China joint venture lawyer
Negotiating the Chinese joint venture maze

We have recently been getting an onslaught of foreign companies (mostly North American and European) looking to do joint ventures in China. China joint ventures tend to be cyclical, rising when the business climate in China is for any reason difficult, and falling when it gets easier. It would seem we are in yet another Chinese joint venture up cycle.

One of the first things we always seek to do when contacted by a company seeking legal assistance on their China joint venture deal is to try to figure out what they want our role as lawyers to be, so we can provide them a good fee estimate. there are three basic things lawyers typically do when providing representation on a China joint venture deal: 1) provide counsel regarding the joint venture agreement; 2) provide counsel regarding the joint venture entity formation; and 3) do the actual work involved in forming the joint venture entity itself.
In our initial communications with potential and actual joint venture clients, we seek to discern what our role will be on all three of these things, especially the third one: how much involvement our firm’s lawyers will have in forming the China joint venture. If the Chinese side (or its lawyers) are experienced with how to form a joint venture, it usually behooves our client to let the China side handle that aspect of the transaction, with our role being to simply oversee that process to make sure it goes smoothly. The below email is from one of our lawyers to a new client that just retained us to provide it legal counsel regarding its China joint venture deal. I am running that email today because it provides a good overview on some of the common issues that arise in China joint venture transactions, while also nicely setting out the different roles your China attorney might play in such a deal.
It appears you want me to review documents, with the actual work forming the entity and setting up the factory to be done by your JV partner.
I briefly reviewed briefly the JV contract. The document is written in a common law style, but it is clear and complete. Are you certain you want to operate in China in JV structure? Are you certain the proposed amount of capital will be sufficient to set up and begin operations for a manufacturing venture? Are you certain you are willing to contribute ownership of your intellectual property to the JV company? Are you certain you would prefer to transfer ownership of your IP to the JV company, rather than just license your IP to that entity? Are you certain you are willing to earn income from this project solely from distribution of profits from the JV company? Are you certain you are willing to give full control over this project to the Chinese side? Your JV contract assumes you can exercise some form of control through the board of directors, but this is an illusion.
If your answer to all of the above is yes, then my review of the documents would be extremely limited. If your answer to any of the above is no or that in light of my questions you are not clear on how you wish to proceed or simply that you need more information, then I would provide for a normal review, outlining the issues. However, if you already understand and are ready to move forward on the basis of this contract, there is no need for this step.
Finally, note that forming a foreign invested enterprise in Shenzhen is a difficult process. Though your partner will be dealing with the Chinese side, much of the process and much of the delay involves obtaining information and authenticated documents from your company and very few Chinese companies (or even Chinese lawyers) have experience in that process. You should discuss with your partner how you will handle that side of the formation process. Note also that setting up a factory in Shenzhen involves all sorts of required documentation and is a complicated and time consuming procedure. However, if your Chinese JV partner has all of the above under control, none of this should raise any issues. You should, however, ascertain whether they understand the JV formation process. In our experience, most Chinese “partners” do not understand this process, which can cause confusion and delay and added expense down the road.
As always, if you have any questions, please do not hesitate.
For more on China joint ventures, check out the following: