Comments on: The JV vs. WFOE debate – Choosing between the options http://www.china-briefing.com/news/2008/03/18/the-jv-vs-wfoe-debate-%e2%80%93-choosing-between-the-options.html Fri, 5 Sep 2008 22:30:17 +0000 http://wordpress.org/?v=2.3.2 By: Chris Devonshire-Ellis http://www.china-briefing.com/news/2008/03/18/the-jv-vs-wfoe-debate-%e2%80%93-choosing-between-the-options.html#comment-9361 Chris Devonshire-Ellis Fri, 21 Mar 2008 05:54:06 +0000 http://www.china-briefing.com/news/2008/03/18/the-jv-vs-wfoe-debate-%e2%80%93-choosing-between-the-options.html#comment-9361 The next April issue of China Briefing magazine is specifically about Investing in China's Restricted Industries so the subject will be covered in further technical detail then - online from next weekend. The next April issue of China Briefing magazine is specifically about Investing in China’s Restricted Industries so the subject will be covered in further technical detail then - online from next weekend.

]]> By: Colin Wen Jin http://www.china-briefing.com/news/2008/03/18/the-jv-vs-wfoe-debate-%e2%80%93-choosing-between-the-options.html#comment-9237 Colin Wen Jin Thu, 20 Mar 2008 02:53:45 +0000 http://www.china-briefing.com/news/2008/03/18/the-jv-vs-wfoe-debate-%e2%80%93-choosing-between-the-options.html#comment-9237 Some foreign lawyers deal at lower levels of investment into China and are unfamiliar with JV's because they don't have the need for them so much. There is a tendency at the lower end of foreign investment to WFOE for everything and steer well clear of JVs which is understandable if rather naieve. Regulations of course you must follow otherwise the choice is I think you are right, driven by the quality of the supply and distribution chains of any local partner. To dismiss JVs as damning or old style is rather over the top. Some foreign lawyers deal at lower levels of investment into China and are unfamiliar with JV’s because they don’t have the need for them so much. There is a tendency at the lower end of foreign investment to WFOE for everything and steer well clear of JVs which is understandable if rather naieve. Regulations of course you must follow otherwise the choice is I think you are right, driven by the quality of the supply and distribution chains of any local partner. To dismiss JVs as damning or old style is rather over the top.

]]> By: Chris Devonshire-Ellis http://www.china-briefing.com/news/2008/03/18/the-jv-vs-wfoe-debate-%e2%80%93-choosing-between-the-options.html#comment-9233 Chris Devonshire-Ellis Thu, 20 Mar 2008 01:56:04 +0000 http://www.china-briefing.com/news/2008/03/18/the-jv-vs-wfoe-debate-%e2%80%93-choosing-between-the-options.html#comment-9233 Thank you Gentlemen - it's nice to know someone can see the wood from the trees. Our friend Tom Chow over at the San Francisco based law blog "China Esquire" (Tom deals with inbound US investment, a lot from China) has picked up on the theme and poses the question for investors in the States - JV's or not ? Again it's an interesting theme. You can access it here: http://www.chinalawandbusiness.com/2008/03/18/whither-the-c-corp-s-corp-llc-lp-etc/ I also comment there on our own experiences in assisting Chinese manufacturers set up in India - the product manufacturing in the case I mention is conducted in China, then exported to India for sale and distribution. The Chinese side entered a JV with an Indian distributor (in Mumbai) to ensure the product gets to market - a classic case of what I've been talking about. JV value if not a regulatory hurdle you're stuck with can be really useful when wanting to influence or access distribution channels that are too difficult to set up alone. - Chris Thank you Gentlemen - it’s nice to know someone can see the wood from the trees. Our friend Tom Chow over at the San Francisco based law blog “China Esquire” (Tom deals with inbound US investment, a lot from China) has picked up on the theme and poses the question for investors in the States - JV’s or not ? Again it’s an interesting theme. You can access it here: http://www.chinalawandbusiness.com/2008/03/18/whither-the-c-corp-s-corp-llc-lp-etc/

