year joint- venture regulations were promulgated. These moves were openly ac- knowledged by the Chinese as a break with past policy:

We have made great changes in our trade practices and adopted various flexible policies. Not long ago we still had two important 'forbidden zones' in our dealings with other countries. One, we would not accept government-to-government loans. We would accept only commercial loans between banks. Two, we would not consider foreign investments. Recently we have decided to break down these 'forbidden zones.' By and large we now accept all the common practices known to world trade. ~

Many new types of Sino-foreign commercial arrangements have come into "being since 1978, and prospects appear good for their continued expansion. Premier Zhao Ziyang was very explicit in his presentation at the Fifth National People 's Congress in December 1981 of the importance of these ties. In the seventh of his ten major points, entitled "'Persist in an open-door policy and enhance our capacity for self-reliant action," he set forth the following principles:

Bv linking our country with the world market, expanding foreign trade, importing advanced technology, utilizing foreign capital and entering into different forms of international economic and technolgoical cooperation, we can use our strong points to make up for our weak points through international exchange on the basis of equality and mutual benefit. Far from impairing our capacity for self-reliant action, this will only serve to enhance it. In economic work, we must abandon once for all the ideal of self-sufficiency, which is a characteristic of the natural economy. All ideas and actions based on keeping our door closed to the outside world and sticking to conventions are wrong . . . .

Ours is a sovereign socialist state. In accordance with the principle of equality and mutual benefit foreigners are welcome to invest in China and launch joint ventures in opening up mines and running factories or other undertakings, but they must respect China's sovereignty and abide by her laws, policies, and decrees]

Thus, a self-confident China has opened her doors to the international community, in the expectation of profiting from the resulting inflow of technology and foreign capi ta l--foreign investment in China amounting to more than $1.2 billion in 1981. 8

As ment ioned above, the first evidence of China's "open door" was provided by changes in her trade policies. Early in the contemporary period importers of Chinese goods experienced a new sensitivity to their needs. Ashbrook, for example, noted "the great attention now being given foreign buyers ' requirements for particular labeling and pack- aging. ''9 As a more concrete example, Terrill noted that the Chinese would "now allow foreign buyers to have a label put on goods - - alongside the Chinese label--s ta t ing that the article was 'made in China

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exclusively for X.' ,,10 Later, experimentation began with various types of cooperative arrangement between trading partners. In particular, compensation trade came into prominence in 1978, and, with related developments from the trade process, has continued to play an important role in Sino-foreign economic relations. It has become increasingly difficult, in fact, to distinguish between compensation trade and joint-venture arrangements, as the former have often been viewed as a means toward development of the latter, or alternatively as a means for functioning as a joint venture without going through a lengthy bureaucratic procedure. The obvious distinction separating compensation trade from joint- venture status, namely the lack of equity participation by the foreign firm in a Sino-foreign entity, is less clear-cut than might seem to be the case at first sight, because in fact in compensation trade arrangements, the foreign enterprise exercises considerable influence over the operation of the Chinese firm, and its "compensation" may depend directly on the profitability of that firm.

In August 1978 compensation trade arrangements received the official blessing of the Chinese government with the approval of a set of guidelines for their operation. There have been many statistics released on the magnitude of the resulting investment, most of which are unfortunately inconsistent. In April 1981 a Chinese spokesman stated that in 1980 agreements had been signed for "over 350 medium and small compensation trade undertakings," for which "the imported technical equipment totalled more than U.S. $100 million," and that in addition "the technical equipment imported for three big items totaled more than U.S. $87 million, ''1~ The previous month, however, the head of the Foreign Investment Bureau had stated that "there were 5,400 compensation trade contracts signed in 1980, involving foreigners providing equipment valued at $112 million. "~: The latter is more in line with the report of a year earlier that "19 of China's provinces, cities and autonomous regions have signed more than 2,000 contracts [in 1978 and 1979] since compensation trade began in the second half of 1978. ''13 The dis- crepancy can be explained in terms of a distinction between compensation trade and processing arrangements, (for which raw materials rather than capital goods are supplied by the foreign firm), with the latter figures, but not the first, including both of these forms of trade. For the year 1981 a recently released report reveals that compensation trade "dropped somewhat" and that "China earned $180 million through processing arrangements, 60% more than in 1980. ' '~ Finally, Markscheid quotes data provided by the director of the Compensation Trade De- partment of the Foreign Investment Control Commission (FICC) as follows:

In the last three years, Chinese organizations have entered into more than 6,000 processing agreements with a total contract value of $700-$800 million . . . . These deals have already generated $200 million in foreign exchange earnings . . . . and in the same period more than 400 compensation trade contracts have been signed worth some $300 million. 15


Thus, compensation trade has assumed a significant role in the overall picture of China's foreign trade activities.

In March 1978 the first processing agreement was signed and five months later the first true compensation trade agreement. These were "'a watch assembly agreement between a Hong Kong merchant and a Shan- tou watch factory'" and a factory for the production of "'cashmere. an- gora. and iambs" wool.'" respectively, i6 Examples of other compensation arrangements are a Japanese loan agreement for the reclamation of virgin land to be paid back in soybeans produced on the reclaimed land and another for the processing of about "'60.000 carats of diamond articles a year'" initialled between the Chinese and a German company- - its compensation-trade status being maintained by' the fact that not only the diamonds but also the processing equipment are being supplied by the German company. 1" Even such an American institution as Avon Products has entered the arena, providing its cosmetics technology in return for part of the output of factories to be set up in China. 1~ An example of a coproduction agreement, under which each party produces components of a final product, is the agreement bet~'een the Chinese and an Italian firm for the production of centrifugal compressors. A Wall Street Journal article described it in the following terms:

China will begin by being responsible for making about 10% of the centrifugal compressor parts, with the remaining 90% being made in Italy. This ratio will gradually switch until, at the expiration of the 10-year contract. China will be able to produce centrifugal compressors completely on its own. ~

This agreement was a follow-up to an earlier (1976) licensing agreement. and to a trade relationship which saw the Chinese import $50 million in compressors from the Italian company. Other coproduction agreements include one between McDonnell Douglas for the Chinese to supply doors for its DC9 jets and another for components of oil rigs. Well notes that "'in these cases the Chinese are treated much like company subcontractors." ":~'

Two other compensation trade arrangements may be cited as being particularly noteworthy. One of these is a recent agreement between Nike, Inc.. the American athletic shoe manufacturer, and the China Light Industrial Products Import and Export Corporation (Light Indus- try). :~ Nike is to provide technical expertise, machinery, and even six full-time experts for quality assurance duties and is to buy the entire output of the factories involved. Initially the production will be on a quite modest scale with imported equipment costing just $75,000: however, eventual plans call for China to produce "fully one-fourth of its [Nike's] total world output by the mid-1980"s.'" Nike has assiduously courted the Chinese, demonstrating friendship, for example, by equip- ping the Chinese basketball teams and sponsoring runners in Beijing's first International Marathon in September 1981. The Chinese for their part have shown considerable flexibility, for example, in not objecting to


machinery arriving with "Made in Taiwan, Republic of China" labels on it. The second notable compensation trade agreement is also the largest one to date--"a $110 million deal to build a container manufacturing plant and purchase its output as compensation. ''22 For this agreement Container Transport International will set up a production facility near Hong Kong in return for a reduced price for five years on the output of the factory. The total package should result in a captive market/source of supply for the first 50,000 containers produced by the factory and give China a major boost in container production.

Many aspects of China's trade have been conducive to the development of these compensation trade arrangements. For its modernization drive, China obviously needs the capital equipment and technology that are the starting point for compensation trade. Further, it does not have the foreign exchange position or export industries to pay for all of the capital goods it desires. Thus, it is natural to explore innovative types of commercial relationships such as compensation trade in order to obtain them. Furthermore, for some time it has been involved in the bilateral trade deals strongly reminiscent of barter trade which characterize the trade relationships between Communist countries. Compensation trade is the analogous type of trade with the West. For Chinese ideological reasons, as discussed before, this trade was slower to develop than it has been for other Communist nations; however, it is now being pursued vigorously.

The motivation of a Western firm for entering a compensation-trade transaction may be that the firm is anxious to enter the Chinese market and is willing to put up with the counter-deliveries involved if required. That is not necessarily the case, however, as there may be a much more positive motivation. Examples of such motivation are the desire for (assured) sources of raw materials, requirement for an export processing facility, or intention to use the compensation trade transaction as the prelude to a joint venture or other more intimate relationship.

The role of Japanese companies in the coal trade is illustrative of the first type of motivation. Japan has worked assiduously to garner additional supplies of coal, and therefore it has been eager (on a government- to-government basis) to negotiate agreements for participation in pro- grams for development of Chinese coal mines in return for the coal to be produced by those mines. 23 Millie's Handbags of Hong Kong offers the premier example of the latter types of motivation. In the Special Eco- nomic Zone (SEZ) adjoining its Hong Kong base (described below) it "has helped set up compensation trade enterprises in the assembly of shoe uppers, flannel shirts, and work clothes.'24 Such economic incen- tives as duty-free import of raw materials, tax holidays, ease of access to Hong Kong yet lower taxes and labor rates, and overall costs of production about ten percent less than in Hong Kong make compensation/ processing arrangements very attractive. Finally, Millie's has further developed these commercial relationships with a view toward formation of joint-venture arrangements and a role in the development of the SEZ's.

