Chinese Reassure Foreign Firms on Nationalization : Far East: China will change its law to specifically guarantee that the government won’t seize foreign property from joint ventures.

The Chinese government announced Thursday that it would amend a law on joint ventures, providing foreigners with some guarantees against a sudden nationalization or confiscation of their property.

Although the move is designed to lure foreign investment and expertise, foreign businessmen say the primary stumbling blocks to more overseas business--concerns over China’s political and economic climate--are still in place.

The government’s announcement trailed President Bush’s move to lift a ban on financing U.S. exports to China.

The People’s Daily said Thursday that the National People’s Congress will amend the law on joint ventures to specifically guarantee that the government would not nationalize or confiscate foreign property in joint projects.

The motion was made apparently to woo new foreign money, which stopped coming in as overseas concerns adopted a wait-and-see attitude after China’s bloody crackdown on student protesters in June.

“This is a very welcome step,” said a foreign businessman. “But it obviously does not remove all of our concerns.”

The draft revision, expected to be adopted at parliament’s session next year, would, however, allow confiscation under special circumstances but with “appropriate compensation.”

The amendment would also end restrictions on how long joint ventures may operate in China and would, for the first time, allow foreign partners to name the company chairman.

These are important concessions that foreign businessmen were seeking even before the June massacre in Beijing’s Tian An Men Square.

“But,” said a foreign legal specialist, “businessmen are looking at the political climate now, not just the fine-tuning of these laws.”

The existing equity joint venture law, passed in 1979 as part of a wider economic reform, ensured that the state would protect joint ventures but did not specifically rule out nationalization.

Wholly owned foreign concerns have obtained guarantees against nationalization under Chinese law, and a bilateral treaty with Japan has extended additional protection to Japanese investors.

“This (the planned amendment) is a symbolic move,” said John Frisbie of the U.S.-China Business Council in Beijing. “It would help reassure investors about China’s intentions.”

On Tuesday, Bush announced a decision to waive prohibitions on new loans, credit guarantees, insurance, and reinsurance deals from the U.S Export-Import Bank to back American exports to China. The bans had been imposed in reaction to the Chinese government’s crackdown on the fledgling pro-democracy movement.

Bush’s move appeared to be aimed at boosting U.S. exports to China, but the going may be tough, businessmen say.

In an effort to cool once red-hot inflation, China tightened import rules and credit, making it harder for Chinese companies to find cash to buy foreign goods.

“Business is slow,” said a U.S. businessman. “China is just not spending its money now.”

In the first seven months of 1989, U.S. exports to China totalled $4.5 billion, up 23.6% from the same 1988 period, according to U.S. statistics. Badly needed agricultural goods accounted for much of the rise.

U.S. imports from China climbed 41.1% to $8.58 billion during the same period.

Businessmen said a key factor in the recovery of the China market would be resumed lending by the World Bank, which also suspended new credits to China after June.

Bankers said commercial banks will be reluctant to offer new credit until then.

Some European diplomats speculated the resumption of loans by the U.S. Export-Import Bank was economically motivated.

“Basically Bush’s initiative was intended as a safeguard against U.S. companies’ losing out on major Chinese capital expenditure projects,” said a Western diplomat.

The move caught other industrialized nations off guard, diplomats said.

“The United States has gone out in front on this one,” said a European diplomat. “Some countries are angry at not being informed about it. But I should think they will follow suit soon.”