DIALOGUE

Mr.Roberto Puccini(P) is the manager of an Italian Machinery Equipment Company.The purpose of his current visit to China is to explore the possibilities of establishing a joint venture in China.Director Yu(Y) of a Chinese Wood Processing Factory meets with him.

P:Yesterday we paid a visit to the Imperial Palace.It’s really amazing that the Chinese people have built such a great ancient palace.Its architectural art is fantastic.

Y:The Imperial Palace is also called “the Forbidden City.” Its construction began in 1406.Since then 24 ancient Chinese emperors had lived there.During the Ming and Qing dynasties many magnificent structures were built and perfected,therefore it deserves the title “the excellent fruit of Chinese traditional architectural art.”

P:Yes,it surely deserves the praise.Especially when I see the delicate designs engraved on the woodwork of the palace which has undergone several hundreds of years.I’m thinking of joining hands with you to set up a wood plastic sheeting processing plant which would furnish China with the finest plastic sheetings used for the interior decoration.

Y:It sounds a good idea.Besides,it coincides with our aspiration.There is no doubt that we will make concerted effort to cooperate with you.Investors may enjoy preferential treatment for the establishment of a join venture in China.

P:Oh? What preferential treatment can we get for a Sino-foreign joint venture?

Y:According to the related laws and regulations of the Chinese government,the preferential treatment provided to the investors is relatively attractive,as compared with that of other Asian countries.First of all,a joint venture in China pays lower income tax,or even no income tax at all under certain conditions during the first three profit-making years.

P:The way I understand the profit-making year you mentioned is different from the year in which the plant is in operation,right?

Y:You are right.What I mean is the year when the plant gets profits.

P:That’s what I have thought.

Y:Furthermore,you are allowed to remit your net profit,after having paid taxes,to your home countries and the part of the income tax on your net profit you paid already to the Chinese government will be exempted from taxation at home as long as you have met the relative requirements.

P:That is the avoidance of double taxation.It’s encouraging.Anyhow this is the first time for us to invest in China; we’d like to be absolutely sure about our investment.What concerns me is how long the advantage of paying lower tax would last.

Y:Please don’t worry about it.The Chinese policy of opening-up to the outside world will remain stable for a long period,for it has been incorporated into the Chinese constitution.

P:Thus I can rest assured of it.

Y:China’s political situation is stable and the policy of opening-up is firm.Our country now provides an excellent investment environment.Specifically speaking,China is a big country with a large population,rich resources and a comparatively low level of wages and material cost.All these are apparently favorable conditions for direct investment.

P:China also needs to import advanced equipment and technology so as to improve the product quality and production efficiency.

Y:And the Chinese party usually brings in land,building,labor and funds in Renminbi.So compared with a wholly-foreign-owned company,a joint venture imposes a much smaller financial burden on the foreign investor.

P:So we have vast potentials for cooperation between us.I’d like to know how profits and risks are shared in a joint venture.

Y:It depends upon which form the joint venture takes.Basically there are two types of joint venture:equity joint venture and contractual joint venture.

P:What’s the difference between them?

Y:In an equity joint venture,the profits and risks are shared according to the partners’shares of equity in that venture.The bigger the share,the greater the profits and risks the partner will have.

P:Then how are the profits and risks shared in the contractual joint venture?

Y:In a contractual joint venture,everything is stipulated in a contract,so is the proportion of profits each partner is entitled to.

P:I see.Could you tell me the details about establishing and running a joint venture?

Y:What do you mean?

P:For instance,is there any regulation regarding the foreign party’s share in the registered capital?

Y:The relative regulations are rather flexible.Generally speaking,in a joint venture,the proportion of investment by the foreign investors should not be less than 25%,but there isn’t an upper limit.

P:Thanks.How long is the duration of a joint venture?

Y:No rigid rules,either.We may temporarily set a 15-year period for a joint venture like the wood plastic sheeting processing plant.The contract could be extended if both sides agree,so long as we can run the plant well.

P:How should we decide the administrative responsibilities of a joint venture?

Y:The joint venture will be run under the guidance of the board of directors.According to the relevant regulations and laws,the number of directors as well as rights and responsibilities representing a party should be determined on the basis of the investment that particular party has made in the business.

P:It sounds rather reasonable.

Y:Managing directors and managers will be nominated and agreed upon by both parties through consultations.Their term of office is four years.They could be dismissed and replaced if anyone of them is proved to be unqualified.

P:Thank you very much.You have certainly enlightened me quite a lot about establishing a joint venture in China.I’ll bring this matter up and hold a discussion with my company’s management on the joint venture proposition as soon as I return home.I’ll let you know directly when we have something firm.

Y:I look forward to hearing from you soon.