SINO-FOREIGN JOINT VENTURES 31

The major defects of compensation trade arrangements for the Western firm are fairly obvious, The inexperience of both sides to the transaction may well doom the counter-delivery portion to failure. Very few Western firms manufacturing capital equipment have marketing arms set up to sell resultant goods easily, although many are beginning to develop this capability. 25 In addition, the Chinese firm may well lack the experience necessary to utilize the capital equipment effectively, and its lack of sufficient quality control may result in the production of shoddy and hence unprofitable goods. This problem has been expressed as follows: "Design and durability rank as the top two concerns of any company marketing goods under its own name, and until recently the Chinese often balked at the idea of foreigners overseeing their work. ''26 As was noted in the Nike example, however, the Chinese are now beginning to welcome foreign assistance in quality assurance just as with other measures for modernization assistance.

Apart from the above general considerations, there are important regional considerations behind the blossoming of compensation trade/ processing arrangements. Most of them have been relatively small scale and consummated by the local authorities. Further, most of them have involved overseas or Hong Kong Chinese. As Markscheid has noted:

Most of the growth in processing and compensation trade has taken place in south China. Indeed, 70 percent of all such deals are between Hong Kong companies and enterprises in Guangdong Province . . . . In fact, most compensation trade arrangements involve a Chinese supplier and long-time Hong Kong customer who understands the manufacturer's situation and needs. 27

Thus, much of this activity has developed naturally from longstanding Chinese business and family contacts of the southern (especially Guang- dong) Chinese. Certainly, other more properly foreign "foreign" parties are increasingly coming into play, as with the Nike agreement; however, the initial developments have been spearheaded by the overseas Chinese.

The return of close foreign commercial relations with China began with processing and compensation-trade arrangements but soon spread to more direct forms of investment as well. In early 1979 two pre- Cultural Revolution mechanisms for channelling overseas investment into China, the Guangdong and Fujian Investment Companies, were reestablished, "preparation work" for the Guangdong Company in fact being "carried out in the same office that housed its predecessor. ''2s Its stodgy terms (more like fixed term/rate bonds) were quickly overtaken by events, however. At the same time work was going on in development of joint-venture regulations, and these were promulgated in July 1979. 29 A great deal of interest was aroused by the new regulations; however, foreign businessmen were generally unwilling to commit themselves in view of the lack of a supporting legal structure and tax regulations, and the Chinese themselves moved very slowly in implementing the regulations. Thus, in the first year after the joint venture law went into effect,


only six ventures had been approved by China's Foreign Investment Control Commission (FICC). 3~

Partly, at least, in response to the slow pace of approval of joint- venture proposals, new mechanisms were developed for funneling foreign investment into joint Sino-foreign enterprises. To understand these the distinction should be made among three forms of joint venture. First, there are equity joint ventures in which both the Chinese and foreign entities "provide capital and management and share risks as well as profits and losses. ''31 A second variety is a cooperative enterprise or "contractural joint venture." For these ventures normally "the foreign firms provide funds and equipment, while the Chinese side is responsible for land, factory premises, labour and management." Furthermore, "the two parties share the profits at an agreed ratio and all assets go to the Chinese side when the contract expires." Thus, this arrangement is very similar to compensation trade, except that the foreign partners do not receive a set amount of the production but instead receive-a set proportion of the profit of the enterprise. Finally there have been several major agreements for "joint exploration" for offshore oil.

Gradual progress has been made in attracting foreign investment through the above mechanisms. In early 1981 it was announced that 20 equity joint ventures had been approved in 1980 with a total investment of over U.S. $210 million, U.S. $170 million of that coming from foreign investments. In addition, more than 300 cooperative enterprises had been approved:

The projects draw upon foreign investment and totalling about U.S. $500 million, mainly supplied by Xianggang [Hong Kong] and Aomen [Macao] compatriots and overseas Chinese. These enterprises are located, for the most part, in the Guangdong and Fujian areas. 32

With regard to the cooperative oil exploration, the same source states that investments are "jointly made" and that "when commercial production begins, apart from operational fees, a certain proportion of the output will be set aside for China; the remainder will go for repaying both parties' investments plus interest and a certain profit for the foreign companies.'33 These agreements are quite substantial, already involving $500 million in foreign investment and $300 million from the Chinese government. To round out the picture, 33 other joint ventures were formed outside of China with foreign investment of $44.4 million and Chinese investment of $38.4 millionfl Totals for 1981 are available for most of these categories. The FICC announced that 127 additional "cooperative production projects were approved in 1981, mainly in the four special economic zones in the South," and that "these projects involved foreign investment of $1.2 billion. ''35 A much less impressive showing was made in the joint venture area, with just 19 more joint ventures being approved, involving only $20 million of foreign investments. In summing up the investment picture up through 1981, the above-quoted Wall Street Journal article states:

S1NO-FORE1GN JOINT VENTURES 33

After two years of the new policy of permitting foreign investment, China has received about $1.7 billion, including both joint ventures and cooperative production projects. Significantly, $1 billion of that was in- vested in the Shenzhen special economic zone bordering Hong Kong, an indication of the relative success of that experiment, which absorbed more capital than the rest of the country combined.

In comparison with the nation's over $40 billion in trade, this may not seem particularly large; however, it should be noted that, in terms of foreign investment in even advanced industrial nations, it is substantial. Foreign investment in the United States, for example, in 1979 and 1980 was $4.9 and $6.4 billion respectively. 36

One of the more intriguing aspects of the joint-venture scene is the number of Sino-foreign joint ventures organized outside of China. There appear, in fact, to be more joint ventures outside of China than within. As of June 1981 there were some 50 established abroad vis-a-vis 28 approved within Chinafl 7 A Chinese domestic radio broadcast last year made the following assertion:

These joint enterprises are in more than 20 countries, including, Japan, the United States, Kuwait, West Germany and Belgium, and in Hong Kong and Macao. They deal with marketing, processing, and designing of products, banking and insurance, restaurant services, construction engineering, labor cooperation, and technical consultation. 38

Most of these are rather modest undertakings, but their extent is in itself of interest. One early example was an agreement to establish a Chinese restaurant in New York City. The Sichuan Provincial Vegetable Food Service Corporation was to "provide the chefs" for the new venture to be named Shu-Mei.39 Another typical example is the Kuwait-Beijing Trading Center, basically a Sino-Kuwaiti marketing organization for Chinese goods in Kuwait, 4~ inaugurated in September of 198t. A number of similar marketing organizations have been set up in other countries as well.

The thriving activity in contract ventures is a natural extension of compensation trade arrangements. One interesting example is the "In- ternational Club" of Guangzhou's Dong Fang Hotel. Intended for foreigners only, the club installed 104 slot machines (since removed) in December 1981 and "started renting rooms for playing poker and mah- jongg. ''41 A Hong Kong firm. Lucky Horse Co., receives 40% of the club's profit for a five-year period in return for $1.7 million in capital. For the hotel this has meant permission to keep half of its foreign exchange earnings and increased control over its staff--including the ability to pay bonuses, so that when "the hotel advertised for new em- ployees, some 50,000 candidates showed up."

A more usual area for this form of investment is in property development. The Chinese typically provide land and labor and the foreign firm provides the necessary capital; in return, the foreign firm receives some percentage of the profits. Formerly this would be on the order of


30%; however, the present weakness in the housing market has pushed the figure up to 50% .42 The market for this housing consists primarily of Hong Kong and overseas Chinese, who can buy either for themselves or for relatives still in China. Guangdong has been particularly active; "with some 60% of Hong Kong's population having been immigrants, mainly from Guangdong, their ties to mainland relatives are particularly strong," or as one "local analyst" is quoted as saying:

Keeping up with the Wongs has become a marked phenomenon in China now. When one family sees that its neighbor is getting a new home from a Hong Kong relative, it immediately writes to its own Hong Kong relatives to ask for the same thing, a3

The "euphor ia" of Hong Kong developers over this opportunity has reportedly led to a "glut of developments for sale."44 Therefore the pace of Sino-foreign activity in this area may be slower for a while.

One area which deserves special mention is off-shore oil development. China has already negotiated agreements involving half a billion dollars in investment in preliminary exploration activity. In Febru- ary 1982 regulations were issued to cover the rest of what will amount to a very ambitious development program, and "bidding notifications are being sent to 46 companies in 12 countries. ''45 The development is to be carried out as a joint-venture arrangement, although there is some ambiguity on this point in the petroleum exploitation law:

CNOOC shall exploit offshore petroleum resources in cooperation with foreign enterprises by entering into petroleum contracts. Unless otherwise specified by the Ministry of Petroleum Industry or in the petroleum contract, the foreign enterprise that is one party to the contract (hereinafter 'foreign contractor') shall provide exploration investment, undertake exploration operations and bear all exploration risks. After a commercial oil and/or gas field is discovered, both the foreign contractor and CNOOC shall make investment in the cooperative development. The foreign contractor shall be responsible for the development and production operations until CNOOC takes over the production operations when conditions permit under the petroleum contract. The foreign contractor may recover its investment and expenses and receive remuneration out of the petroleum produced according to the provisions of the petroleum contract. 46

The size of this effort can be seen from "estimates by bankers" of total costs of $10 billion to $20 billion. This will probably dominate the joint- venture statistics for the next decade. In addition, joint-venture agreements are being set up by the Chinese to participate in other aspects of the petroleum exploitation program. For example, " they have concluded a ten-year joint venture agreement with one U.S. oil service company to provide some of the services needed by the international oil companies."47

The same general considerations which were described in the previous section as making compensation trade attractive to the Chinese

SINO-FORE1GN JOINT VENTURES 35

also argue in favor of joint ventures. Capital equipment and new technology can be acquired without using scarce foreign exchange, and even more than in compensation-trade arrangements, the participation of the foreign partner is obtained in ensuring that the new technology will be successfully absorbed by the Chinese. Recent Chinese views as reported in the Hong Kong press clearly state Chinese objectives for the formation of joint ventures:

First, it is necessary to pay attention to the choice of projects. The objective and emphasis of the joint ventures should be placed on the import of advanced technology and management experience. Their second objective is to make good the shortage of funds for China's internal construction, fill in the gaps, open up overseas markets and produce new generations of products. At the same time, joint ventures should concentrate on developing exports in order to strike a balance in foreign exchange and open up international markets. 48

Finally, the closeness of the joint-venture relationship makes it "prefer- able to, say, direct borrowing to raise capital because of the indirect injection of foreign expertise in areas such as quality control and management structure. ''49 These aspects form a consistent theme among Chinese comments on the rationale behind the joint venture program.

