CHINA, which lacks no suitors for its lucrative infrastructure projects, is now torn between the need for foreign capital and a growing fear of being cheated by overseas partners in power plant joint ventures. The latest decision by the Shandong Government to withdraw from a power plant deal with several Hong Kong conglomerates is just part of a growing problem. It underlines the rising concern of Beijing authorities about investors coming in and taking the cream of the joint ventures. As China moves towards a market economy, the transformation of some Chinese state enterprises into shareholding companies has brought major benefits in terms of management and profits. The process has also helped overcome many difficulties encountered in restructuring and revitalising the debt-ridden state sector. However, the flip side of the coin is that some foreign investors may have taken advantage of the ignorance of the local partners when putting together the joint venture deals. In the case of the Shandong project, although it cannot be said that the foreign investors were involved in foul play, there are things that have unsettled the mainland authorities. Under the deal, a number of power plants would be put under the control of a new joint venture company with the consortium led by Goldman Sachs as the foreign entity. The consortium then placed the foreign shares to the Hong Kong companies at a premium price to the valuation cost upon which the joint venture was formed. Everything went well until the local government began to wonder whether the deal was done at the expense of the mainland partner, and whether there were better ways to finance the project. To convert state enterprises into a shareholding structure, it is necessary to make an inventory of their assets, define the property rights and clarify debts. The Shandong project has also undergone such a valuation by the mainland authorities. The present problem, however, is that the private placement of the shares to overseas investors at a premium by the Goldman Sachs-led consortium virtually suggested thevaluation already done was ill-advised. Meanwhile, as the Shandong authorities are looking to float the power plant project either on the mainland or overseas, the way the shares were being placed would have confused potential investors over the true value of the project's assets. Understandably, Beijing and local authorities are becoming more alert to the formation and valuation of joint venture projects. In the first 10 months of this year, foreigners' actual investment has jumped 142 per cent to US$17.2 billion compared with corresponding period last year. This growth is partly attributable to the preferential terms offered to foreign-backed joint ventures. With the loss of state assets in joint ventures becoming a serious problem in recent years, it is perhaps time for action to prevent foreign malpractice and increase supervision of mainland partners.