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By K. C. Fung

This e-book sheds gentle at the traits, features, reasons, and coverage implications of U.S. direct funding in China.

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By the end of 2002 the government had signed more than 420,000 FDI contracts. Hong Kong is still by far the largest foreign direct investor, both by the value of foreign direct investment (contracted and realized) and by the number of foreign direct investment contracts. Investment is overwhelmingly concentrated in the coastal provinces and municipalities in eastern and southern China. Types of FDI Under current Chinese laws, five types of foreign direct investment are allowed: Sino-foreign equity joint venture (EJV), Sino-foreign contractual (or cooperative) joint venture (CJV), wholly foreign-owned enterprise 24 INSTITUTIONAL AND LEGAL FRAMEWORK OF FDI IN CHINA 25 (WFO), joint development (JD), and, since 1995, foreign-funded jointstock limited company.

S. S. direct investment in China up to that year. Foreign-Funded Joint-Stock Limited Company. Laws also provide for the establishment of foreign-funded joint-stock limited companies. Foreign companies, enterprises, or individuals (foreign shareholders) can set up such a company jointly with Chinese companies, enterprises, or individuals (Chinese shareholders). According to the Provisional Regulations on the Establishment of Foreign-Funded Joint-Stock Limited Companies (promulgated by the Ministry of Foreign Trade and Economic Cooperation, or MOFTEC, January 10, 1995), the capital stock of a typical limited company is made up of equal-value shares contributed by both Chinese and foreign shareholders.

The Ministry of Foreign Economic Relations and Trade (MOFERT, currently named the Ministry of Foreign Trade and Economic Cooperation, MOFTEC) apparently chose to interpret the lack of clarity to mean that proprietary technology by the foreign partners cannot count for more than 20 percent of registered capital. The interpretation appeared in a MOFERT document in 1988 but was not issued to any interested parties. The example illustrates two problems with FDI laws. First, because the original laws were not absolutely clear, subsequent interpretations seemed arbitrary.

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