Why then has progress in forming joint ventures been so slow? The Chinese have been slow in granting approvals and have seemed to feel the need to gain further experience. The joint venture law itself is both brief and ambiguous on many key points, and only recently have some of the required additional regulations, e.g., tax laws, been promulgated. The foreign attitude has thus been somewhat skeptical. As a 1980 Wall Street Journal article noted: "Many foreign business e x e c u t i v e s . . . don't want to be part of an experiment, despite Chinese assurances that their interests will be protected. ''5~ This is one of the reasons for the relative success of the overseas Chinese, and for the relative prevalence of the cooperative production agreements. Notes one Hong Kong entrepreneur: "My contracts with the Chinese are one page long.The Americans, in wanting to nail everything down in a contract, ask questions even the Chinese themselves don' t know the answers to. ''51

Many problem areas remain in working on acceptable joint-venture arrangements, many caused by lack of bureaucratic cooperation, others by defects in China's infrastructure, and still others by a number of deeply held convictions or other facets of the Chinese economy. Thus, for example, in an elevator venture with Schindler (Switzerland), there were problems in obtaining the approval of the Bank of China, after the original three parties had come to "final" agreement; 52 and for a hotel construction joint venture (Great Wall Hotel) , the realization that the hotel with its 1000 rooms would "need at least that number of tele- phones" caused great difficulties. 53 Also, since the Chinese partner is a Chinese government entity, it has proved difficult to have it agree with the foreign attitude of trying to "arrange matters so that the venture would be liable for as little tax as possible. ''54 Other problems have


included inadequate management prerogatives (such as the right to dis- charge workers) and low labor productivity. Motivation of supervisory personnel is a key area, especially because they are paid no more than workers, are accustomed to having little real authority, and are production-target oriented. Progress seems to be being made in all of these areas, and the Chinese are demonstrating considerable flexibility in negotiating the terms of individual joint-venture agreements. The prognosis appears good for increased joint-venture activity as both Chi- nese officials and foreign investors become increasingly aware of potential stumbling blocks and ways to avoid them.

Since 1979 a great number of institutional changes have been made to facilitate foreign investment including the promulgation of the joint- venture law itself in July 1979 and a series of regulatory actions since that time. In addition, there have been such innovations as creation of special government organizations to promote joint-venture activity, formation of SEZ's, and granting of considerable autonomy to provinces and mu- nicipalities to arrange for Sino-foreign transactions without central- government approval. The depth and range of Chinese government activity in this process has been very impressive, especially in view of the last several decades of quiescence.

The joint venture law was adopted by the Fifth National People's Congress on July 1, 1979. 55 The law states its purpose to be to foster "expanding international economic co-operation and technological exchange" by permitting "foreign companies . . . to incorporate themselves within the territory of the People's Republic of China, into joint ventures with Chinese companies." The Chinese government pledges itself to protect the foreign investment and states how a joint venture may be formed. Conditions include that "the proportion of the investment contributed by the foreign participant(s) shall in general not be less than 25%," that "the profits, risks, and losses of a joint venture shall be shared by the parties to the joint venture in proportion to their contributions to the registered capital," and be managed by a board of directors with the chairman appointed by the Chinese. The law further specifies that "the technology or equipment contributed by any foreign participant shall be truly advanced and appropriate to China's needs," and that the "joint venture is encouraged to market its products outside of China." Thus, the fundamental motivations of technology transfer and foreign exchange generation are emphasized.

The law was greeted with applause moderated by some concern over its ambiguities, such as reference to income tax laws which had yet to be promulgated. Japanese business interests, for example, raised a detailed series of "requests for changes and clarification" to twelve of the fifteen articles of the law. 56 Many of these questions have been resolved by FICC statements and a series of subsequent regulations. Thus, there has been considerable activity in forming the legal structure within which the foreign enterprise must function in China. Other laws, such as a patent law, are still awaited, however; the structure remains far from complete. 57


Another important aspect is the on-going development of the whole Chinese legal system; the laws relating to foreign firms are only a small part of a basic reexamination and restructuring. One area of particular significance to U.S. business, for example, "is the swift establishment of more than 1,000 economic courts since mid-1980. ''58 Another area of far-reaching importance is the development of the nation's civil code "which will lay down Chinese property law and other principles of rele- vance to foreign business" and whose "formal promulgation . . . is likely to come soon. ''~9

Some of the institutional changes which have been made to increase Sino-foreign economic cooperation have already been mentioned, such as the formation of an agency to oversee petroleum exploitation, and of the FICC itself, founded just a month after promulgation of the joint- venture law. Another example is the China International Trust and Investment Corporation (CITIC), which was founded in October 1980. It has been described as a "state-owned socialist enterprise directly under the State Council," whose "main function is to absorb foreign investment and import advanced technology and equipment to expedite China's economic development.'6~ Its chairman, Rong Yiren, a former Shanghai capitalist, has served as a primary government spokesman in promoting the formation of joint ventures. A major restructuring of the organization of the Chinese government is underway. It will be of considerable interest to see how this bureaucratic streamlining affects the activities of those offices and ministries dealing with foreign enterprises.

One of the most fascinating aspects of China's "open door" policy has been the development of special local investment areas. George Lauriat used the term "economic Darwinism" in describing the experimentation in economic forms which the Chinese have been trying, "survival . . . being determined by the ability to adapt and to deal with foreign investment--a variation that will push many provinces and cor- porations into intense competition.'61 The best known examples are the four SEZ's, three in Guangdong Province and one in Fujian; however, other forms are also in place or under consideration, and some of the competition which Lauriat predicted is indeed arising.

The four SEZ's in operation are located in the cities of Shenzhen adjoining Hong Kong's New Territories, Zhuhai near Macao, Shantou in northern Guangdong Province, and Xiamen in Fujian Province. The zones are similar to "free trade" or "export-processing" zones in which Sino-foreign (and even completely foreign) ventures can be established. Special concessions are granted, such as lower rates of taxation and preferential customs treatment, and the goods produced in the zones are intended for export rather than Chinese domestic consumption. Xu Dixin, Vice-President of the Chinese Academy of Social Sciences and Director of its Institute of Economics, noted in a discussion of these zones that "approximately 300 special economic zones have been established in about 75 countries and regions in the world. ''62 In addition to the obvious gains from introduction of new technology, etc., he empha- sizes their function in promoting "competition between regions, be-


tween trades, and within a certain trade," and states that the country's special zones "can serve as experimental units in economic structural reform and as schools for learning the law of value and the regulation of production according to market demands."

The zones, especially Shenzhen, have shown great promise. A recent report declared that in Shenzhen alone, since August 1980, 610 foreign projects have been initiated, but with "hotel and property development s c h e m e s . . , accounting for 60% of all projects. 63 Problem areas such as poor quality labor, poor infrastructure, and vagueness of the zone's regulations were cited by the same source as principal draw- backs of the Shenzhen zone; however, thanks to the interest of Hong Kong and overseas Chinese businessmen, the zone continues to be quite successful.

The SEZ's are not the only locations which offer special induce- ments to foreign investment. Recently, for example, Guangdong announced the decision to develop Hainan Island with "preferential treatment of the sort awarded in special economic z o n e s . . . [being] given to overseas investors building factories there and those pursuing joint ventures with China."64 In a similar vein, a special economic area (SEA) is being considered for the Shanghai area. The rationale behind this move would be "to streamline foreign trade and investment activities by con- centrating offices and facilities, and to ease administrative and other problems which might be created by a burgeoning community of foreign businessmen.'65

In seeking to develop a successful developmental strategy, from the results of initiatives to date, the Chinese have begun to particularly encourage development of the coastal provinces. Premier Zhao in De- cember 1981 declared: "We must make full use of the coastal areas, and especially the coastal cities. ''66 Furthermore, the State Council is reported to be working on plans "which will give new autonomy to 11 provinces, cities or autonomous regions: Guangdong, Fujian, Shanghai, Tianjin, Peking, Liaoning, Hebei, Shandong, Jiangsu, Zhejiang and Guangxi."67 It has been realized that because of relative differences in infrastructure development, availability of industrial facilities and skilled workers, and pre-existing contacts with foreign businessmen, the coastal areas have the greatest potential at least over the near term for Sino- foreign commercial development.

