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Special> China International Fair For Investment & Trade> Beijing Review Exclusive> Legal-Ease
UPDATED: August 26, 2008 No.35 AUG.28, 2008
Managing Your China JV Partner IV

Having critical management tools gives foreign investors the chance to maximize their investment, minimize their risk and develop a mutually profitable business with a Chinese partner. This concludes our series on this topic.

Finance and administration

Possession of the company seals is an important issue. There are, however, several of these. Financial transactions cannot usually be enacted with just one of these, and additional chops are also required. Limiting transactions in agreement with the joint venture (JV) bankers over certain specified limits is also useful. You don't want to hinder basic financial administration; however you need to balance this with prudence. Generally speaking, the finance chop should be taken control of by a trusted employee in that department, while the company chop (needed in conjunction with the financial chop) placed in the hands of the majority shareholder. Transactions over a certain amount should require multiple signatures including those from both parties' representatives.

Problems that arise with JVs do not usually result directly from mismanagement by the board, despite belief to the contrary. It more often comes from corrupt personnel in positions of some authority, such as purchasing and human resources (HR). It is common for these positions to be corrupt and for incumbents to use their roles to pass business to certain suppliers for kickbacks or to deliberately buy high from a family-related business. The same can occur in HR, with "ghost employees" being paid salaries into accounts managed by the payroll assistant.

JV management is a combination of several factors: providing your partner with a good enough deal to keep him honest in the business, attention to detail in the management layers and especially in financially related ones, and a willingness and desire to work with the Chinese partner. Consistent discussions over business direction and development are also vitally important. A JV neglected by the foreign investor will develop serious problems. Those structured and managed properly will not. The aim of a JV is for both parties to make money for their efforts-a goal that all too often gets pushed to one side in the hands of the naive or simply greedy.


This can be built in as part of your investment. Protect yourselves also-patents and trademarks should be properly registered in China as being your property if you want to retain control over use of these. Technology transfer can be paid in the form of royalties from the JV-making sure contracts are in place and that you understand the legal and tax implications.

Exit strategy

Clearly define what are to be considered unacceptable levels of business (losses in consecutive years, production below targeted levels, etc.) and have these agreed upon and set in the contract and articles. Often they are not, and this can lead to problems with getting you out of a JV if the government does not agree with your assessment of what is and is not a viable business. They have different agendas-keeping people employed, collection of tax revenues and so on. Make sure economic performance is properly identified as a clear reason to effect closure if things do not work out as planned.


While we accept that managing a China JV can be difficult, with prudent planning, due diligence and a strong management team in place with both sides motivated to the ultimate goals, JVs can be spectacularly successful. This is especially true of those that can retain an element of remaining beholden to the foreign party, for technology or access to overseas markets. Then again, you may be able to use a JV to access domestic markets, then cede control or allow them to buy you out once your profit-making goals have been achieved. But that should not prevent the partnering with a Chinese firm to stop you from winning short-term market gains, or to prevent you from buying him out. JVs can be immensely useful locally to establish business in a new area of China, and once the partner's job is done, the JV can then be converted to a wholly foreign-owned enterprise or merged with other ventures elsewhere to create a truly national business. JVs can be useful stepping stones to far larger structures, and when operated properly can be an educational and fulfilling business within the Chinese business environment.

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