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Business In China Explained: Joint Ventures
Joint Ventures are still seen as the most viable way of entering the Chinese market.
Although many companies are beginning to take a risk by establishing WFOEs, Joint Ventures are still seen as the most viable way of entering the Chinese market (alongside Representative Offices). Not only are Joint Ventures more likely to gain government approval, but they also bring the knowledge and experience of a local partner.
No one wants to relinquish any control over their company, but when you're dealing with the Chinese market, you make a big decision: set-up a WFOE and retain complete control, but with no essential local help; or set-up a Joint Venture, give up some control, but reap the benefits that a local partner can provide.
And that's why Joint Ventures are so popular: they exploit market knowledge, win preferential treatment and manufacturing capability, and acquire the general business know-how.
Joint Ventures are invariably granted on a fixed-term basis generally 30 50 years. Unlimited time-scales can often be approved too. As with most business, profits are distributed in accordance with equity invested.
Shareholdings are generally non-negotiable and cannot be moved with permission from the appropriate Chinese authorities. However, this is something which is expected to change over time.
Although there is no minimum prerequisite for investment by the local partner, the foreign partner must contribute a minimum of 25%. There are particular regulations on the management structure of Joint Ventures, but the position of chairman can be held by either the local or foreign partner.
Upon registration of a Joint Venture, it is then considered a legal Chinese entity. It must therefore abide all Chinese laws. A Joint Venture is free to employ indigenous workers, but must obviously adhere to the labour law. And unlike other forms of business, such as Representative Offices, Joint Ventures are also permitted to buy land and build offices.