THE HISTORICAL EXPERIENCE

The contemporary period is not unique for the development of close Sino-foreign economic ties; Chinese commercial relations with the outside world have a tong and colorful history. By the fifth century B.C. a tenuous trade route, the "Scythian Trail," connected the Chinese War- ring States with Europe, and in the first and second centuries A.D. a thriving overland commerce was taking place all the way through to the Roman Empire. 68 In fact, Rome "had to export so much gold in payment for Asian wares that Tiberius (A.D. 14-37) tried to restrain his subjects


from wearing silk.'69 The "Silk Road" was also particularly active during the Tang and Yuan Dynasties. Changan, the Tang western capital, "became 'a great cosmopolitan centre where Syrians, Arabs, Persians, Tar- tars, Tibetans, Koreans, Japanese, and Tonkinese and other peoples of widely divergent races and faiths lived side by side.' ,70

Similarly, sea trade came to play an important role in China's foreign commerce under the Han, and while "Chinese mariners do not appear to have ventured on the high seas before the fourth century A.D., Indian s h i p s . . , began sailing to South China in the first century A.D., and a few may have reached it earlier. ''71 The Arabs later played a major role in this trade, between the sixth and seventh centuries reaching Southeast Asia, and in the eighth century "Arab traders began to visit Chinese, ports more and more frequently and to found set- tlements there. 72 One indication of the extent of these commercial relations can be seen by the report that "many thousands of foreigners were massacred," in Guangzhou (Canton) in A.D. 879 "by rebel forces under Huang C h ' a o . ''73

The intimacy of Sino-foreign commercial relations in pre-Ming Dy- nasty China is hard to gauge. Certainly there were extensive trade contacts, both from the caravan routes to the West and maritime commerce along the coast, and great numbers of foreign merchants resided at one time or another on the seacoast or in border trading cities. Trade-related cooperation amounting to joint venture activities probably came into being, but its extent is purely speculative. Certainly the environment in which they would have operated was quite forbidding. The Chinese attitude from very early times, however, was marked by a feeling of superiority over foreign "barbarians" and official indifference to the benefits derived from commercial relations with them. By means of tying trade relations to the artificial framework of the tribute system and by extensive regulation, China sought to sanitize and milk her foreign commerce.

In comparison with a generally thriving external commerce during the Tang, Song, and Yuan Dynasties, commercial initiatives of the remaining two imperial dynasties appear rather pallid and disappointing. In the early years of the Ming Dynasty (1368-1644 A.D.) there were very auspicious developments, including the unprecedented expeditions of the palace eunuch Zheng He. The Ming Court turned against these ventures, however, and Needham states that even the records of these voyages "were burnt and destroyed by administrative thugs in the service of the Confucian anti-maritime party. ''74 China turned increasingly in- ward, reserving most of her attention for the northern frontier, the traditional source of threats to dynastic continuity. Chinese were prohibited from going out to sea to trade, and "by + 1500 regulations were in force which made it a capital offence to build a seagoing junk with more than two masts.'75 Later, in response to Japanese piracy, the Ming prohibited sea trade altogether. 76

The initial contacts of European nations with China thus came against a background of Japanese piracy and Ming disdain for foreign


commerce. The first Westerners to establish contact were the Portuguese who arrived in 1513, only sixteen years after da Gama sailed around the Cape of Good Hope to India and five years after taking the great en- trep6t of Malacca (a Chinese tributary state). 77 The Portuguese and the other Western powers were successfully fitted into China's historical border trade pattern, with the Russians limited to a few points in the North and the others confined to Guangzhou.

Under these conditions Sino-foreign commercial relations developed within a framework of severe government-imposed and merchant- guild-supported regulations. However, the very severity of government control and the rapacity of the exactions of government officials drove the merchants into a closer relationship with the foreigners than the foregoing would imply. The trading relationship of the Co-hong and Western traders at Guangzhou bore many characteristics of implicit cooperation for mutual benefit, but this remained a trading relationship, of interest here primarily as a precursor of the comprador relationship which later developed.

After the Treaty of Nanking ended the first Opium War in 1842, the traditional patterns were considerably altered, and the first well docu- mented Sino-foreign joint-venture activity developed. In the treaty-port culture, removed for the first time from close government supervision and control, close Sino-foreign business relationships developed. The comprador relationship which evolved from the Co-hong security- merchant system itself bore many of the attributes of a joint venture, as will be discussed further below. Joint-account shipping was a second less pervasive but more easily categorized type of joint commercial activity. Lacking a distinct and durable business entity, it cannot, however, be counted directly as a joint venture. A third candidate is provided by the joint stock companies which began during this period. At least some of these appear to have satisfied even the strictest requirements for a bona fide joint venture. A shipping company such as one formed by Russell and Company in 1862 had a sizeable (roughly one-third) Chinese equity position and Chinese members on the board of directors. 78 Hao sums up the situation toward the end of this period with the following description:

By the late 1890's, roughly 40 percent of the paid-up stock of Western firms in shipping, cotton spinning, and banking was held by Chinese investors, who occupied seats on the boards of directors of 18 firms during the sixties, 27 firms during the seventies, 21 during the eighties, and 64 during the nineties. By late 1894 Chinese investors shared managerial responsibilities in three-fifths of the foreign firms, in which they had in- vested about 400 million taels. And a great number of these investors were compradors. 79

That is indeed an impressive picture of Sino-foreign economic cooperation in the life of treaty-port China. During this period, however, even in the firms in which Chinese investors were heavily involved, much if not all of the management was provided by the Western merchant houses which typically initiated the ventures.


The comprador relationship merits further comment. A straight- forward determination of the comprador's status would yield the result that he was simply an employee of a completely Western firm. He was remunerated primarily on commission, not by a share of the profit of the firm; he held no equity in the firm; and he was subservient to the orders of his foreign employers; and yet it is certainly tempting to call many of the early foreign firms joint ventures between their foreign partners and Chinese comprador(s). As manager of a Chinese firm within the firm, as independent merchant in his own right, as supplier of funds and joint- account shipper for the firm, as the factotum who, in arranging the affairs of the firm, insured part of the operations of the firm and from some accounts may have profited as much as the foreign partners from the firm's operations, he was in essence if not by law a joint-venture partner in the firm. Of course the ambiguity of his position is intensified by the great diversity of particular comprador relationships. Further- more, by the end of the 19th century his position had become more and more that of an ordinary employee of the firm, as the Westerners became better acquainted with the Chinese commercial environment.

Another avenue for Sino-foreign cooperation was also explored during this time. This was cooperation with the Chinese government in government-sponsored projects. Little resulted from this effort until the final years of the 19th century; however, in a larger sense the whole of China was being run as a joint Sino-foreign enterprise. Fairbank writes provocatively of the Qing Manchu-Chinese "dyarchy" being trans- formed into a "Manchu-Chinese-Western 'synarchy'" in which "the Empress Dowager, Li Hung-chang, and Robert Hart formed a trinity in power. ''8~ That is to say, the Manchu rulers, Chinese officials, and foreign administrators and diplomats all worked together in the functioning of the dynasty in its final days. The Chinese Maritime Customs, of which Robert Hart served as Inspector General from 1863 to 1908, is the consummate example of Sino-foreign cooperation in this respect.

Following China's defeat by Japan in 1895, added impetus was given to the development of Sino-foreign joint ventures in the treaty ports by the provision of the Treaty of Shimonoseki permitting manufacturing to be carried on there by foreigners. Many joint ventures were formed between Chinese and foreign merchants in manufacturing and banking. The foreign commercial sector also contained a significant Chinese com- ponent, and many of the supposedly "Western" firms were in reality joint ventures in the strictest sense of the word, with substantial Chinese ownership and with Chinese representation on the boards of directors. Allen and Donnithorne note that:

Although foreigners had been quick to seize upon the fresh opportunities, they chose in most cases to associate Chinese investors and businessmen with the new enterprises, and in this respect the cotton industry became characteristic of large-scale manufacturing and mining industry in China during the new century. Thus, from the beginning, a substantial proportion of the shares in the Ewo mill [Jardine Matheson] were held by

42 J O U R N A L OF N O R T H E A S T A S I A N S T U D I E S

Chinese, and the company's board included both Chinese and British directors. 8I

This was especially true of the cotton yarn spinning and weaving sectors, but was true for other industries as well. For much of the foreign sector, however, Chinese equity participation was not matched by proportional participation in the management of the firm.

Another development was establishment of many large Sino-foreign mining organizations. Because the mines were outside of the treaty ports, Chinese cooperation was essential for them to be successful-- especially in overcoming the opposition of the government and the local population. By the turn of the century this was also necessitated by the force of legal regulation, as the mining laws came to be promulgated with the requirement that foreign ownership could not exceed a 50% share. Unfortunately, in most of these ventures Chinese management rights were largely ignored, so that they became joint ventures in law but not in practice. For most of them the following years brought either of two outcomes: the Sino-British concerns tended to become true joint ventures, with Chinese participating equally in the management of the firm, and the Sino-Japanese firms tended to become strictly subservient to Japanese interests.

This period also witnessed the first Sino-foreign joint ventures in which the government itself participated. This was the case for several Sino-foreign banks and for the Chinese Eastern Railroad (CER), a Sino-Russian joint venture. Here also, however, the Chinese government was not able to exercise its management rights, so from the Chi- nese point of view these were hardly satisfactory arrangements. Other relationships, including those with foreign banks, foreign advisors, and, preeminently, the Sino-foreign Maritime Customs, brought close cooperation between the government and the foreign community, but on the basis of Chinese weakness.

