« Censorship: Obstacle To Freedom | Home | Chinese Nationalism: Is There More Than One Kind? »
Joint Ventures: More Trouble Than They Are Worth?
By Paul Midler | April 16, 2008
My experience with Chinese joint ventures have been disappointing, but I’ve always stopped short of saying that a U.S. company should never enter into such a partnership. I can at least imagine cases where it makes sense to do a joint venture.On the subject of joint ventures anyway, China Law Blog’s Steve Dickinson has published a thought-provoking article for AmCham Beijing that is worth a look. The article, Avoiding Mistakes in Chinese Joint Ventures, suggests where trouble might arise. One of the issues surrounding joint ventures involves control, Steve points out. Just because a foreign partner owns 51% doesn’t mean that they run the show.Here are three key points worth noting. The rest of the article can be found at the link over at China Law Blog.
Point 1: The power to appoint and remove the JV’s representative. The side that appoints the representative director will have significant control over operations. The usual practice of conceding the power to appoint a key officer or director to another investor is a mistake.
Point 2: The power to appoint and remove the general manager of the joint venture company. It must be made clear that the general manager is an employee of the joint venture company who is employed entirely at the discretion of the representative director. The common practice of appointing the same person as both representative director and general manager is a mistake.
Point 3: Control over the company seal, or “chop.” The person who controls the registered company seal has the power to make binding contracts on behalf of the joint venture company and to deal with the company’s banks and other key service providers. The power over that seal should be carefully guarded. Ceding control over it as a matter of convenience is a mistake. There is a long, documented history of this seemingly minor consideration dooming EJVs.
Topics: China |
April 16th, 2008 at 9:17 pm
One of my favorite “joint adventure” stories is the one in Shenzhen where the European company deposits a crapload of money in the local bank account for the Chinese partners to get the ball rolling on building and acquiring machinery, etc.
A few months later, the Euro boys come back and a huge steel rolling door is lifted to reveal two shiny, brand new Mercedes sedans parked in an empty “factory floor”. Aghast, the Euros ask what the f**k was going on and the Chinese response was “Isn’t this great? Now we will drive around commanding respect AND you guys get the S-class whereas our guy gets the E-class in deference to the amount of money you guys dropped.”
Apparently this was the first step in China at the time so that one would not lose face going to fancy dinners, whoring, etc.