How to Survive a China Joint Venture

China Joint Ventures

Earlier this week, I was talking with a client regarding a potential China Joint Venture (JV).  In our initial conversation, I told him how difficult it is to do joint ventures correctly from a legal perspective and of how negotiating joint venture deals can be so time consuming and then I had to run off to a meeting.

A few days later, we resumed our call.

In our second call, the client told me he had since spoken with a high school friend of his, who is the General Counsel for a large international auto parts manufacturer. The client told me his friend says that for a Joint Venture to work in China, the American company needs to “have someone in China pretty much all the time to monitor the day-to-day goings on at the Joint Venture.” Without this, said the General Counsel, the Joint Venture would be doomed to fail. The client asked me if I agreed with that and I immediately said “yes.” I then relayed how the China JV lawyers at my law firm are of the view that successful China Joint Ventures nearly always involve close monitoring of the joint venture by someone who both knows China and can be 100% trusted by the foreign joint venture partner. Without that, the chances of a joint venture working out for the foreign company are slim.

The Foreign Entrepreneurs in China blog recently did a post, A Joint Venture Survival Guide. 22 Facts and 22 Practical Tips. [link no longer exists] This post includes the need to monitor and a whole lot more. If you are in a Chinese Joint Venture or contemplating entering into one, you should check out that post and to whet your appetite for it, I list my five favorites from it below:

  • The foundations for the success of your China Joint Venture will be laid before you sign the deal.
  • Put in writing what will happen to your China JV and to your participation in it if and when things start going wrong.
  • Your potential Joint Venture partner’s “connections” can be a double-edged sword.
  • “Let me guess: your Chinese partner wants to contribute the land to the joint venture.”  I love this one because it is virtually always true and it is virtually always true that your potential partner will value it at more than double its true market value.
  • The employees of your China Joint Venture will be used by your Chinese joint venture partner to “suck your money away” from you.

For more on what it takes to succeed with a China joint venture, check out Chinese Joint Ventures — The Information The Chinese Government Does Not Want You To Know and Joint Venture Jeopardy (an article I wrote for the Wall Street Journal)

What do you think?

2 responses to “How to Survive a China Joint Venture”

  1. The basics of a successful joint venture are that both (or more) partners have the same interest, the same objectives, that they are committed to the success of the JV.
    Investors in JV are PARTNERS, not adversaries.
    If the foreign and chinese staff have worked together 48h hours without a break to meet the deadline of a project, if managers and ordinary workers filled sandbags to save the plant from flooding, then you WILL have a successful JV.
    all legal considerations are nice, are necessary, but they can only minimize the damage, they can’t make a JV successful.
    what i really don’t like is the attitude that there is more cheating and less business ethics in China than in other countries. Many things in China are not ideal, but believe me, other countries aren’t better.

  2. Well said Volker. The attitude JVs are bad and the Chinese always cheats is not correct. Our Shanghai JV is fine and good and has been for the past 12 years. And it is a 50-50 arrangement.

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