A new type of "foreign" partner emerged during this time: the overseas Chinese. The early attitude of the Ming and Qing Dynasties had been openly antagonistic, one of "Confucian revulsion against those individuals who dared to forsake family obligations in order to search for wealth in far-off corners of the earth." Both dynasties prohibited emi- gration, a Qing edict stating as follows:

Any official, subject or soldier who privately goes to sea to trade or emigrates to a foreign island for the purpose of cultivation shall be be- headed for communicating with rebels, and any prefectural or county official who conspires with them or who knows the fact and acts to conceal it shall likewise be delivered to the place of executionf 2

Up until early in the 20th century, returned overseas Chinese were apt to face harassment at the hands of local authorities; however, by that time the attitude of the Chinese government had shifted dramatically. An imperial edict in 1893 declared:


Henceforth all Chinese merchants irrespective of how long they have been abroad, whether married or with children, may return home to practice their trade upon receiving a pass from the Chinese minister or consul. If the situation requires it, they may go abroad again to carry out their business and must not as in the past be subjected to extortion. ~3

Missions were sent abroad to enlist the aid of the overseas Chinese, and bureaus were set up in Guangdong and Fujian for their protection (as most overseas Chinese traced their ancestry to one of these two provinces). The response was not overwhelming, but in addition to providing a substantial flow of remittances to relatives still in China, overseas Chinese came to play a significant role in China's struggling modernization effort, especially in Guangdong.

Under Republican China (1912 to 1948) the Chinese government took a much more assertive role in Sino-foreign commercial relations, but the Nationalists were hampered and finally overwhelmed by the struggle against the warlords, Japanese, and Communists. The government was involved in a number of highly satisfactory joint ventures, the best example of which being the China National Aviation Corporation, which was jointly owned and managed by the government and Pan American. Other joint ventures between government entities and foreigners included those with overseas Chinese, which came to play an increasingly important role.

The treaty port business community became increasingly a Sino- foreign blend, with the Chinese more and more assuming management as well as equity positions in the foreign firms.

By this time, however, the distinction between Chinese and Western concerns was less sharply drawn than formerly. During the twenties and thirties it became increasingly common for Chinese to be taken into part- nership, or to be appointed directors in foreign firms; while Chinese shareholding in companies technically alien also increased. ~

Thus, not only were there many explicitly Sino-foreign joint ventures; many of the "foreign" firms were technically and in practice Sino-foreign joint ventures. After reaching a peak in the 1920's, however, this activity waned as the Nationalists asserted control, and it was submerged by the Sino-Japanese and Civil Wars, never to recover.

The era of Communist China began with substantial Soviet cooperation in the development of the economy, but by the time of the Cultural Revolution witnessed a state of near autarky. Chen and Galenson ex- press in some detail the importance of Soviet economic assistance during this period:

The completed Soviet aid projects were the very core of the Chinese industrialization program. On an aggregate basis, the original 156 projects called for a combined Soviet and Chinese expenditure of 11 billion yuan, which together with an additional 1.8 billion yuan for the construction of ancillary projects, constituted 48 per cent of the total industrial investment planned for the First FYP. s5


During the first several years of the fifties Sino-Soviet joint ventures existed in Manchuria and in Xinjiang. a6 As joint stock companies with fifty-fifty division of both ownership share and management responsi- bility, they were bona fide joint ventures; however, the Chinese viewed them as imperialist relics and soon had them dismantled. After the Sino-Soviet split there was little Sino-foreign commercial activity beyond a relatively stagnant level of foreign trade. Through to the very end of the Cultural Revolution, however, two Sino-foreign shipping joint ventures, one with Tanzania and one with Poland, continued in existence, s7 Thus, for well over a hundred years prior to the beginning of the contemporary period there is an uninterrupted history of Sino-foreign joint- venture activity.

A final related theme, which is worrisome for the future of Sino- foreign joint-venture activity, is the shakiness of the ideological basis for this activity. On the ideological plane, it is commonplace that commerce was not perceived by the Confucians as vital and that merchants were viewed as being by nature "treacherous." Foreign commerce in particular was not considered important to China, but within the tribute system could be granted as a favor to the tributary state. In the 19th century, Sino-foreign economic relations were forced on the Chinese by the West- ern powers in a humiliating setting of economic and political imperialism. Political figures, including late-Qing statesmen, Sun Yat-sen, Chi- ang Kai-shek, and Mao Zedong, have overwhelmingly agreed in their condemnation of foreign economic penetration. Most of them were willing to countenance temporary and tightly controlled Sino-foreign economic ties, but only to help China to "catch-up" with the West or to use a standard phrase from a recent Chinese source, to "make foreign things serve China.'9~ With regard to Republican China, Coble noted in his book on the relationship between the Shanghai capitalists and the KMT how even when making use of the capitalists, the KMT continued the rhetoric of Sun against private capitalism, and by so doing, denying them political legitimacy. 91 Of course, the PRC is even more resolutely opposed to capitalism and has used justifications such as the following for its cooperation with foreign capitalists:

Allowing foreign or overseas Chinese capital to gain profits is, in a sense, a policy of redemption (that is, a policy of gradually nationalizing the means of production of the exploiting classes at a certain price).

Shortly after the founding of the People's Republic, the government adopted a redemption policy towards the national bourgeoisie in order to win its co-operation. Now we are employing a redemption policy to win the co-operation of foreign and overseas Chinese capital. This is necessary for the development of the economies of the special zones. 92

So far, a sound ideological basis for Sino-foreign joint ventures, other than as a short-term expedient, has not been developed. The plaintive question of Xue Muqiao, "top advisor to the State Planning Commis- sion," asking, "Why is it necessary for a socialist country to be pure?" could be a harbinger of future political difficulties. 93


Another characteristic of the Chinese commercial relationship with deep traditional roots is its intensity. There is a strong strain of clannish- ness in Chinese society. Perhaps because of the lack of a strong legal tradition, much of Chinese business customarily has been conducted among members of the same family or with close acquaintances. Thus, it has seemed to some observers that a foreign firm has had to be examined extensively and accepted as "one of the family." It may be noted, for example, how Russell and Company bested its British rivals in the steamship business in the 1860's as a result of its "good will" in the Chinese community. 94 In a contemporary context, the following obser- vation was quoted in The Wall Street Journal:

'Friendship is the first thing with the Chinese. It sounds trite and corny, but they really do mean it,' said John Marshall, Minnesota Mining & Manufacturing Co.'s director of China affairs, at a recent gathering of current and would-be business partners with China. ~

Further, the predilection of the Chinese to trade with "friendly firms" was a characteristic of Chinese trade, especially in the later fifties and sixties. The requirement for close personal ties in business relationships is one of the reasons so much of the early joint-venture and other cooperative business arrangements have been carried out by overseas Chinese--business often with members of their own (extended) families in China. It can be expected that for some time to come, closer than just "business" ties will be necessary for the establishment of joint ventures in China.

A narrowing of the historical horizon to the last 140 years brings the continuity with the past into much sharper relief. There is a steady progression from the cooperative arrangements (e.g., joint-account shipping) dating from the 1850's to the foreign controlled joint ventures among private capitalists from the 1880"s and to the still primarily foreign controlled large-scale joint-venture projects of the turn of the century period--some of which involved the Chinese government as a partner. The progression continued with Chinese capitalists assuming their full management responsibilities in Sino-foreign joint ventures of the 20th century and the Nationalists forming Sino-foreign joint ventures fully consistent with national sovereignty during the 1930's. Ideological considerations forced a break in the progression, as first the Sino-Western and later Sino-Soviet government-to-government joint ventures were terminated in a final reaction to the "economic imperialism" suffered by China in previous decades. Now, the trend appears to have resumed in full force, with a strong and self-confident China willing again to enter into joint ventures with those beyond her borders.

The virtually uninterrupted progression of joint-venture activity during this time can be accounted for by the fact that many of the constraints facing China have remained basically unaltered. The twin motivating factors of China's technological backwardness and financial incapacity have remained essentially constant. As has been demon-


strated by Needham, technological backwardness is not a historic Chi- nese characteristic. 96 Somehow from the middle ages on, however, her powers of scientific innovation atrophied under the conservative Ming and Qing dynasties, or as Tawney reflected "her p e a s a n t s . . , ploughed with iron when Europe used wood, and continued to plough with it when Europe used steel. ''97 Similarly, the government's financial base was woefully inadequate. Chan gives the following statistics for late Qing China:

It is estimated that a mere 2.4 percent of the net national product (versus Japan's 12 percent or higher in around 1880) was all the Chinese government received in taxes in 1908. 98

The identical figure is given by Coble for Republican China, because of inadequate control of the countryside. 99 Under the PRC, the corre- sponding figure would be much higher; however, because of the massive requirements of the modernization task, outside funds are still needed. In addition, foreign exchange to finance the imports necessary for this effort has not been available in sufficient quantity in any of these periods. Thus, acceptance of Sino-foreign joint ventures has come to seem an obvious and necessary measure for promoting technological advancement.

Some of the minor themes of this last century have already been alluded to, such as the role of the coastal cities, particularly in the South, and of the overseas Chinese. In this regard it is interesting to bear in mind the late Qing injunction against maltreatment of returned overseas Chinese when reading a recent news item in a similar vein: "When overseas Chinese return to the motherland, they should not be treated as 'second-class citizens' or regarded as lower in status than foreign guests."~~176 Even the present emphasis on energy development is a reflec- tion of the previous large Sino-foreign coal mining joint ventures. Thus, in the small details as well as the major trends there are many continuing themes linking the past with the present experience.

CONCLUSIONS AND PROSPECTS

Under the nation's current pragmatic leadership China has made a remarkable initiative in opening its doors to the benefits of outside investment. A number of forms of Sino-foreign economic cooperation including compensation trade, cooperative production, and equity joint ventures, have been developed and have begun to make a contribution to the nation's economy. In view of the continuing Chinese need for foreign technology and the scarcity of foreign exchange resources to pay for it, and providing that political stability can be maintained, it appears that there is a bright future ahead for joint ventures and other forms of foreign cooperation in the modernization of the Chinese economy.

