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. 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. Until now, foreign players could only own up to 49% in a Chinese fund management firm. It is recommended that a clause be added to the lease voiding the contract without penalty should the JV application be rejected. I. An approval certificate is usually issued within 10 days, closing the first phase of the incorporation process. Readers should take note that the Government of Canada does not guarantee the accuracy of any of the information contained in this report. 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.. Rules, regulations and access to the domestic market clearly favor this method. 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. 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. 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. 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. 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 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. When receiving the approval of the project proposal, a feasibility study shall be prepared by both parties. All rights reserved, Entering a new or emerging market with a local ready-made structure, Increasing efficiency by combining assets and operations, Sharing risk in complex and bureaucratic investment projects, Approaching skills, capabilities, and other tangible benefits that only a local structured partner could offer. 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. 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. 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. 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 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). The lender was bidding for an extra 20% stake in its mainland business, J.P.Morgan Futures Co., a joint venture … Against a general trend towards liberalisation, the revised Investment Catalogue imposes new and tighter restrictions on investment in regards to vehicle manufacturing and education. 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 … 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. 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. 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. Setting up a Joint Venture in China. 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). Apply for financial support, or take part in programs that help innovative or growth-oriented firms, and underrepresented groups. Get access to export-related information and join our mailing list. 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. 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. This article introduces how to establish a joint venture in China, including basic requirements, procedures, and timeline. Access guides, information and other resources to learn about doing business in international markets. Following the letter of intent, the Chinese partner is responsible for the preparation of the project proposal. The incorporation process of a JV normally takes 5 to 6 months as it can be a complex corporate vehicle. Let us help assess your potential in specific markets, connect you with qualified contacts, or solve a market access problem. Take advantage of Canada’s free-trade agreements, foreign investment agreements, WTO agreements, and more. 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