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joint Venture
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A joint venture (JV) is a permanent contractual or corporate connection between two companies.

The foreign investor and the Chinese partner company are at home in different legal environments and cultures. While Western companies are privately oriented and decisions are preferably based on business considerations, a Chinese company, which is particularly true for state-owned companies, will also have to represent China's economic interests.

This can be reconciled in individual cases, but due to the different internal driving forces, a JV tends to be approached with caution in such cases.

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Joint venture with a Chinese company

A JV can therefore only be considered if there is the will and ability to qualifiedly fill the board positions agreed in the JV. It should be noted that state-owned or semi-state-owned companies in China are known for replacing their board members at will and without notice, which very often hinders a common corporate strategy and leadership.

There are also positive cases known in which entrepreneurial and less politically oriented corporate management has prevailed. However, these are mostly spin-offs of former state-owned companies.

Risks for medium-sized businesses

Joint ventures have consistently proven to be problematic for medium-sized businesses. The reason was not only that the Chinese side had to deal with constantly changing partners and that business decisions were blocked.

A main reason for the problems was the fact that the insights into the inner workings of society were often used to spy on technologies and use the knowledge gained to set up their own production facilities, which subsequently competed with the foreign company.

The establishment of a joint venture

Establishing a joint venture can still make sense after carefully examining the partner.

The Chinese partner knows the Chinese market and customs, is recognized by the Chinese as one of them and perhaps has good relationships with the local authorities. A distinction is made between Eqzuity joint ventures, which represent a corporate legal relationship, and contractual joint ventures, which are based on company contracts.

Since joint ventures do not represent 100% foreign-invested units, different accounting and funding regulations apply to them.

Jürgen Bächle
Jurgen Bachle

has been working as an independent tax consultant and expert in international tax law since 1989 and has been a member of the board of the German Association of Tax Consultants Baden-Württemberg, DSTVBW, for over 20 years.

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