Since 1976 there have been three fairly well delineated periods in Chinese economic policy. First there was a period of economic planning


and consolidation of power, as plans were made for a return to the pursuit of the "four modernizations." Then in February 1978 an ambitious development plan was announced and a great burst of activity began, including the signing of large loan agreements, expansion of imports, and negotiation of major projects such as the Baoshan steel works. The frantic pace of this period was reminiscent of the Great Leap Forward, with the "great leap" to be based in good measure this time on foreign capital and technology. However, the nation's resources were inadequate to meet the challenge of this effort, and the plan "was for- mally scrapped in June 1979, and most of the 120 major projects which had been considered key elements of the four modernizations program, were shelved indefinitely. ''~~ In fact the third period began somewhat earlier, in April 1979, when the more conservative policy of "readjust- ment, restructuring, consolidation, and improvement" was adopted. This policy, originally announced for a three-year period, has been extended and is expected to continue for at least the next two years.

Thus the development of Sino-foreign joint-venture activity has taken place up until now and will continue to take place over the near term in an environment of relative austerity which inhibits the Chinese from committing themselves to large capital expenditures. This has meant that Chinese emphasis in joint-venture arrangements has been on the Chinese contribution of existing factories, equipment, and land, whereas the foreign partner is expected to provide capital and modern equipment as well as expertise for modernization. The Chinese recently have been very clear in this regard, noting the number of production facilities in need of modernization in that nation's coastal area:

[In the coastal areas] there are 170,000 industrial enterprises most of which are medium-sized and small ones. Most of the enterprises are equipped with old equipment, and are using backward technology and have relatively low productivity . . . . We should be brave in utilizing foreign investment to introduce appropriate advanced technology and import necessary key equipment in an orderly manner so as to improve the quality of our products, raise labor productivity, reduce expenditure and cost, tap to the fullest the production potential of the existing enterprises and raise economic effect. ,~2

There is considerable scope for an increase of Sino-foreign joint-venture activity, not just in spite of but actually because of the conservative fiscal policy of the present period, although major projects are no doubt affected.

Over the longer term, prospects for the Chinese economy and hence for Sino-foreign joint-venture activity appear very bright. A major review of the economy was carried out by the World Bank and completed in late 1981. It foresees a four to five percent GNP growth rate from 1980-85 and a five to six percent GNP growth rate from 1985-90. t~ However, the Bank also points to serious bottlenecks in infrastructure and in energy availability. Additionally, it posits the necessity of greatly increasing foreign borrowing, so that by 1990 the nation's external debt


would reach $41 billion to $79 billion.'~ Certainly a major impetus for joint-venture approval will come from the desire to address the infrastructure and energy-related "bottlenecks," and also to hold down the nation's external debt.

Energy projects will almost certainly dominate the joint-venture statistics for the foreseeable future. As previously noted, many billions of dollars will be involved in offshore oil development ventures alone. A Chinese source has estimated that "U.S. $200 billion will be needed for offshore oil exploration in the 1980's. ''~~ Coal mining is another area where foreign investment may take the form of a joint-venture arrangement. The "huge Pingshuo open pit coal mine in Shanxi Province" is an example of a major project in that sector.I~ Hydropower development and energy conservation technology are other areas to which a high priority is being assigned.

China shows every sign of being in earnest in developing the legal structure necessary to support widespread foreign involvement in the Chinese economy. Thus, Guangdong Province has just enacted "four sets of laws aimed at luring foreign investment into its special economic zones.'1~ Further, seventeen additional economic laws, including a draft patent law, are under review at the national level and should begin to appear later this year. The recently announced restructuring of the central government bureaucracy, with "the Foreign Trade Ministry, the Ministry of Economic Relations with Foreign Countries, and the foreign investment and import-export commiss ions . . , being merged into one organization, the Ministry of Foreign Trade and Economic Relations," 108 should help to eliminate bureaucratic red tape and delays (at least after what could well be an initial period of confusion). Finally, CITIC seems as active as ever, with its chairman Rong Yiren recently having stated that "China will invite foreign business executives in June to invest in more than 100 projects, and may resume some large projects that had been deferred. ''1~

On the cautionary side, it must be remembered that there are still many potential problems for the increase of Sino-foreign economic cooperation--both economic and political. A 1980 CIA report, for example, is reported to have stressed the "shortages of skilled manpower and new construction bottlenecks that affect the pace of development in the energy, raw material and transport sectors" and other problems which make it difficult to quickly absorb foreign capital and technology."0 On the political side, at no period of her history has there been a secure consensus and sound philosophical rationale behind close Sino- foreign economic cooperation. Even at this time much of the rationale offered stresses immediate necessity rather than long-term satisfaction. Lenin, for example, has been quoted with regard to "joint ventures with capitalists in 1921 . . . 'We shall not grudge him even 150 per cent in profits, provided the condition of our workers is improved.' ,,m In view of the dismal subsequent history of joint ventures in the Soviet Union, this type of rationale is at best disquieting for the long-range future.

A particular concern at this time is the present campaign against


economic corruption. There have been a number of conservative articles stressing the need to avoid contamination from the West. In particular Hong Kong and Macao have been singled out as sources of corruption:

Undoubtedly we welcome contributions from Hong Kong and Macao compatriots. However, we definitely do not want to import exotic dress, decadent music, rock and roll dances, and obscene books and magazines; neither do we want to import the hackneyed tune of bourgeois human nature, human rights, democracy and liberty. In short we must resist the corrosive capitalist 'civilization. '~12

The anti-corruption campaign has specifically linked foreign businessmen to the problem in the Guangdong area, so this could have an effect on the Chinese cross-border development which has been the most successful area of joint-venture activity up to this time. 1~3

Providing that these economic and ideological problems do not become too severe, it appears that there are good reasons to predict a rapid expansion in Sino-foreign joint venture activity. Much of this may be expected to come from the "energy" sector, and in dollar totals most will involve development of offshore petroleum resources. There appears ample room in other areas for expansion as well. Premier Zhao has expressed the Chinese determination to maintain an open door policy in the following words:

In short, it is our firm principle to follow an open-door policy and further economic and technological exchanges with other countries. We need international co-operation in our drive for modernization. Far-sighted personages in political and economic circles abroad understand the enor- mous potentialities of the Chinese market and its far-reaching significance for the steady development of the world economy. We should take stock of the current situation and work hard to expand and strengthen our contacts and co-operation with all those willing to have economic and technological exchanges with us on the basis of mutual benefit. TM

Providing that this determination is maintained, Sino-foreign joint ventures will have a major role to play in the modernization of the Chinese economy.

Chinese history is replete with examples of close cooperation between Chinese and foreign commercial interests. Most of these can be held within the rubric of trade relations, as China from an early date traded with the West across the vast Eurasian land mass by means of the Silk Road and via maritime commerce from the ports of southern China. In view of the large foreign communities which existed in China before Ming Dynasty times, Sino-foreign commercial relations may well have advanced beyond trade to more intimate forms of cooperation; however, a paucity of evidence precludes firm conclusions in this regard. Certainly after 1842 and the beginning of the treaty-port system, commercial relations developed into a number of channels which amounted in practice if not always in law to Sino-foreign joint-venture relationships. From the


comprador relationship through joint-account trading, joint ownership and management of joint-stock companies, Sino-foreign mining ventures, and Sino-Soviet joint-stock companies, there are numerous prece- dents for Sino-foreign joint-venture activity. Although after 1842 foreigners could dominate China militarily, they could not do so nearly so well in the commercial arena. In the complex and sophisticated Chinese commercial environment the foreign firm had to become Sinicized at least as much as its Chinese counterparts were required to become Westernized in order to be successful. That is why the comprador relationship assumes such importance. The sharp break in Sino-foreign commercial relationships implied by the Treaty of Nanking did not occur. The Western merchants, formerly dependent upon their Chinese "security" merchants, now became dependent upon their own Chinese compradors instead. Very soon close cooperation developed between Chinese and foreign merchants, and true joint ventures developed. Thus, a substantial background in Sino-foreign joint-venture experience undergirds the present developments in this area.

It is clear that throughout the history of Sino-foreign commercial intercourse, including today's joint-venture experience, a number of major characteristics have remained important. These have included the important role of the South, the tension between the pragmatic South and more conservative North, the concern of the government for main- tenance of tight control over and isolation of her foreign commerce, the lack of a secure ideological basis, and the perceived need to develop strong ties of friendship with the foreign partner. These "historical con- stants" of Sino-foreign economic activity, resulting from enduring geo- political limitations and sociological traits, seem significant now just as they have been for centuries past.

In addition, when only the last 140 years or so are considered, there is a clear progression in the development of joint-venture activity. Begin- ning in the mid-19th century in circumvention of the Chinese government, these ventures gradually came to include the government. Begin- ning in an environment of foreign initiative in which Chinese managerial prerogatives were commonly ignored, it developed until in the Republi- can period these rights were being fully asserted. Although this natural progression was interrupted during the period of economic isolation of the 1960's and early 1970's, even then a slender thread of Sino-foreign shipping joint ventures remained in existence, preserving the overall continuity. Striking similarities in the role of the overseas Chinese, in the importance of particular cities, in the way in which foreign businessmen have been approached, and in many other areas attest to this continuity. Thus, from an overall historical perspective, from the perspective of the 19th and 20th centuries, and in many of its minor details, the joint- venture experience of today is a natural continuation of the experience of the past.

Sino-foreign joint ventures have a history of operation of well over a hundred years and roots dating back many centuries. The present environment is very favorable to their development, and barring un-


foreseen political difficulties, there should be a steady increase in joint- venture activity over the next several years at least. They have played an important role in Chinese economic development up to now and should continue to play a significant role in the future.

