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To: djane who wrote (7688)	10/2/1999 1:11:00 AM
From: djane	Read Replies (1) \| Respond to of 29987

China Unicom Will Deny Payment To Foreign Firms in Joint Ventures October 1, 1999 Business and Finance - Asia By IAN JOHNSON Staff Reporter of THE WALL STREET JOURNAL BEIJING -- A widely watched Chinese trade dispute intensified sharply this week, as more than two dozen foreign companies were told that starting Friday they would be cut out of money earned by their joint ventures. The companies, including Motorola Inc., Nippon Telegraph & Telephone Corp., France Telecom SA, Bell Canada International Inc., Sprint Corp. and Cable & Wireless HKT Ltd., a unit of Cable & Wireless PLC, have invested upwards of $1.4 billion in joint ventures with China United Telecommunications Corp., or China Unicom, the country's No. 2 telephone carrier. More than a year ago, the Chinese government began to hint that the investments were made illegally, contravening a technical ban on investments in China's telecommunications industry. China Unicom, which used the money and the companies' technical expertise to build up its mobile-phone network, has offered to repay the invested money, plus a small amount of interest. Few of the foreign companies, however, agreed to be bought out, citing the low return on investment they would receive and the value they had created for China Unicom, which plans a multibillion-dollar initial public offering next year on foreign stock exchanges. Increasing Pressure Now, according to a letter sent to the companies, China Unicom has increased the pressure on the multinationals to settle by barring them from receiving money earned by their joint operations. "Unicom cannot make any distribution of cash flow newly generated by the cooperative project after Oct. 1, 1999; also, compensation for your company's financial contribution to the cooperative project will not be paid for ... after that date," according to the letter. "Unicom is looking forward to our next meeting with you." China Unicom officials declined to comment on the letter, and government officials had left their offices early for weeklong National Day celebrations, which begin Friday. Foreign companies declined to comment. The dispute started four years ago, when China Unicom was strapped for cash and worked with foreign companies to devise an investment structure called "China-China-foreign," to skirt the technical ban on foreign participation in the telecommunications industry. Government officials now say the structure is illegal, although telecommunications analysts say Beijing hasn't directly ordered China Unicom to break the contracts for fear of making China liable under international laws that forbid confiscation of property -- which is what the order could be construed to mean. Government Message Earlier this month, the government issued a directive to China Unicom that didn't specifically require it to break its contracts, instead ambiguously calling on it to "rectify" its investments with foreign companies. China Unicom referred to the directive in its letter Wednesday, saying it forced the company to act. The move comes amid ambiguous signals about the future of China's telecommunications industry. Foreign companies have been told they might not be able to participate in China's booming Internet business, while the country also has stepped up efforts to limit sales of foreign telecommunications parts by enforcing quotas on imported goods. Yet China also continues to negotiate to join the World Trade Organization, a move that would force it to open its telecommunications industry to greater foreign investment. Write to Ian Johnson at ian.johnson@news.awsj.com Return to top of page \| Format for printing Copyright ¸ 1999 Dow Jones & Company, Inc. All Rights Reserved.