In recent decades, more and more multinational companies had set up in China and started to cooperate with local companies in various industries like manufacturing, retailing, shipping, etc. The better economic situation driven by the growing foreign investment together with the gradually industrial upgrading, creates a friendly and beneficial environment for the establishment and development of foreign and joint-venture companies.
Joint ventures between foreign companies and local companies in China may provide a way for them to enter a market where their contractual rights and remedies may not be available or fully accepted. Joint ventures may additionally provide access to market resources and to local organization, a source of local expertise, the stability of ownership and the capacity to share profits and risk. In the Chinese context joint ventures are seen as more advantageous than wholly owned foreign investments, with governments often offering more privileges to foreign companies entering into joint ventures with domestic companies instead of operating in China wholly as a foreign owned entity.
Foreign companies engaging in joint ventures in China should ensure that detailed and comprehensive negotiations are conducted prior to signing any agreement in order to clarify all aspects of the prepared joint venture and consider the potential problems that may arise between the parties. The terms of the joint venture agreement will be seen to define the rights and liabilities of the parties, and the form of organization of the venture itself, normally a Chinese legal entity. Chinese regulations require that all joint ventures be registered with the local government and be subject to annual audit and filing obligations. In order to effectively protect their rights under the joint venture agreement, foreign companies engaging in a joint venture must ensure that an effective dispute resolution clause is incorporated into the joint venture agreement.
In the course of implementation, the joint venture should establish the necessary organizational, management and technological structure, the production and supply management system, and the quality control, assets management, fund management, safety assurance and foreign exchange management system, etc. Each party should respect, trust and support each other, fulfill all contractual obligations on time, and maintain good communications and cooperation.
Furthermore, the matters related to taxation, technology introduction, execution of investment and project, recruitment of personnel and selection of cooperative technology, etc., should also be negotiated in detail and stipulated in the formation agreement and other contractual documents of the joint venture. After the joint venture is formed, each party may appoint a supervisor to monitor the operation of the joint venture.
In the China joint venture company there are many potential problems that both sides need to be aware of. Entirely breaking away from the traditional way of thinking and renegotiating the established rules are usually difficult. Thus foreign companies should be aware that in joint ventures with Chinese companies, there may be a need to accept particular standards and conditions that would be less than ideal in a contractual or other business relationship in another country.
From the legal point of view, it is important for foreign companies to clearly understand the nature of their commitment, labor laws, taxation issues, environmental requirements and fluctuations in currency. Similarly the people working on a joint venture in China need to have the required experience and knowledge to manage the different modalities of cooperation and the challenges and opportunities posed by the cultural differences.
In conclusion, although joint venture companies in China have many legal challenges to overcome, many successful partnerships have been established. Good communication and knowledge of Chinese laws, language and culture are essential for the successful partnering of foreign and Chinese companies and can lead to great rewards.