FOOTNOTES 1. Quoted in Nai-ruenn Chen, "Economic Modernization in Post-Mao China:

Policies, Problems and Prospects," in U.S. Congress, Joint Economic Com- mittee, Chinese Economy Post-Mao, Vol. 1: Policy and Performance, Joint Committee Print (Washington, D.C.: Government Printing Office, 1978), p. 167. Chen also notes that Zhou had tentatively put forward this concept as early as 1964.

2. Nicholas R. Lardy, "Recent Chinese Economic Performance and Prospects for the Ten-Year Plan," in U.S. Congress, Joint Economic Committee, op. cit., p. 58.

3. Ibid., p. 59. 4. "Coal Compensation Trade," China Business Review, May-June 1980, p. 45. 5. Chen, op. cit., p. 195. 6. "Minister Li Qiang on Foreign Trade Policy and the Main Points of Capital

Construction," China in Development, 1979, No. 4, pp. 2-3. 7. Ziyang Zhao, "The Present Economic Situation and the Principles for Future

Economic Construction (Government Work Report to the Fourth Session of the Fifth National People's Congress)," Beijing, Xinhua, in English, 0103 GMT, December 14, 1981, in Foreign Broadcast Information Daily Report: China, December 16, 1981, pp. K21-22.

8. Frank Ching, "Foreign Investment in China Rose 20% in '81, to $1.2 Billion; Gain Seen This Year," The Wall Street Journal, January 18, 1982, p. 26.

9. Arthur G. Ashbrook, Jr., "China: Shift of Economic Gears in Mid 1970's," in U.S. Congress, Joint Economic Committee, op. cit., p. 222.

10. Ross Terrill, The Future of China After Mao (New York: Dell Publishing Co., Inc., 1978), p. 236.

11. Chongwei Ji, "World Economy Symposium: China's Utilization of Foreign Funds and Relevant Policies," Beijing Review, April 20, 1981, p. 16.

12. Frank Ching, "International: Chinese Attracted More Than $1 Billion in Investment from Foreigners Last Year," The Wall Street Journal, March 12, 1981, p. 35.

13. Barry Kramer, "China's Decision to Open Up Its Economy to Outsiders Is Starting to Produce Gains," The Wall Street Journal, January 14, 1980, p. 15.

14. Ching, "Foreign Investment in China Rose 20%," p. 26. 15. Stephen Markscheid, "Compensation Trade: The China Perspective," China

Business Review, January-February 1982, p. 50. 16. John Kamm, "Importing Some of Hong Kong. . . Exporting Some of China:

Guangdong SEZ's,'" China Business Review, March-April 1980, p. 30. The claim made in the article is that these are Guangdong's first such ventures.

17. "Trends: China's Economic Cooperation with Other Countries," China Econ- omy and Trade, 1980, No. 3, p. 5.

18. " 'Avon Calling' Soon Might Ring a Bell throughout China," The Wall Street Journal, May 6, 1981, p. 38.

19. "China and Italian Firm Agree to Coproduce Certain Compressors," The Wall Street Journal, October 22, 1979, p. 10.

20. Martin Weil, "Technology Transfers," China Business Review, March-April 1981, pp. 22-23.

21. Scott D. Seligman, "Letter from Beijing: Nike's Running Start," China Busi- ness Review, January-February 1982, pp. 42-44.

22. Markscheid, op. cit, p. 51.


23. "China Acts to Expand Japan's Participation in Coal Development," The Wall Street Journal, January 11, 1980, p. 30.

24. Melinda Liu, "Business Affairs: A Rival Form of Comradeship," Far Eastern Economic Review, October 12, 1979, p. 40.

25. See, for example, Carol S. Goldsmith, "Countertrade, Inc.," China Business Review, January-February 1982, pp. 48-50.

26. Carol S. Goldsmith, "The Uncertain Winds of Countertrade," China Business Review, July-August 1980, p. 30.

27. Markscheid, op. cit., p. 51. 28. Melinda Liu, "Chinese Investment: Loyalty and Rock-bottom Terms," Far

Eastern Economic Review, June 22, 1979, p. 99. 29. Y. Yamada, "Special Report: China's Foreign Investment Law and Problems

Involved," China Newsletter, October 1979, p. 18. Yamada notes that China was only "the second Asian socialist country to present a foreign capital investment law, following the Vietnamese law announced in April 1977."

30. James B. Stepanek, "Joint Ventures: Why U.S. Firms Are Cautious," China Business Review, July-August 1980, p. 32.

31. "Joint Ventures," Beijing Review, January 5, 1981, p. 10. 32. Ji, op. cit., p. 16. The cooperative enterprise figure was later revised down-

ward to U.S. $300 million. Ching, "Foreign investment in China Rose 20%," p. 26.

33. Ji, op. cit., p. 16. 34. Ching, "Investment from Foreigners," p. 35. 35. Ching, "Foreign Investment in China Rose 20%," p. 26. 36. "Foreign Investment Here Rose in '80, Study Finds," The Wall Street Journal,

February 17, 1981, p. 7. 37. "Guangming Ribao Reports on Joint Ventures," Beijing, Zhongguo Xinwen

She, in Chinese, 0136 GMT, October 26, 1981, in Foreign Broadcast Informa- tion Service Daily Report: China, October 27, 1981, p. K9.

38. "Joint Trade Ventures Conducted Overseas," Beijing, Xinhua, domestic service in Chinese, 1134 GMT, November 14, 1981, in Foreign Broadcast Infor- mation Service Daily Report: China, November 19, 1981, p. A7.

39. "China-U.S. Firm to Open Szechuan Restaurants," The Wall Street Journal, December 26, 1979, p. 12.

40. "Joint Ventures: Press Reports through November 30," China Business Re- view, January-February 1982, p. 63.

41. Vigor Keung Fung, "Hotel in Canton Tries Its Luck at Poker, But Slot Ma- chines Banned as Capitalistic," The Wall Street Journal, February 16, 1982, p. 31.

42. Pauline Loong, "Foreign Developers Lose Their Heady Optimism," Far Eastern Economic Review, February 26, 1982, p. 91.

43. Phil Kurata, "A Home in the Motherland," Far Eastern Economic Review, January 30, 1981, p. 53.

44. Loong, op. cit., p. 90, 45. Frank Ching, "China Invites Foreign Bids to Hunt for Oil," The Wall Street

Journal, February 17, 1982, p. 29. 46. "Tentative Translation of the Text of the Regulations of the People's Republic

of China on the Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Countries," Xinhua, in English, 12:43 GMT, February 10, 1982, in Foreign Broadcast Information Service Daily Report: China, February 11, 1982, p. K5.

47. Stephanie R. Green, "The Offshore Oil Contracts," China Business Review, January-February 1982, p. 53.

48. "Special Dispatch from Beijing: State Council Leaders on Making Use of External Conditions," Hong Kong, Wen Wei Po, in Chinese, November 5, 1981, p. 2, in Foreign Broadcast Information Service Daily Report: China, November 5, 1981, p. Wl.

49. Pauline Loong, "Investors Are Still Welcome, Says Peking," Far Eastern Economic Review, February 26, 1982, p. 82.


50. Frank Ching, "Impasse in China's Bid for Joint Venture Is Attributed to Gaps in Its Legal Structure," The Wall Street Journal, February 29, 1980, p. 19.

51. Phil Kurata, "Lower Costs Lure China Traders," Far Eastern Economic Re- view, February 27, 1981, p. 68.

52. Loong, "Investors Still Welcome," p. 82. 53. Frank Ching, "China Selects Joint Ventures Cautiously after Delays Mire

Some Initial Projects," The Wall Street Journal, July 21, 1981, p. 36. 54. Loong, "Investors Still Welcome," p. 82. 55. "The Law of the People's Republic of China on Joint Ventures Using Chinese

and Foreign Investment," Beijing Review, July 20, 1979, pp. 24-26. 56. Yamada, op. cit., pp. 18-22. 57. "New Economic Laws and Regulations," Beijing Review, November 9, 1981,

p. 6, refers to "seventeen economic laws and regulations" drafted and under examination.

58. Paul H. Allen and Marc S. Palay, "China Law: Economic Courts," China Business Review, November-December 1981, p. 44.

59. Timothy A. Gelatt, "China Law: Doing Business with China: The Developing Legal Framework," China Business Review, November-December 1981, p. 56.

60. "China International Trust and Investment Corp.," Beijing Review, October 19, 1979, p. 4.

61. George Lauriat, "China's Economic Darwinism," Far Eastern Economic Re- view, October 12, 1979, p. 40.

62. Dixin Xu, "China's Special Economic Zones," Beijing Review, December 14, 1981, p. 14.

63. Anita Li, "Report from Shenzhen: Foreign Investors Are Encouraged Despite the Labor Problems," China Business Review, September-October 1981, p. 42.

64. "Foreign Investment in South China: Guangdong Province," Beijing Review, January 11, 1982, p. 7.

65. Robert Delfs, "Trade: SEA from the SEZ's," Far Eastern Economic Review, January 8, 1982, p. 39.

66. Zhao, op. cit., p. K22. 67. Loong, "Investors Still Welcome," p. 82. 68. G, F. Hudson, Europe & China: A Survey of Their Relations from the Earliest

Times to 1800 (London: Edward Arnold & Co., 1931), pp. 27-52. 69. C. G. F. Simkin, The Traditional Trade of Asia (London: Oxford University

Press, 1968), p. 23. 70. L. Carrington Goodrich, A Short History of the Chinese People (New York:

Harper, 1943), p. 120. 71. Simkin, op. cit., p. 37. Because of early Indian colonization of the area, Bagchi

declares that "for over one thousand years, the entire Indo-Chinese peninsula and the islands of the Indian archipelago were for all practical purposes a Greater India." Prabodh Chandra Bagchi, India and China: A Thousand Years of Cultural Relations (New York: Philosophical Library, Inc., 1951; reprint ed., Westport, Connecticut: Greenwood Press, 1971), p. 24.