I also comment there on our own experiences in assisting Chinese manufacturers set up in India - the product manufacturing in the case I mention is conducted in China, then exported to India for sale and distribution. The Chinese side entered a JV with an Indian distributor (in Mumbai) to ensure the product gets to market - a classic case of what I’ve been talking about. JV value if not a regulatory hurdle you’re stuck with can be really useful when wanting to influence or access distribution channels that are too difficult to set up alone. - Chris

]]> By: Max Nightingale http://www.china-briefing.com/news/2008/03/18/the-jv-vs-wfoe-debate-%e2%80%93-choosing-between-the-options.html#comment-9231 Max Nightingale Wed, 19 Mar 2008 22:55:22 +0000 http://www.china-briefing.com/news/2008/03/18/the-jv-vs-wfoe-debate-%e2%80%93-choosing-between-the-options.html#comment-9231 Chris - I'm with you on this one. I've seen the debate, and headlines like: "China -- Damn The Joint Venture," "Beware The China Joint Venture," "Joint Venture Jeopardy." and comments about being a dying breed. Our group invests project finance into China, and although we turn down a lot of them due to due diligence identifying unacceptable levels of risk, much of our funding when approved does go into China JVs. It has to - as you mentioned, much of it is industry related regulatory issues. Often we'd prefer to have a WFOE but it is just not feasible. Dismissing JVs out and out is just not a feasible position to take when advising on a regulated market such as China. Incidentally - the investments we hold are mainly via CJV's - you correctly point out the better dividend structural possibilities for the foreign investor. This is a prime point to have made. WFOEs are nice if you can get them, but regulatory issues mean 90% of the time in our field we just can't use them. A Chinese partner has to be involved. Thanks for sticking your head up and sharing. Chris - I’m with you on this one. I’ve seen the debate, and headlines like: “China — Damn The Joint Venture,” “Beware The China Joint Venture,” “Joint Venture Jeopardy.” and comments about being a dying breed. Our group invests project finance into China, and although we turn down a lot of them due to due diligence identifying unacceptable levels of risk, much of our funding when approved does go into China JVs. It has to - as you mentioned, much of it is industry related regulatory issues. Often we’d prefer to have a WFOE but it is just not feasible. Dismissing JVs out and out is just not a feasible position to take when advising on a regulated market such as China. Incidentally - the investments we hold are mainly via CJV’s - you correctly point out the better dividend structural possibilities for the foreign investor. This is a prime point to have made. WFOEs are nice if you can get them, but regulatory issues mean 90% of the time in our field we just can’t use them. A Chinese partner has to be involved. Thanks for sticking your head up and sharing.

]]> By: Bruce Zheng http://www.china-briefing.com/news/2008/03/18/the-jv-vs-wfoe-debate-%e2%80%93-choosing-between-the-options.html#comment-9229 Bruce Zheng Wed, 19 Mar 2008 22:33:48 +0000 http://www.china-briefing.com/news/2008/03/18/the-jv-vs-wfoe-debate-%e2%80%93-choosing-between-the-options.html#comment-9229 Cooperative JVs in China are the standard entry vehicle for property development where you have to have a Chinese partner because he owns the land. The foreign investor may put in the development money to build the structure, and this may be more than the land is worth. Although in this case the Chinese partner owns by law the majority equity, the foreign investor can take out more dividends, usually by taking the profit of a larger percentage of the unit sales in the development. People have been giving JVs a hard time but in truth a lot of them are used very well, especially in the property investment field that I work in. Chris these have been useful articles on the subject and its good to know your thoughts. The Cooperative venture as you say can be very useful to max on the foreign investment potential when structured properly. Cooperative JVs in China are the standard entry vehicle for property development where you have to have a Chinese partner because he owns the land. The foreign investor may put in the development money to build the structure, and this may be more than the land is worth. Although in this case the Chinese partner owns by law the majority equity, the foreign investor can take out more dividends, usually by taking the profit of a larger percentage of the unit sales in the development. People have been giving JVs a hard time but in truth a lot of them are used very well, especially in the property investment field that I work in. Chris these have been useful articles on the subject and its good to know your thoughts. The Cooperative venture as you say can be very useful to max on the foreign investment potential when structured properly.

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