China Joint Venture Success “A Mindset” Rather Than A Legal Structure

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May 26 – The Asian CEO forum took place this morning at the Grand Hyatt in Shanghai, where guest speaker Chris Devonshire-Ellis tabled the notion “China Joint Ventures – A Mindset or A Legal Structure?” in a two hour think tank session with some of China’s top multinational CEOs.

The event, organized by IMA Asia, was a round table discussion examing the pertinent management methods of a successful JV in China. The main issues that came out of the debate were as follows:

  • It is important to select the right JV partner to fit your goals and not to compromise on this
  • JVs are seen essentially as a strategic investment to later exit from or convert to a WFOE, consequently an exit strategy and performance triggers need to be built into the agreement up front
  • The issue over controlling equity is largely irrelevant unless dictated by the regulatory environment
  • Chinese partners will accept the international practice as regards SOX and FCPA requirements
  • Chinese State-owned enterprises are increasingly becoming internationalized and have made great improvements in capabilities
  • The goals and aims of both partners need to be constantly evaluated and tested to ensure desires of each are on track
  • Too much emphasis on the legalities and rights of the foreign investor can be detrimental to the ambiance of the JV
  • It is better to give leeway in disputes rather than to stick rigidly to contractual terms
  • Negotiation is far more preferable in dispute resolution than arbitration
  • JVs are increasingly being seen as a vehicle to fast track China investments

In terms of the motion “Mindset or Legal Structure” the consensus was that while both were important, the legal structure merely provides the skeleton while the mindset of operating a JV was crucial to its success.

Chris’ series of articles and commentary concerning China Joint Ventures as a Strategic Investment can be found here while his comments on operating 50-50 JV partnerships can be found here.

Chris Devonshire-Ellis is the principal and founding partner of Dezan Shira & Associates, establishing the firm’s China practice in 1992. The firm now has 10 offices in China. For advice over China strategy, trade, investment, legal and tax matters please contact the firm at info@dezshira.com. The firm’s brochure may be downloaded here. Chris also contributes to India Briefing , Vietnam Briefing , Asia Briefing and 2point6billion

China Briefing’s Guide to Setting Up Joint Ventures in China is also available from the China Briefing Bookstore priced at US$25 plus P&P for the hard copy and US$40 for the pdf.