China Law Blog

Finding myself reading and liking the Think China blog. The blog's about page describes its author as follows:

Grew up in Hong Kong, I have a unique perspective on China - while by no means an expert, I have a strong interest in China’s culture, language, people, social and business environments, and most of all, the country’s rapid development in recent years.

Whoever this person is, he/she understands China and is willing to put forth independent ideas on it. The blog itself seems to focus on current events, with somewhat of a slant towards business.

I particularly liked its post on the Wahaha/Danone dispute, entitled "The Wahaha Mess"

Think China sees Danone as unable to "win this fight, regardless of who is right and who is wrong:

Danone is fighting a legal battle while Zong is fighting a practical one. What is Danone going to do without Zong? Apparently nothing much - Like they teach in business school, in any negotiations, you’d have to know what your BATNA (stands for Best Alternative To Negotiated Agreement) is. Danone does not have much of a BATNA and Zong is well aware of it.

The post goes on to note how Zong of Wahaha is playing into China's public sentiment:

Zong’s responses in public reflects a common sentiment of Chinese entrepreneurs:

1. “Such an agreement is ‘not fair” because it restricts Wahaha’s growth while letting Danone acquire Wahaha’s rivals” - Here, history plays a part. China has historically entered into many unequal treaties as part of war settlements. In China negotiations, I’ve encountered the concept of fairness often. If you have these rights, we want it too.

2. “Danone invested 1.5 billion yuan (US$194 million) in the ventures with Wahaha without actively managing the companies and made a profit of 3.8 billion yuan out of them” - There is little value placed on capital risk, especially when it is from an institution.

The post then comments on how Danone and Wahaha entered into their Joint Venture (JV) agreement "with different agendas." Danone wanted to build a China presence while Zong of Wahaha wanted "to learn best practices from global player." This "inherent misalignment of interests" made their JV "unsustainable."

I too have experienced Chinese counterparties greatly undervaluing (at least from my perspective and that of our client) the value of the money our client is putting at risk in a venture. Of course, I can never be sure if the Chinese counterparty truly undervalues our client's proposed monetary contribution or is just doing so for the sake of negotiations.

For more on what can be learned from the Danone Wahaha joint venture dispute, check out this Wall Street Journal piece, entitled, "Joint Venture Jeopardy", I wrote a couple of months ago and watch for an in-depth article Steve wrote for the upcoming issue of The China Economic Review, based on a speech he recently gave for JP Morgan (Hong Kong) and its Asia investors.