BUILDING contractor Fung Cheung Kee has formed a HK$70 million joint venture in China to carry out quarrying activities and supply materials. Under the deal, Fung Cheung Kee subsidiary Fung Li will inject cash or equipment worth $65 million in three instalments and Heyuan City Communication Development Co of Guangdong will put in natural resources, including a quarry and the use of adjacent land. The Chinese party's investment will come to $5 million. The venture will focus on quarrying sand and aggregates, production of concrete, and building of roads and bridges in Heyuan and neighbouring areas. Fung Cheung Kee finance director Sin Wai-sang reckons production will start in the third quarter and that the pay-back period will be relatively short. Fung Cheung Kee will swallow up 85 per cent of profits generated before it has recovered its investment, and 70 per cent thereafter. The group's initial $35 million investment will be channelled into the purchase of machinery, infrastructure work on quarries, and working capital. The company, which raised $128 million when it listed in Hongkong last August, will fund the expenditure from internal resources. Mr Sin said sand, aggregates and concrete were in increasing demand, despite a more than doubling of nominal prices. According to the firm, the average cost of a cubic metre of aggregate at the end of last year was 20 yuan - now it is 50 yuan. The yuan has been gradually devalued during this period. Despite this, present supply cannot meet increasing local demand. Fung Cheung Kee is looking to further expand into large-scale supply of other building products, and is ferreting out possible roles in construction and development projects in China. The directors believe the joint-venture arrangements with the Chinese side are a significant step towards achieving this aim.