Ford Mazda JV(0)
Ford and Mazda both plan to set up their own separate joint ventures with Changan, a move which will give the automakers more leeway to design their own China strategies, the sources with direct knowledge of the scheme told Reuters.
Ford is set to own half of its new two-way venture with Changan, the sources said, while the Mazda-Changan tie-up will probably also be a 50-50 JV.
Ford’s new JV with Changan will be based in Chongqing, while Mazda’s venture will be based in Nanjing, said one of the sources.
Mazda’s ties with Ford have weakened since the U.S. automaker reduced its controlling one-third stake in Mazda to 13 percent in 2008 to free up cash. Ford currently owns about 11 percent of Mazda, Japan’s No.5 automaker.
Ford, which broke ground for its $490 million third China plant in September last year, owns a 35 percent stake in the venture, with Changan holding 50 percent.
Source : Konaxis
GE airplane electronics(0)
The goal is to launch the new China-based company by mid-2010, subject to regulatory approvals. GE Aviation provides jet engines, parts and systems for current commercial and military aircraft, and the AVIC joint venture will offer electronics and services for future commercial aircraft programs. GE has more than 12,000 employees currently based in China.
“Our immediate focus is to jointly bid the best, competitive solutions to compete for the COMAC C919 narrow-body aircraft program and then get ready for the next generation of Boeing and Airbus products.” said Lorraine Bolsinger, president and CEO of GE Aviation Systems, in announcing the deal in Beijing on Sunday.
Bolsinger noted that China is the world’s fastest-growing aviation market.
China in September showcased the C919, its newest and biggest commercial jetliner that the nation is betting can boost its fledgling aviation industry to compete with Western rivals. The narrow-body, single-aisle C919 is scheduled to take its maiden voyage in 2014 before being delivered to buyers in 2016.
Source : Konaxis
China Structure – Joint Ventures(0)
Unfortunately, this is not always the case, as evidenced by the fall in percentage of total foreign investment allocated to JV establishment from 32.2 percent in 2004 to 22.8 percent in 2007. This does not mean the JV is a deadweight entity, however. It has its purposes, and it?s crucial for foreign investors to understand those purposes and whether their Chinese partner is capable of fulfilling them. The popular Chinese idiom ?same bed, different dreams? has become the failed joint venture?s mantra.
There are two types of JVs in China: the equity JV and the cooperative JV, sometimes known as the contractual JV. They may appear similar on the surface but have different implications for the structuring of your entity in China. Here we explore the differences, providing practical advice on structuring and tips on investment clawbacks, land use rights and profit distribution.
Think of a JV as having both a heart and a mind. Its heart lies in the contract, which specifies the agreement and duties of each party. The mind lies in the articles of association, which determines how a JV can fulfill its responsibilities. They are equally important and attention to detail is essential.
There are significant operational differences between the contracts and laws governing EJVs and CJVs. EJVs and CJVs are respectively governed by the Sino-Foreign Equity Joint Venture Law of 1979, the Sino-Foreign Cooperative Joint Venture Law of 1988, and their related post-hoc amendments. The China Company Law of 2006 is also partially applicable to JVs. The are several key differences between the two.
EJVs must be established as limited liability companies, while CJVs can operate either as a limited liability company or as a non-legal person (though this option is becoming less popular). In the latter case, liability will be defined within the business contract. Such entities are run by a management committee rather than by a board of directors. They are typically operated in the event of the foreign party making capital contributions to a Chinese manufacturer to upgrade facilities, but then wanting some degree of control as to how that investment is managed.
Toshiba JV Guangdong(0)
The new venture has a registered capital of US$100 million.
Toshiba Mobile Display (TMD), the LCD unit of Toshiba, will hold a 19.9 percent stake in the venture, Guangdong-based Greentech Group will take 58 percent and a Hong Kong investment fund will take the balance, TMD said in a statement on its Website.
TMD, whose displays are used in cell phones, car-navigation systems and laptops, will inject into the venture equipment from amorphous silicon LCD lines in Japan. TMD closed these lines in March.
The Guangdong venture will start manufacturing in the first half of 2010.
Source : Konaxis
JV contracts and articles of association(0)
Both the JV Contract and Articles of Association are legally binding documents, meaning you may resort to the Contract to assert a right or claim damages against your partner, or your partner may make a claim against you. However, the legal binding effect of the JV Contract and Articles of Association is only between the partners who enter into this agreement, and the documents cannot serve as a defence against any third party or government authority. That is to say, if the agreement vested the compliance issue to one party in the JV, and non-compliance is detected later, both parties shall be jointly held legally liable. Nevertheless, it is arguable that the party who is specifically vested with the responsible for compliance issue should be liable for the whole responsibility.
Contractual JVs vs Equity JVs
There are two types of JVs in China, the Equity JV (EJV) and the Co-operative JV (CJV) (sometimes known as the Contractual JV). They may appear similar on the surface but have different implications for the structuring of your entity in China. Here we explore the differences, provide practical advice on structuring, tips on investment drawbacks, land use rights and profit distribution.
An EJV is a joint venture between Chinese and foreign partners where the profits and losses are distributed between the parties in proportion to their respective equity interests in the EJV, but the foreign partner shall hold more than 25% of the equity interest in the registered capital of the EJV. The company enjoys limited liability is a ?Chinese legal person?.
