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Kurtz, Jiirgen --- "Investing in China: The Law and Practice of Joint Ventures by Yuwa Wei" [2002] AltLawJl 57; (2002) 27(3) Alternative Law Journal 149

REVIEWS

Investing in China: The Law and Practice of Joint Ventures

by Yuwa Wei, Federation Press, 2000; 202 pp; $99 hardcover.

This book is an important analysis of regulatory measures on the entry and operation of foreign investors into China. The topic itself is particularly timely. The difficult process of economic reform undertaken in China since I987 to move from a planned to a market-based economy has begun to reap dividends. China is an increasingly important destination for foreign investment. Of the US$240 billion of flows of foreign direct investment (FDI) into the developing world in 2000, $US64 billion went to Hong Kong (China) and US$4I billion to mainland China. Moreover, trade and investment flows into China will only accelerate with China's accession to the World Trade Organization (WTO) on II December 200I.

The subject of this book is the regulatory impediments and incentives to foreign investment in China. Within this broad genus, there is particular focus on the use of joint ventures between foreign and local partners as a mechanism to effect foreign investment. This is a welcome emphasis as many developing countries -not only China but for instance, Vietnam and Indonesia -actively prefer the use of the joint venture vehicle as a means of capturing economic gains from foreign investment especially through mechanisms of technology transfer. There are also twin strategies employed by the author. Firstly, she undertakes a positive legal analysis of the law as it currently exists and its impact on foreign investors in China. But, as is evident from the title, there is also an analysis of the practical issues that must be addressed by investors planning to enter the Chinese market.

The methodology employed by the author in her analysis is notable and used to great effect. Throughout most of the text, she undertakes a comparative analysis between Australian and Chinese law to draw out both valuable similarities and differences. The first part of the book sets the scene by examining FDI flows into China (Chapter 2) and charting changes in the Chinese legal system (Chapter 3). It is then that the methodology used by the author especially comes into play. An important difference between the two legal systems is in legal treatment of joint ventures. As the author correctly points out in Chapter 5, the use of the joint venture vehicle in Australia is often motivated by the desire to avoid the legal and equitable implications of characterising a relationship as a partnership. Moreover, there is no statutory regime in Australia specifically directed to the regulation of contractual joint ventures. However, in China, the joint venture vehicle has proven the most popular business structure to effect FDI with a variety of specific rules governing the creation and contributions of the partners to the joint venture. The theme of drawing out differences is also used in Chapter 9 on dispute resolution. This chapter emphasises a theme evident throughout the text-that prospective investors in China should be wary of simply relying on their domestic business experience in assessing likely costs and benefits. The author draws a fascinating historical analysis of the Chinese preference for mediation and consultation for settling disputes over adversarial mechanisms such as arbitration.

On the opposite side of the ledger, the text manages to draw out some surprising similarities between the two legal systems. The author's analysis of Chinese law on the protection of intellectual property (a prime concern of many foreign investors) in Chapter 4 highlights China's efforts to bring its legal system in line with international benchmarks. Yet suprisingly, the author does not address the concern by many foreign investors (and their home states such as the US) that there is under-enforcement of these legal norms. Another useful part of the methodology is in Chapter 6 on the taxation implications for foreign investors and especially the impact for Australian investors of the double taxation agreement between the two countries.

The focus on the practical impact of Chinese law may mean that the primary readers of this text will be prospective Australian (and other foreign) investors into China. For students and scholars in this area, the text will also offer a valuable entry point into this difficult subject area. At times, the emphasis on the practical implications of the positive norms examined in the text leaves little room for a more conceptual, normative analysis. For example, Chapter 6 includes a very detailed analysis of the types of incentives used by China to attract the entry of foreign investors. Yet there is little consideration of the evidence that many states engage in wasteful competition amongst each other in the use of incentives to attract foreign investors. Additionally, the text does not consider the implications of China's accession to the WTO. The WTO agreements on investment such as the Agreement on Trade-Related Investment Measures and the General Agreement on Trade in Services will significantly shape many of the regulatory measures described in this book. Despite this, Wei's text is likely to prove a fundamental reference point to chart the implications of some of these broader developments affecting China's transition to a market-based economy.

Jürgen Kurtz

Jürgen Kurtz teaches law at the University of Melbourne and is currently undertaking a research fellowship at New York University.

Reference

1. United Nations Conference on Trade and Development, World Investment Re­ port 2001: Promoting Linkages, 2001, pp.xiii-xiv.


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