Specific JV structural issues

Many companies leave the entire operations up to the Chinese partner to run. This is a crucial mistake. A new business needs all the support it can get. You need to invest in a foreign manager to keep an eye on things, especially during the early stages. Correct systems, accounting and quality control issues all need to be taken care of. You have standards; ensure these are implemented and operational in your JV. The ideal solution is an expat manager – if not long term then certainly for the initial development stages. However, the General Manager is responsible for the operations of the business. It is wise to make this one of your personnel. Leaving both in the hands of the Chinese partner effectively hands them control of the business.

Capital investment

When negotiating the amount here do be sure that the Chinese side?s investment really is worth that amount of money. It is a pre-requisite to have asset and stock valuations. This means having proper valuations placed on machinery – the Chinese tend to quote the original purchase price with no depreciation – buildings often are valued at the price it would cost today to build and don?t actually reflect the fact that it may well be a 20 year old shack that cost US$10,000 to put up in 1987. Also, check the Land Use Rights certificate – if they can show these are granted rights, with no administrative or judicial enforcement measures such as sealing-up, seizure or freezing in connection with the asset, then they owns the land. If they are just allocated, they don?t and the right to use it should just be the rental value. See also the Due Diligence section below.

Next :
Legal and financial Due Diligence


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For more information on China’s legal and tax issues or to ask for professional advices in related matters, please write to info@dezshira.com

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