At the China Law Blog, Steve Dickenson explains:

China is awash in money these days and plenty of Chinese companies have plenty of it. What Chinese companies really need is good technology. However, they do not want to pay for that technology. Their goal is to “assimilate” foreign technology with minimal expense. One of the techniques they use to accomplish this is the fake investment scheme.
 
Here’s how it often works. A foreign (usually a U.S., Canadian, European or Australian) company develops an innovative technology. To implement the technology, the foreign company contacts a Chinese manufacturer with the goal of entering into a product development relationship. The Chinese manufacturer will take the basic technical idea and ultimately produce a prototype for commercial manufacture.
 
There is a catch. The Chinese company is interested in the project not so much because it wants to become a low margin manufacturer of a product for the benefit of a foreign company, but because it wants to use the technology to develop and manufacture its own line of products.

The entire post is available here.