Overview of Sino foreign Joint Ventures

Although the Chinese government continues to open up various industries to foreign investors, there are still restrictions for foreign companies without joint venture partners in specific fields.

However, the Chinese government encourages local companies to collaborate with foreign investors to integrate technology, investment, and management experience, while making it easier for foreign companies to enter the market and expand their market share.

Types of joint ventures in China

There are two forms of Sino foreign joint ventures recognized by the Chinese government: equity joint ventures and cooperative joint ventures, depending on the investment method and liabilities.

Equity joint venture

Equity Joint Venture (EJV) is established by Chinese and foreign partners based on the principles of mutual benefit and limited liability. Foreign investors are required to contribute at least 25% of the company’s equity. According to the total registered capital of the joint venture, this ratio can be increased up to 70% (up to a maximum of 3 million US dollars). Investments can be cash, real estate, industrial property, equipment, or technology, and their ‘market value’ needs to be evaluated by an independent third party. Failure to obtain investment funds within a specific time window may result in fines.

Cooperative joint venture

Cooperative joint venture (CVJ), also known as contractual joint venture, has two forms: limited liability or unlimited liability. The requirements and regulations for establishing limited liability cooperative enterprises are very similar to those for joint ventures. Foreign entities should provide the majority of funding and technology, while Chinese partners should provide land, facilities, natural resources, manpower, and limited funds. Compared with EJV, the main difference is that there is no minimum capital requirement for foreign investors.

Unlimited liability partnerships are completely different from joint ventures and limited liability partnerships. Unlike the former, infinite cooperative enterprises provide a way in which the negotiated partnership can be influenced by two partners. In this way, foreign partners can provide capital or expertise that is not directly related to the equity of the partnership enterprise. This means that partners can hold minority stakes in the partnership enterprise. In addition, partners do not need to establish new entities to represent them; The two partners of the joint venture directly provide funds, assets, and technology in accordance with the terms of the joint venture (including management). Since the control of the partnership enterprise does not rely on equity, foreign partners can also recover their investments in the event that the joint venture ends and returns to the Chinese partner, as long as these terms are written in the articles of association at the beginning of the joint venture.

Is a joint venture necessary today?

There are still many industries in China that are closed to foreign companies, usually on grounds of heritage or national security. For example, hotels, chemical and automotive companies. If you plan to conduct business in these limited areas, you still need to collaborate with Chinese partners to form joint ventures.

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