Access guides, information and other resources to learn about doing business in international markets. Some of the top Chinese automotive companies are almost entirely dependent on selling overseas brands. Goldman Sachs plans to acquire 100 per cent of its mainland Chinese joint venture, the latest global bank to seek full control of its business as Beijing further opens up the financial sector. No one understands a business in China like we do, Copyright © 2008-2020 Hawksford. Once the partners are chosen, several documents need to be drafted or obtained, including the following: After the foreign and Chinese counterparts reach an agreement on establishing a joint venture together, a letter of intent (LOI) should be drafted. At the same time, the Foreign Investment Law, as currently passed, is more h… JVs should apply for the name registration within 30 days upon receiving the approval of the project proposal. Establishing a joint venture in China A joint venture (JV) is a form of foreign invested enterprise (FIE) that is created through a partnership between foreign and Chinese investors, who together share the profits, losses and management of the JV. Where the financial and procedures of a joint venture are inconsistent with the provisions of the Tax Law, the tax liability shall be determined according to the provisions of the Tax Law. This article introduces how to establish a joint venture in China, including basic requirements, procedures, and timeline. Request a quote now to take the next step towards your dream business. Until now, foreign players could only own up to 49% in a Chinese fund management firm. Additionally, government officials are barred from utilizing administrative measures to cause forced technology transfers. Once a business license is issued, certain post-registration formalities must be completed including: JVs are also required to appoint at least one individual (of any nationality and residency) as the supervisor of the JV. By entering into a joint venture, overseas investors may benefit from marrying the expertise and knowledge of local conditions from the Chinese side, with the advanced technical knowledge and management expertise they bring to the table. It is strongly recommended that prior to choosing this form of investment vehicle you consult with the foreign partner of an existing JV in order to better understand the advantages and disadvantages of the JV structure. Foreign investors may wish to engage a consulting company to represent their interests while establishing the JV, benefiting as well from their long standing relationships with local authorities and procedural know-how. Office relocation requires a tax clearance declaration report, essentially an audit of the company. For more specific information or questions related to your foreign invested enterprise, please contact us. have a Chinese joint venture partner which means that an EJV (equity joint venture) or cooperative joint venture (CJV) must be used [The term ‘foreign invested enterprise’ (FIEs) is used to refer collectively to all the varieties of foreign owned enterprises used for conducting business in the PRC].The government is Apply for financial support, or take part in programs that help innovative or growth-oriented firms, and underrepresented groups. Over two thirds of these were foreign models manufactured by Chinese joint ventures. A Chinese Commerce Ministry official suggested at a conference in 2013 that the joint venture rule might be lifted, noting that China wanted to see its automakers start exporting to the West. The supervisor’s primary role is to monitor the affairs of the JV and the directors of the JV, and to report any irregularities to the board of directors of the JV and to the investor(s) of the JV. The project proposal should contain the overall assumptions of the structure in which both sides will be stated as investors. The joint venture agreement must make clear that the General Manager is an employee of the joint venture company employed entirely at the discretion of the Legal Representative (whom you have the power to appoint and remove). Differently from WFOEs (Wholly Foreign-owned Entity) and Representative Offices, a joint venture involves at least one Chinese partner which can be either an individual or a corporate. Before moving forward, it is important to determine if the foreign company is qualified to create a JV under China’s Negative List. As certain Chinese markets liberalise and allow foreign investors, the local expertise offered by Chinese joint venture partners could prove invaluable. The need for a registered address and the assignment of entities to commercial or industrial locations depends on the specific business and industry that the JV will target. As a foreign investor, there are two major reasons to create a JV: This is the amount of capital required to start-up the business until it becomes self-sufficient from its investors. This amount is fixed in the articles of association of a JV, and constitutes an investment commitment (subject to any increase or decrease of registered capital approved by the government). Access useful information and reports on markets and sectors abroad. The JV’s investors must pay 15% of the registered capital of the JV within the first three months after issuance of the business license (similar to a certificate of incorporation under Canadian law), with the balance due within the first two years. Specifically, multinational firms seeking to conduct foreign direct investment (FDI) in China are often required to form legal business relationships with a domestic Chinese partner, typically in the form of international joint ventures (IJVs) that establish a new offshoot firm. The Foreign Investment Law has been widely promoted as a framework that will emphasize equal national treatment of foreign investment, putting foreign investors on equal footing with domestic investors in the Chinese market and giving them equal protections. A CJV may be structured as a limited liability company or a non-legal person entity where profits are distributed in any agreed way. Article 25 The accounting vouchers, books, statements and reports adopted by joint ventures shall be kept in the Chinese language, or in both Chinese From a high-level perspective, the Foreign Investment Law embodies China's resolve to continue to modernize its laws to reflect the changing global economy. The local Administration of Industry and Commerce (AIC) in the municipality which is responsible for the registered address of JVs normally requires a list of potential company names to be submitted and holds the final say in whether one of those names is approved or not. The power to appoint and remove the General Manager of the China joint venture company. Though there is no minimum registered capital required, the proportion of the investment contributed by the foreign investors shall generally not be less than 25% of the registered capital of the company. Following the letter of intent, the Chinese partner is responsible for the preparation of the project proposal. Joint Ventures (JV) are one of the corporate structures available to foreign investors to invest in and have access to the Chinese market. A JV is a limited liability company, where the liability of the JV’s investor(s) is generally limited to the assets of the JV. Plan for the tariffs, sanctions, and export/import controls that you may encounter when exporting abroad. Equity Joint Venture (EJV) The Equity Joint Venture (“EJV”) is probably the most common of the foreign investment vehicles in China. If the right to the use of the site does not constitute a part of a Chinese partner's investment, the joint venture shall pay the … Joint ventures are usually established to exploit the market knowledge, preferential market treatment, and manufacturing capability of the Chinese side along with the technology, manufacturing know-how, and marketing experience of the foreign partner. Once the approval certificate has been received, investors must apply and register for a business license with the AIC. The lender was bidding for an extra 20% stake in its mainland business, J.P.Morgan Futures Co., a joint venture … The incorporation process of a JV normally takes 5 to 6 months as it can be a complex corporate vehicle. Funding and support for international business, PRC Foreign Investment Industrial Guidance Catalogue, Canadian Trade Commissioner Service in China, when entering a certain industry requires a local partner according to the restrictions outlined in the. With 100 multilingual professionals based in Shanghai, Beijing, Suzhou, Guangzhou and Shenzhen, we are able to offer the very best local knowledge to our international clients. When receiving the approval of the project proposal, a feasibility study shall be prepared by both parties. Answer a few short questions to assess your readiness to do business abroad. For Shanghai’s SAIC, 89 percent of the passenger cars it sold last year were from joint ventures with General Motors and Volkswagen. The China Securities Regulatory Commission (CSRC) over the weekend gave formal authorisation for foreign players to apply for a 51% ownership in a Chinese fund management firm, according to guidelines (in Chinese) released by the regulator. The JV model presents a variety of options for management and financial structures broadly divided into the following two groups: CJVs require the same two-tiered management as EJVs. While preparing the incorporation steps, investors need to select a leased office space for future business operations and to domiciliate the corporate entity. It is recommended that a clause be added to the lease voiding the contract without penalty should the JV application be rejected. Equity joint ventures are the second most common manner in which foreign companies enter the China market and the preferred manner for cooperation where the Chinese government and Chinese businesses are concerned. A joint venture (JV) is a form of foreign invested enterprise (FIE) that is created through a partnership between foreign and Chinese investors, who together share the profits, losses and management of the JV. In November 2018, the company announced new Chevrolet models for the Chinese market, including an extended-wheelbase Malibu XL, a new Chevy SUV concept a new Monza. Documents in both languages shall have equal validity. Research your next target market. The ideal partner will simply be the one whose resources, skills, and assets are complementary to the needs of the masterplan for the Chinese market. Serving as an entry guide for foreign investors in China, the Negative List refers to a comprehensive manual outlining certain areas where foreign investment and businesses are prohibited or restricted. I. For example, if the joint venture’s products are for export, the high German standards should be upheld. Normally operation of a join… But the plane maker only does a small amount of manufacturing in China and doesn't have any major joint ventures there. The revamped rules will also permit foreign investment in e-commerce exceeding 50 per cent, and up to 55 per cent in such business operating within the Shanghai FTZ. Get access to export-related information and join our mailing list. Differently from WFOEs (Wholly Foreign-owned Entity) and Representative Offices, a joint venture involves at least one Chinese partner which can be either an individual or a corporate.. The process to establish a JV will generally take between 4 to 6 months. After the announcement of new Foreign Investment Law, which is effective on January 1st, 2020, previous distinctions between the Equity Joint Venture (EJV) and Cooperative Joint Venture (CJV) have been abolished. If the right to the use of the site does not constitute a part of a Chinese joint venturer's investment, the joint venture shall pay the Chinese Government a fee for its use. Setting up a Joint Venture in China. There is no commitment to finance this portion of the investment but such debt financing may be obtained at the JV’s discretion. Chinese Joint Venture Rules and Respect for IP Cause Concerns . Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report. The regulations state that Chinese joint venture partners cannot steal intellectual property and trade secrets from their foreign partners. EJVs are governed by the Law of the People's Republic of China on EJVs Using Chinese and Foreign Investment. The minimum legal requirement is: Despite these minimum amounts, the authorities will approve the amount of registered capital on a case-by-case basis depending on: The amount is then written into the company’s articles of association. As an indispensable step before investment decisions and a basis for further work, it analyzes the viability of the idea and meanwhile it gives a reality check to the future cooperation between the two or more investors. In The China Joint Venture Squeeze Out: Coming Soon to a Public Company Near You, we set out the fundamental advice … In addition to filling annual taxes, JVs must submit an annual audit report to the AIC. Against a general trend towards liberalisation, the revised Investment Catalogue imposes new and tighter restrictions on investment in regards to vehicle manufacturing and education. China to drop 50:50 rule and allow foreign majorities in joint ventures 18 April 2018 China is to allow foreign vehicle manufacturers to own more than 50% of their joint ventures with domestic companies, removing a two-decade restriction and giving a boost to business seeking to capture a share of the world’s biggest vehicle market. Access the business sectors which are restricted (not prohibited) in equity ownership terms by the Chinese authorities, Gain insights from the local partner’s experience in, Leverage the partner’s existing channels for sales and distribution, Obtain local treatment when participating in official and public tenders, The costly and lengthy process to scout for and engage a proper Chinese partner, The complexity of establishment and ongoing maintenance, Difficulties in merging different company cultures and management styles, Intellectual property protection and management issue, Conflicting interests represented at BoD (Board of Directors) level. Although local partnerships are not needed for many sectors which are now open to foreign investment, China has a Negative List Approach against the previous Investment Catalogue, there are several reasons why a joint venture in China could still make sense. Both documents need to be in written forms and must be signed by all partners. The first step for foreign investors is drawing up a list of one or more potential Chinese partners, listing the pros and cons of each case, and then go through independent due diligence to at least ensure the legal capacity and financial position of the partner. For industries listed under “restricted” terms, foreign companies are still allowed to invest in China but must meet specific conditions such as limit equity ratio and remaining shareholding under 51%. The MOC application should include the following documents: Project proposal briefly describing the JV, Feasibility study setting out the JV’s investment size and purpose, operational and management structure, number of employees, utility requirements such as power and water, brief description of supply and distribution network, brief estimate of revenues and expenses, Certificate of incorporation or equivalent of the corporate investor(s) (certified by the Chinese Embassy or equivalent overseas). This was first promulgated in 1979, at which time it was the first law pertaining to foreign This site uses cookies to offer you a better browsing experience. For individual investors a passport copy is required (certified by the Chinese Embassy), Capital credit certification from each investor’s bank, Copy of passport for (i) JV’s director, (ii) JV’s legal representative, and (iii) JV’s supervisor, Leasing contract for office space in China, certification of real-estate ownership, landlord’s identification, Letter of authorization (authorizing the JV to accept service in China on behalf of the investor(s)), In some cases, latest annual audit report from the foreign investor provided by a certified public accountant, Any prior reviews or approvals from government branches (for example land-use rights if required), Record establishment of the business and official seal engraving with the Division of Entry & Exit Administration of the local Public Security