U.S.-China Economic Relations: Present and Future

By Richard H. Holton; Wang Xi et al. | Go to book overview

12. Foreign Investments and Joint Ventures: An American Perspective

RICHARD H. HOLTON

Advancing the state of science and technology in China is now firmly recognized as one of the four modernizations being pursued by the leadership of the new China. Although a policy of relying only on indigenous improvements in science and technology might have been adopted, for almost a full decade the policy has been to accelerate the process by supplementing internal scientific and technological advances with imported knowledge and capabilities, since China appeared to be lagging so far behind the industrialized nations of the world.

Modern technology might be imported by foreign firms licensing Chinese enterprises to produce certain products or use certain processes, thus avoiding any equity involvement of foreign firms. At the opposite end of the spectrum, the Chinese might have permitted and encouraged foreign firms to set up wholly owned subsidiaries in China, thus with the technology being applied in China but by foreign-owned establishments. The equity joint venture, in which typically the enterprise is owned partly by the state and partly by a foreign corporation, is a third vehicle, one with a number of advantages when compared with the other two approaches.

In this chapter first I will discuss the relative attractiveness of the equity joint venture as a vehicle for the transfer of technology. Then I will argue that the joint venture should best be viewed as a means of importing considerably more than technology and that technology probably re- ceives undue emphasis in China's use of international joint ventures. I will then comment on the types of problems that Americans, and presumably other foreigners as well, find most common as they attempt to establish and then operate joint ventures in China. Closing observations examine the prospects for the international joint venture becoming a less troublesome vehicle for foreign investment in China.

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