The CJV is a very flexible FIE where Chinese and foreign investors have more contractual freedom to structure cooperation. It is a joint venture between Chinese and foreign investors where the profits and losses are distributed between the parties in accordance with the specific provisions in the CJV contract, not necessarily in proportion to their respective equity interests in the CJV.
In the past, CJVs took one of two different forms – a true CJV which did not involve the creation of a legal person that was separate and distinct from the contracting parties; and a legal person CJV in which a separate business entity was established and the parties? liability was generally limited to their capital contributions.
In the case of a true CJV, each party was responsible for making its own contributions to the venture, paying its own taxes on profit derived from the venture and bearing its own liability for risks and losses. In contrast, a legal person CJV, the more prevalent form today, shares more of the characteristics of an EJV. The true CJV is rare today as few investors are willing to entertain the prospect of unlimited liability and the rest of this discussion only refers to legal person CJVs.
Legal and financial Due Diligence(0)
If you fail to do so, your entire China business may be at risk. Some of the basics you can actually do yourself ? other investigation may require professional assistance.
Due diligence can also extend to forensic accounting on a partners? books, as well as political risk and other issues, especially if the JV is sizable. However, this is unlikely to worry most SME JVs and may not be necessary for a simple production unit. Again, take advice.
Some potential partners may interpret such enquiries as intrusive, or infer that you do not believe them. If they are keen to close a deal quickly, they may try to skirt round such issues. This part of the negotiation process therefore needs to be handled with patience and some sensitivity. However, reliable and serious partners will understand your need, and that of your foreign parent, for these issues to be confirmed. Indeed, if they are doing their job properly, they should also require similar disclosure and transparency from you.
The bottom line here is ? take your time, know what you are getting into, and if you are uncomfortable, go elsewhere. Don?t be rushed.
Details of who is actually who in the Chinese company, and details of their limited liability must be obtained.
Ask for a copy of their business licence. It will list (in Chinese) details of the legally responsible person (Legal Representative), the registered address, the amount of registered capital (which is also the limited liability) and the period of the licence. This basic information should be checked off against what you know. If there are any discrepancies, ask the reasons why. Sometimes the answer may be quite reasonable ? on other occasions it may alert you to potential difficulties.
It is quite common for the actual legally responsible person not to even be the person you?re dealing with. Licence periods may not be consistent with liabilities – such as the case of the ten year projected JV with a Chinese partner whose licence was due to expire in three months time! Check this out and make sure you know with whom you are really dealing, and that they can deliver what they say they can.
Capital verification report
This is issued by a Chinese independent CPA firm, confirming the fact that the registered capital as identified on the business licence was in fact paid up. If the registered capital has not been paid, not only does this mean your partner has not actually capitalised his business, but it also means he has not complied with limited liability requirements. As a consequence he will also be in breach of his own articles of association ? which could cause serious problems in the event of a failure or other legal issues.
JV contracts and articles of association
Specific JV structural issues(0)
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.
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.
Legal and financial Due Diligence
Structuring your JV – General issues(0)
Some of the issues you need to consider apply to all types of foreign entities in China, while others relate specifically to JVs.
We will now explore these in more detail.
Having set up a limited company does not necessarily mean you can engage in any kind of business activity, as is the case in some Western countries. Like other entities in China, JVs can only be operated within the business scope approved by the authorities. Other activities are subject to further approval. So it is vital to determine what you want do right from the start.
Lazy, or deliberately disingenuous, business scopes, such as only using the phrase ?production of (product)?, will not necessarily qualify a JV as a production company. You will also fail to qualify for tax holidays, even if the local government approves it, as the tax bureau may require a more detailed and specific explanation. We have encountered numerous problems of this nature, all requiring a scope of business change on the licence before the tax bureau is satisfied with exemption status. You need to ensure your business scope is accurate. Attempts to fool the tax bureau into thinking you are one thing, while in fact you are another – even if you can get it past the approvals process – inevitably end in failure. Play the game and say what it is you are really doing.
Specific JV structural issues
The JV is back!(0)
Joint Ventures (JVs) were the first business entity opened to foreigners and for a long time have been an unpopular vehicle for international investors looking to China for lower production costs or for market access. Yet recently, we notice more than ever before, there are an increasing number of foreign investors wanting to set up a JV in China. JVs are coming back!
The Joint Venture often sounds like a warm and friendly way of doing business, a marriage made in heaven. You are likely to be offered many such wonderful sounding deals. Many Chinese factories are looking for long-term security in foreign sales via an overseas partner, or to get access to western technology. And because this structure has been around for a long time, many foreigners who have not yet done business here have heard about it. It sounds much more attractive conceptually than the main alternative, a Wholly Foreign Owned Enterprise.
But wait, China?s business history is littered with thousands of cases of unhappy partnerships and broken dreams ? the analogy with human marriage is a common one, with the popular Chinese idiom ?same bed, different dreams? often quoted. One major Western oil company once told us, only partly in jest, their JV was a win-win situation ? meaning the Chinese won twice. Business is not about being warm and friendly; it is about making profit and running a successful company. You may well end up becoming close friends with a commercial partner, but it is not the primary objective.
Structuring your JV – General issues