72. R. R. DiMeglio, "Arab Trade with Indonesia and the Malay Peninsula from the 8th to the 16th Century," in Islam and the Trade of Asia: A Colloquium, ed. by D. S. Richards, Papers of Islamic History, II (Philadelphia: The Near Eastern History Group, Oxford and The Near Eastern Center, University of Pennsylvania, 1970), p. 108. In fact, one source reports that at Guangzhou "they appear to have had a settlement or colony as early as A.D. 300." Rugua Zhao, Chau Ju-kua: His Work on the Chinese and Arab Trade in the Twelfth and Thirteenth Centuries Entitled 'Chu-fan-chi (Zhu Fan Zhi),' trans, and ann. Frederick Hirth and W. W. Rockhill (St. Petersburg: Imperial Academy of Sciences, 191 l; reprint ed., New York: Paragon Book Reprint Corp., 1966.), p. 4.

73. G. F. Hudson, "The Medieval Trade of China," in Richards, Islam and Trade of Asia, p 162. Goodrich, History of the Chinese, p. 125 is more explicit, with


an "estimate of 120,000 Moslems, Iranians, Jews, and Christians killed at Canton, in A.D. 878."

74. Joseph Needham, Science and Civilization in China, Vol. 4: Physics and Phys- ical Technology, Part III: Civil Engineering and Nautics (Cambridge: Cam- bridge University Press, 1971), p. 525.

75. Needham, op. cit., p. 527. Evasion ofthe ban on Chinese overseas activity was a continuing phenomenon. Needham notes on p. 526 for example that "during the second half of the + 15th century Chinese private merchant ship owners had a temporary flourishing per iod. . , by the beginning of the + 16th century some substantial venturers, such as Lin Yu, owned as many as fifty large sea-going ships." Note the similarity with the Japanese prohibition of the early 17th century from "going abroad or from building ships beyond a size that was too small for ocean voyages." Simkin, op. cit., p. 205.

76. Kwan-wai So, Japanese Piracy in Ming China During the 16th Century (East Lansing, Michigan: Michigan State University Press, 1975), pp. 41-72. So makes it clear that this piracy was at least as much Chinese as Japanese in origin. The "prohibition" was actually a series of prohibitions, mostly in the early and middle 16th century. In 1557 "Chinese maritime trade to all points except Japan was legalized," and there was little prohibition of trade after that. John E, Wills, Jr., "Maritime China from Wang Chih to Shih Lang: Themes in Peripheral History," in Jonathon D. Spence and John E. Wills, Jr., eds., From Ming to Ch'ing: Conquest, Region, and Continuity in Seventeenth Century China (New Haven, Conn.: Yale University Press, 1979), p. 211.

77. Needham, op. cit., p. 507. Unfortunately by this reference to Jorge Alvares he contradicts his earlier claim of 1514 in Introductory Orientations, p. 144. Simkin, op. cit., p. 185, also gives the date as 1514, and Hosea Ballou Morse, The International Relations of the Chinese Empire, Vol. 1: The Period of Conflict, 1834-1860 (New York: Longmans, Green, and Co., 1910), p. 41, gives 1516.

78. Kwang-ching Liu, Anglo-American Steamship Rivalry in China, 1862-1874, Harvard East Asian Studies, No. 8 (Cambridge, Massachusetts: Harvard Uni- versity Press, 1962), pp. 19, 29-30.

79. Yen-p'ing Hao, The Comprador in Nineteenth Century China: Bridge between East and West, (Cambridge, Massachusetts: Harvard University Press, 1970), p. 19.

80. John King Fairbank, Trade and Diplomacy on the China Coast: The Opening of the Treaty Ports, 1842-1854, 2 vols. Harvard Historical Studies, Vol. LXII (Cambridge, Massachusetts: Harvard University Press, 1953), 1:465.

81. G. C. Allen and Audrey G. Donnithorne, Western Enterprise in Far Eastern Economic Development: China and Japan (London: Unwin Ltd., 1954; reprint ed., New York: Augustus M. Kelley, 1968), p. 175.

82. Michael R. Godley, The Mandarin-capitalists from Nanyang: Overseas Chi- nese Enterprise in the Modernization of China, 1893-1911. Cambridge Studies in Chinese History, Literature and Institutions (Cambridge: Cambridge Uni- versity Press, 1981), p. 60.

83. Ibid., p. 78. 84. Allen and Donnithorne, op. cit., p. 50. 85. Nai-ruenn Chen and Walter Galenson, The Chinese Economy Under Commu-

nism (Chicago: Aldine Publishing Company, 1969), p. 52. 86. M. I. Sladkovskii, History of Economic Relations Between Russia and China,

trans. M. Roubler, ed. G. Grause (Jerusalem: Program for Scientific Trans- lations, 1966), p. 242.

87. U.S., Central Intelligence Agency, "Communist China's Balance of Pay- ments, 1950-65," in U.S. Congress, Joint Economic Committee, An Eco- nomic Profile of Mainland China, Vol. 1: General Economic Setting: The Economic Sectors, Joint Committee Print (Washington, D.C.: U.S. Govern- men~ Printing Office, 1967), p. 650.

88. "China's Seven New International Inland Ports," China Business Review, March-April 1980, p. 13.


89. Frank Ching, "China Keeps Near-Impenetrable Block between Most Citizens and Foreigners," The Wall Street Journal, August 11, 1980, p. 16.

90. "Be Bold in Using Foreign Investment and Learn How to Use It," Shenyang, Liaoning Ribao, in Chinese, November 22, 1981, p. 1, in Foreign Broadcast Information Service Daily Report: China, December 9, 1981, p. 55.

91. Parks M. Coble, Jr., The Shanghai Capitalists and the Nationalist Government, 1927-1937, Harvard University East Asian Monographs, No. 94 (Cambridge, Massachusetts Council on East Asian Studies, Harvard University, 1980), pp. 262-263.

92. Xu, op. cit., p. 15. 93. Xue Muqiao, quoted in Zhang Hua, "Interview with Xue Muqiao," China

Business Review, July-August 1981, p. 60. 94. Liu, op. cit., p. 26. 95. Margaret Yao, "U.S. Firms Are Given Key to China Trade; It's Called Friend-

ship," The Wall Street Journal, April 4, 1980, p. 18. 96. Joseph Needham, Science and Civilization in China, Vol. 1: Introductory

Orientations (Cambridge: Cambridge University Press, 1961), p. 239. 97. R. H. Tawney, Land and Labour in China (New York: Harcourt, Brace and

Co., 1932), p. 11. 98. Wellington K. K. Chan, Merchants, Mandarins, and Modern Enterprise in

Late Ch'ing China (Cambridge, Massachusetts: East Asian Research Center, Harvard University, 1977), p. 4.

99. Coble, op. cit., p. 9. 100. "Liao Chengzhi Urges a Still Greater Free Hand in Special Economic Zones,"

Hong Kong, Ta Kung Pao, in Chinese, December 5, 1981, p. 1, in Foreign Broadcast Information Service Daily Report: China, December 11, 1981, p. W6.

101. U.S., American Consulate General, Hong Kong, "Briefing on China: Eco- nomic Trends of the People's Republic of China," Hong Kong, October 20, 1980, p. 3.

102. "China Takes Five Steps to Encourage Foreign Investments," Hong Kong, Ta Kung Pao, in Chinese, February 4, 1982, p. 2, in Foreign Broadcast Informa- tion Service Daily Report: China, February 5, 1982, p. W1.

103. Robert Dells, "Deng's Reforms Get the World Bank Stamp of Approval: A New Kind of Planning," Far Eastern Economic Review, August 14, 1981, pp. 48-50.

104. Nicholas H. Ludlow, "World Bank Report: China's Options in the 1980's Hinge on Saving Energy," China Business Review, July-August 1981, p. 8.

11)5. "Ji Chongwei Stresses Need for Foreign Capital," Beijing, China Daily in English, February 17, 1982, p. 4, in Foreign Broadcast Information Service Daily Report: China, February 17, 1982, p. K6.

106. Ching, "Foreign Investment Rose 20%," p. 26. 107. "China Province Plans to Enact Laws Aimed at Luring Investors," The Wall

Street Journal, December 24, 1981, p. 10. 108. Frank Ching, "China Approves Plan to Reduce Its Bureaucracy," The Wall

Street Journal, March 9, 1982, p. 34. 109. "China Plans to Seek Foreign Investment for over 100 Projects," The Wall

Street Journal, January 15, 1982, p. 28. 110. John Edwards, "Barriers to the China Trade," Far Eastern Economic Review,

June 13, 1980, p. 110. 111. "Special Economic Zones," Beijing Review, March 23, 1981, p. 3. 112. Mu Gong, "The 'Beijing School' and the 'Hong Kong School, '" Beijing Rib-

ao, in Chinese, December 3, 1981, p. 3, in Foreign Broadcast Information Service Daily Report: China, December 10, 1981, p. K17.

113. "China Says Foreigners Involved in Corruption in Special Trade Zone," The Wall Street Journal, March 12, 1982, p. 26.

114. Zhao, op. cit., p. K22

sino-foreign joint ventures: contemporary developments and historical perspective

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