Bureau, Obtain certificate with the organization’s code number from the Technical Supervision Bureau, Register with and obtain certificates from both the state and local, Tax reports should be submitted to the Tax Administration Department on a monthly, quarterly and annual basis, Register with and obtain a certificate from the, Obtain certificate of financial registration from the local Finance Bureau. In short, a Joint Venture in China is a limited liability company that is created through a partnership between a foreign-invested enterprise (FIE) and Chinese investors, who share the costs, rewards, and the management of the joint venture. You can find how we use these by clicking “More info” or click “Accept” to agree, Guide - 26 March 2020. Let us help assess your potential in specific markets, connect you with qualified contacts, or solve a market access problem. Moreover, JPMorgan has applied to win an auction to purchase the shares needed for a 70 percent majority equity stake in its Chinese futures joint venture. The standard fate for joint ventures in China is that once the Chinese JV partners either believe they no longer need their foreign joint venture partner or simply no longer want to share in the JV spoils with their foreign JV partner, they will work to drive the foreign partner out of the venture. Joint Venture(JV), which can be established in a variety of ways. If you are interested in setting up a joint venture in China, Hawksford can help. The Income Tax Law of the People's Republic of China Concerning Chinese-Foreign Joint Ventures; Detailed Rules for the Implementation of the Law of the People's Republic of China on Sino-Foreign Contractual Joint Ventures; Rules for the Administration of Employment of Foreigners in China Hawksford is an established provider of company registration and outsourced corporate services in China. Existing joint ventures incorporated before the discussion and implementation of the Foreign Investment Law now have a five-year transition period to proceed with the changes required in their current corporate structure. The LOI is a non-binding document and normally states the prerequisites and conditions of co-operation in the Chinese market. Before beginning the application process investors must lease office space for their future business. Rules, regulations and access to the domestic market clearly favor this method. The Chinese company often will try to convince the foreign company to enter into a complex “partnership” or joint venture that will “allow” the foreign company to participate in the product distribution business in China. when a local partner is able to offer tangible benefits such as: well established government relationships, significant knowledge of the local market, 30,000 RMB if the JV has two or more foreign investors, or, 100,000 RMB if the JV has only one foreign investor, The use of local partner’s existing workforce and facilities, Existing channels for sales and distribution, Use of a partner’s network to build good relationships, avoid red tape and other bureaucratic complexities, Entry into industrial sectors which exclude wholly foreign-owned investment, Cost & complexity of establishment – authorities carefully inspect all documents presented to them and may ask for clarification or changes, Liability associated with inheriting staff, Risks with technology transfer and intellectual property management, an enterprise created with capital investments from both foreign entities and domestic companies, where profits are distributed according to the ratio of contributions, a limited liability company, holding an independent legal identity, much more rigid than that of the CJV, particularly with respect to profit sharing, a minimum of 25% of the investment from the foreign partner, a two-tiered management structure made up of a board of directors and a management team (general manager and deputies) that is contractually appointed and legally responsible for the daily operations of the company, is an enterprise created with capital investment from both foreign entities and domestic companies, where profits are distributed between the investors in a proportion that may differ from the proportionate ownership interest of each investor, can sometimes allow for the recovery of the foreign partner’s capital to be accelerated, was a more common model in the past, when Chinese partners supplied land and labour, while the foreign partner supplied technology and capital, a non-legal person (similar to a partnership formed by contract) where the liabilities of the CJV flow through to the investors of the CJV, A letter of intent or memorandum of understanding must be written and signed by all partners, Submit JV name for approval by the local Administration for Industry and Commerce (AIC), AIC requires one name and two alternates to be submitted, A JV contract and articles of association must be written and signed by all partners, Pre-approval from the National Development and Reform Commission (“NDRC, where the JV will be acquiring land or other fixed assets; or, where the capital investment in the JV will be significant, Certain other government ministries may need to be consulted and to provide approval where the JV is to do business in a relatively regulated industry (for example health or education) or where the collateral impact of the JV’s proposed business activities require review (for example pollution, heavy energy usage). 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