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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Sam who wrote (7388)	11/4/1998 10:28:00 AM
From: Thomas M.	Respond to of 9980

This is an excerpt from the mid-year report of the Cathay Invesment Fund. It's indicative of the hazards of investing where the rule of law is shaky. Cathay is a fairly savvy, well-connected bunch, and they're getting raped here. <<<<< Cathay acquired its 17.83% interest in Luoyang Chundu Industry Co., Ltd. in 1994 for an investment of approximately $12 million. While the market for sales of top-branded consumer products (like those of Chundu) has remained strong, the Chinese shareholder in the joint venture, Chundu Group, has taken certain actions in an effort to secure more of the benefits of the joint venture's business for itself, to the detriment of foreign investors. These actions included reselling raw materials to the joint venture at "marked-up" prices and secretly establishing competing sausage factories that produced and sold Chundu-branded sausage in competition with the joint venture and in some cases, we are told, using joint venture assets. All of these actions are in violation of the agreements establishing the joint venture and, we believe, in direct violation of Chinese law. In November 1997, the foreign shareholders took the extraordinary action of dismissing top management of the joint venture (who had been appointed by Chundu Group) and bringing an arbitration against Chundu Group in Stockholm, Sweden, as provided by the joint venture agreements. This, however, has not to date stopped the abuses described above. In July 1998, the foreign investors and Chundu Group met in talks sponsored by China's Ministry of Foreign Trade and Economic Cooperation in Beijing to explore a possible resolution of the dispute. >>>>>