Sino-Foreign Equity Joint Venture in China

Things to remember

Things to remember when establishing a Sino-Foreign Equity Joint Venture

• Only start an EJV with a Chinese company when it has something really important to offer you, like good market access, infrastructure and premises or excellent local contacts.
• Make sure that your patents and trademarks are adequately registered in China so that you do not lose control over them.
• Check the investments (machines, buildings, land) made by your Chinese partner because Chinese companies tend to inflate their valuations. They often quote the original purchase price without taking into consideration the depreciation of value.
• Take care of adequate profits repatriation
• Try and enforce one of your own people as a general manager so that he can keep on eye on things and can make sure that your standards are being attained.
• Define your exit strategy clearly
• Do an accurate background check, or get a consultant office to do one for you, on the company you will be establishing the EJV with
• Before you are planning to make any type of investment, check the Interim Provisions for Guiding Foreign Investment and the Industrial Catalogue for Foreign Investment. These documents divide the possible investments into four categories: the encouraged, the permitted, the restricted and the prohibited category. Encouraged investments are, among others, new and high technologies, prevention of environmental pollution, comprehensive development of energy resources and investments made in the central and western regions of China. The prohibited category, on the other hand, includes projects that endanger state security, damage public interest, cause environmental pollution, damage public health, etc.

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