Discusses the legal requirements/options for joint venture/licensing in this market.
Last Published: 7/14/2017

A joint venture (JV) is a company whose ownership is split between foreign investors and Chinese investors. JVs are often established when companies enter industries that are required by law to have a local partner or are still heavily controlled by the government. The benefits of engaging in a JV for foreign investors can include low production and labor costs, taking advantage of local partner’s access to capital, technology, distribution channels, and local expertise  Chinese authorities’ interest in JVs stem from the desire to observe new technologies and management practices. However, forming a Sino-Foreign JV entails some degree of risk, such as loss of control of investment, theft of intellectual property, differences in business culture, and conflicts of interest. A U.S. company contemplating a JV should clearly understand what their partner brings to the table and what benefits there might be to establishing a JV rather than a WFOE. There are two types of JVs:

Equity Joint Venture (EJV)

  • The profits and losses of the EJV are distributed proportionately to each party and their respective interests and investments in the EJV.

  • The foreign investors must hold at least 25 percent of the equity interest in the registered capital of the EJV.

Cooperative or Contractual Joint Venture (CJV)

  • The profits and losses of the CJV are distributed to parties according to the provisions that were outlined in the CJV contract.

  • A CJV can operate as either a limited liability or a non-legal company.

  • The foreign investors are not required to provide a minimum foreign contribution, therefore allowing them to take part in a JV without owning a major share.

Regulations in China change frequently for all three structures listed above, so we recommend that companies seek assistance from professional service providers during the process of establishing a business in China.
 

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More Information

China Business Management Legislation