Establishing a Joint Venture (JV) in China is challenging due to its partnership nature. Unlike WFOE or RO, JV does not guarantee full foreign control because this kind of structure is formed with a Chinese local partner. Therefore, foreign investors should take this into consideration when planning about doing business in China.
Read our previous post regarding WFOE and Representative Office in China: A Quick Review
On the other hand, setting up a JV might just be an effective strategy to reach a much wider Chinese market and thus, expand the business. If you are interested to know more about what it takes to open a JV, keep reading!
The first step – knowing the Joint Venture structure
The New Foreign Investment Law that took effect since January 1, 2020, has amended the old structure of JV from Equity Joint Ventures (EJV) and Cooperative Joint Ventures (CJV) to a JV company with a three-tier structure. This means that the governing bodies will consist of the board of shareholders, the board of directors and manager.
Following the Company Law, the proportionate distribution of profits or dividends among shareholders is now based on a different approach rather than on the actual capital contribution. Furthermore, in terms of shares transfer, a shareholder is deemed to have given consent to selling shares if it does not buy them despite rejecting the transfer. Previously, the selling shareholder would need to obtain full permission from other shareholders.
Meanwhile, a JV structure enables foreign businesses to invest in industries labeled as ‘restricted’ under China’s Negative List. However, Chinese law requires that the Chinese JV parties shall hold majority shares in the JV to be established.
Qualifications of foreign and Chinese JV partners prior to application
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