China Joint Ventures

Despite the increasing difficulties with doing business in China (or perhaps because of those difficulties), our China corporate lawyers are seeing an increase in foreign companies looking to do joint ventures in China. This is the first part in a new series of posts in which we will explore the issues involved in forming a China joint venture, from beginning to end.

Our firm usually gets a China joint venture matter when a company calls or emails us, saying they are “looking to do a China joint venture” and asking us if we can help. Our immediate answer is to say yes we can, because we can.

Our first questions to this foreign company are usually geared to telling us whether a joint venture makes both business and legal sense for the foreign company. We usually get at this by asking the foreign company why it is looking to do a China joint venture and what specifically its joint venture will do in China. We then listen to their explanations with an eye toward determining whether a joint venture is necessary on either legal or business grounds. China’s economy remains closed to foreign businesses in many industries and part of that closure involves requiring foreign companies enter into the Chinese market only via a joint venture.

If Chinese law does not legally limit market entry to joint ventures, we then seek to determine whether a joint venture makes business sense. Oftentimes, we will at this point ask the foreign company about their prior experiences in and with China and their prior experiences in other countries around the world. The experience in China question is deployed to gage their knowledge of China. The question about their experiences around the world question are to gage how they typically enter foreign markets — more specifically, whether they use joint ventures or not.

Around half the time it quickly becomes apparent to us that a joint venture will likely be a bad idea. Generally (though not always), if you can go into China via a Wholly Foreign Owned Entity (WFOE), doing so is preferable to a Joint Venture. For the long (but not too long explanation) for why this is the case, I urge you to read this article I wrote for the Wall Street Journal about a decade ago, entitled, Joint Venture Jeopardy. Generally (though not always) if you can go into China via a manufacturing contract, a reseller agreement, a distribution agreement, or some sort of service agreement, doing so will also be preferable to a Joint Venture.

If our China corporate lawyers initially believe that some way of going into China other than via a joint venture would be preferable for the foreign company, we tell them that and we explain why we see things that way and we ask them whether they agree with our assessment. Roughly 50 percent of the time the foreign company will tell us that they did not realize they had other options and they would like to discuss those other options with us. Many times, these same companies tell us that their putative Chinese joint venture partner had claimed that doing a joint venture was legally necessary and they feel (rightly) deceived upon learning this was a lie.

Roughly 50 percent of the time the foreign company will reveal that they fully understand they have options other than a joint venture for going into China or for doing business in China, but doing a joint venture makes sense for them because of what their putative Chinese joint venture partner will be able to contribute. At that point, we usually tell them how they can secure those same contributions from that same Chinese company, but via a contract, and we ask them whether that might make sense for them. Much of the time their response to that will be something along the lines of how they understand all this but their potential Chinese joint venture partner is well-positioned to help them in China and it has made clear it will do so only via a joint venture. Other times the foreign company has never had a “joint venture versus no joint venture” discussion with its Chinese counter-party and it decides it should have such a discussion before moving forward in forming a joint venture.

At this point we move forward with the joint venture for those foreign companies that still wish to go into China as a joint venture and we move forward along other avenues for those who are now uncertain whether a joint venture makes sense or have determined that a joint venture is not for them.

In our next post, we will discuss what is usually our next step for those moving forward on the China joint venture track — how to determine whether the Chinese company with which they are looking to form a joint venture is the right Chinese company with which to form the joint venture.

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Photo of Dan Harris Dan Harris

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network. 

Dan is a founder of Harris Bricken, an international law firm with lawyers in Los Angeles, Portland, San Francisco, Seattle, China and Spain.

He primarily represents companies doing business in emerging market countries, having spent years building and maintaining a global, professional network.  His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, setting up a legal framework to move slag from Canada to Poland’s interior, overseeing hundreds of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

He was named as one of only three Washington State Amazing Lawyers in International Law, is AV rated by Martindale-Hubbell Law Directory (its highest rating), is rated 10.0 by AVVO.com (also its highest rating), and is a recognized SuperLawyer.

Dan is a frequent writer and public speaker on doing business in Asia and constantly travels between the United States and Asia. He most commonly speaks on China law issues and is the lead writer of the award winning China Law Blog. Forbes Magazine, Fortune Magazine, the Wall Street Journal, Investors Business Daily, Business Week, The National Law Journal, The Washington Post, The ABA Journal, The Economist, Newsweek, NPR, The New York Times and Inside Counsel have all interviewed Dan regarding various aspects of his international law practice.

Dan is licensed in Washington, Illinois, and Alaska.

In tandem with the international law team at his firm, Dan focuses on setting up/registering companies overseas (via WFOEs, Rep Offices or Joint Ventures), drafting international contracts (NDAs, OEM Agreements, licensing, distribution, etc.), protecting IP (trademarks, trade secrets, copyrights and patents), and overseeing M&A transactions.