The China Venture

ways in which deals are being packaged are becoming increasingly sophisticated. The FDI
deals have become adept at building an appropriate edifice that best suits the goals of the
inbound foreign investor. The increasing sophistication of the Merger and Acquisition (M&A)
process therefore is mirroring an increasingly sophisticated investment environment. 24
Joint ventures in China are challenging at the best of times. With the turmoil in Asian equity
and currency markets the challenges will intensify. Besides selecting a local partner and
agreeing to the basic focus of a joint venture, the greatest challenge is to create a financial
structure that is both possible and will minimise risk. Many new investors in China
underestimate the financial needs of a new joint venture. Frequently they do not take into
account the long payment delays required to collect accounts receivable or the slowness in the
bank payment system. Often their customers may themselves need long-term financing.
This paper explains the main issues concerning business finance in China. This means first of
all, the analysis of general financial conditions for foreign direct investments in China.
Therefore, the next part looks at the financial sector development and its main institutions. It
also examines legal restrictions for banking in general and instruments of financial control in
particular. The third part describes the single financial markets, which include the capital and
money markets in China. The fourth part provides the reader with potential instruments and
means of financial management. From a theoretical point-of -view, these instruments do not
differ from the ones, used in the Western hemisphere. But, as many things are special in
China, this part points out the most important characteristics. The last part sums up the main
results and finally, draws a conclusion.
2.3.1 Financial framework for foreign direct investments
The role and function of the financial sector in fostering growth has been a matter of debate
and concern for many years. While most analysts and policymakers will agree that a well
func tioning and efficient financial system can help promote economic development, there
continue to be disagreements about the ownership pattern and institutional structure of the
financial sector in most economies. In order to get a fundamental knowledge of financing
facilities, this part explains the basic features of China’s financial system.
24 China Business Review, August 13, 1998.
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