China JV lawyer

This is Part Four of our new series laying out the issues companies typically face and the steps our China company lawyers typically go through when forming a China Joint Venture. In Part One, we talked about how 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. We then discussed how the first thing we do is try to determine whether going into China via a joint venture makes both business and legal sense for the foreign company that has retained us.

In Part Two, we discussed how once both our lawyers and and our client are satisfied that doing a China Joint Venture actually makes sense generally, we see our next task as helping our client determine whether the Chinese company with which they are looking to form the joint venture is the right company for a China joint venture. In that post, we set out the questions to pose to your potential Chinese JV partner to tease out an answer to this.

In Part Three, we talked about what our China corporate lawyers do to try to determine early whether the Chinese side is truly interested in doing a Joint Venture deal with our client, or just feigning interest as a way of gaining access to our client’s intellectual property.

In this Part Four we talk about why it virtually never makes sense to do a Joint Venture with anything other than a Chinese domestic company.

Not sure why, but our China corporate lawyers have been seeing an uptick in Western companies looking to do joint ventures with WFOEs — Chinese companies wholly owned by a foreign company.  This almost never makes sense and is usually a sign of a deal that should be restructured or a flat-out scam. When a scam, the WFOE is usually owned by a Hong Kong company. This makes sense because many people do not realize that Hong Kong companies are not legally PRC companies. See The Legal Relationship Between China and Hong Kong and Why This Matters to You and Your Business, where we describe Hong Kong’s legal business relationship to China as follows:
When I would get asked this, I would usually start by telling American clients to think of Hong Kong’s relationship to China as being similar to New York’s relationship to China. For our European clients I would use London or Madrid or Frankfurt or some other European city as the example and for our Australian clients I would use Sydney. I would then say that for businesses, Hong Kong is essentially a foreign country when it comes to China.
It does not make sense for a foreign company to create a separate Sino Foreign Joint Venture Company in China in a situation where the Chinese-side owner of the joint venture will be a WFOE owned by a Hong Kong company or any other foreign country. Though legally possible under Chinese law, there are two reasons why this sort of deal does not make sense and is virtually never done:
1. The basic reason for doing a China joint venture is to allow a foreign entity to partner with a Chinese owned entity. The goal of the foreign entity is usually to benefit from the Chinese ownership, which will allow the JV to enter into businesses where some form of Chinese ownership is required. For example, Chinese medical institutions oftentimes do not like working with foreign entities and so joint ventures are often used in the medical field to deal with this “Chinese ownership required” issue. But a JV with a foreign entity does not address this issue.
2. The more important reason for why this sort of joint venture deal is virtually never done is because if the Chinese entity is a WFOE, a joint venture structure is simply not necessary. If a joint operation is desired, a foreign entity can simply purchase an ownership in the WFOE directly. Creation of a separate joint venture entity is not required and will invariably take longer to accomplish and cost more than simply taking part ownership in the foreign company that owns the WFOE or in the WFOE directly.
Joint ventures with China 0WFOEs. Very strange. Are you seeing these?
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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.