1. Types and basic characteristics of joint venture (JV) in China
A sino-foreign joint venture designate a company having mixed capital between one or more foreign and Chinese investors. They are one of the two form of foreign invested companies that can be established in China.
Formerly called Wholly Owned Foreign Enterprises (WFOE), the other form is a 100% owned LLC. A Limited Liability Company that allow 100% investment and management control from a foreign investor, with no need or a Chinese investor.
Since 2020, these two legal forms are attached to China's National Enterprise Law. The last update to this Law is in force since July 1, 2024.
The Chinese administration distinguishes actually two distinct categories of JV:
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The equity joint venture (EJV) : an option that involves the legal incorporation of a limited liability company. It is a pattern chosen by most industrial companies having a sustainable activity. The distribution of profit is defined by contract, according to the shared capital contribution of the parties.
2. Retrospective and presentation of the joint venture in China
Right after the economic opening of the 80's, the sino-foreign joint ventures were the only legal form of commercial and industrial enterprises allowed as foreign investments in China.
The accession of China to the WTO in 2001 gradually permitted the set-up of companies with 100% foreign capital in many sectors, but not all of them. To this day, joining forces with a local Chinese partner and setting up a JV remains a feasible option for facilitating or accelerating entry into the Chinese market in sectors considered sensitive or strategic. In this case, most of them remain accessible to foreign investors, but only if conducted under a sino-foreign JV entity. In 2025, some commercial or industrial investments in China are still forbidden under a 100% owned foreign enterprise status.
Until 2015, the central administration published a Catalog of foreign investments in China which classified them, by sector of activity, as encouraged, authorized, regulated or prohibited. This Catalog is no longer valid. It has been replaced by a "negative List" of foreign investments which latest version of august 2020 is still the one in force.
The directives give a global perimeter of activities allowed to foreign investors at a national level. Some industrial parks with a special status can authorize foreign investors to benefit from preferential investment conditions. Some Free Trade Zones (FTZ) may also offer interesting investment conditions. They may be access to specific manufacturing facilities, financial benefits and tax refunds, special China customs status, access to a convenient logistics base, etc.
As an example, the Chinese government grants incentives to the foreign investors who develop projects in the western provinces (the least developed such as Xinjiang, Ningxia or Gansu). Since over 10 years, some additional measures aim to encourage foreign investors to invest for example in high-tech, energy saving and green business fields.
The administrative JV preparatory job for foreign investors has somewhat been simplified. Since November 2023, China has become a member of the Apostille Convention (Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents). This means that public documents issued in members countries can now be certified for use in China. Before, some international enterprise registration certificates or other documents typically needed to go through a certification and subsequent legalization by a Chinese consulate or embassy.
3. Possible business restrictions for foreign investors
Some limitations may, depending on the sector of activity, result in:
- a (very) high minimum registered capital level for a given sector. It means a high entry cost
- a maximum proportion of authorized investment for the foreign party that does not allow to hold the shares majority (for example, a maximum 49% for the foreign investor)
- For JV projects that allow the foreign party to hold a majority of the company shares, the minimum contribution share for a Chinese partner is most often a minimum of 25%.
Thus, on the basis of each investment project submitted to the Chinese authorities for their formal approval, their officers will confirm the conditions to meet to allow the business incorporation. They are :
- the proportion of minimum or maximum shares allowed (majority or minority JV)
- the minimum amount of capital (subject to approval before registration and obtaining a business license)
- the review of an authorized scope of permitted activities + possible limitations
- other specific operating conditions (qualification of personnel, minimum number of employees, etc).
4. key considerations before engaging in a JV partnership
If the prospective of setting up with a Chinese partner suggests an easier and more cost effective market entry, other matter should be taken into consideration before going for a joint venture in China. Few key points :
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The responsibilities and liability of each party. If this looks like a basic element to include in a cooperation agreement, it is necessary to ensure a matching vision with the distribution of tasks for each party.
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Is your chosen partner a person with whom you had successful business relationship in another context ? a former supplier, distributor or employee for example. Will he or she have the personal and professional ability to assume new responsibilities ?
- Could the business interests of each partner remain consistent within at least 5 years ?
- How can every party bring its capital contribution to the JV ? in cash ? in know-how or patents ? with what constraints, risks and cost ?
- What are the risks for any possible technology transfer ? what acceptable level of intellectual or industrial property can be provided to the China JV ?
- Upon what criteria both parties may decide to reinvest the profits or rather to distribute profit ?
- What are the JV exit options in the event the partnership should stop ? What is the potential nuisance capacity of a partner who may tomorrow become a competitor ?
5. Financial information and solvency of the partner
Financial risk assessment: a solvency analysis assesses the Chinese partner's financial capacity to honor its commitments. This includes an examination of its liquidity, its ability to generate profits and to repay its debts. A solvent partner is less likely to default, thus reducing the financial risks for the parties involved in the joint venture. Solvency gives an indication of financial stability, but note that with the exception of listed companies, Chinese companies are not required to publish their accounts or financial statements. So, while obtaining financial information may be difficult or impossible in the case of a simple partnership with a Chinese distributor, it is realistic for a JV partner to provide you with financial information. At the very least, a copy of the company's audited accounts, for example.
Quality of information and regulatory differences: accounting practices and financial regulations in China may differ from international standards, and financial reports may not accurately reflect the partner's economic reality.
A solvency analysis remains a valuable tool for assessing the financial risks and stability of the partner in a joint venture, but it needs to be complemented by an understanding of local and cultural contexts, as well as other forms of due diligence to obtain a complete and accurate picture. His administrative and business reputation, asset valuation, quality of team, networks, etc.
6. Which qualified Chinese partner for what joint-venture project?
Whether your Chinese partner is a natural person, a well-established private company or a State Owned Corporation, the good balance of relation may be difficult to keep over time.
There are sectors of activity in which only a Chinese company licensed in a particular field of activity would be an qualified and authorized JV partner for your project. For example, the financial services, banking, sensitive industries. Until 2022, any foreign automotive manufacturer had to cooperate with a qualified Chinese partner. This restriction is now lifted.
For other sectors, it may the almost monopolistic position of a Chinese company, its presence or its network vis-à-vis some targeted market that makes an association project relevant. This may concern the sectors of media advertising, agricultural projects, wine making, or manufacturing of highly regulated products. Still, although considered sensitive from a regulatory point of view, the activities involving manufacturing food products, pharmaceuticals or medical devices do not require a mandatory local partner.
Some other activities that involve the processing or distribution of certain categories of dangerous, toxic or chemical substances may still require a local partner.
For smaller projects where it is rather the relationship between two individuals that prevails, it may be necessary to ensure the targeted business sector does not require further qualifications, guarantees, permit or a special corporate status from the Chinese side.
7. Sharing our experience of establishing China joint-ventures
Based on our business registration experience and depending on the nature of your project, we may have further insight to share with you:
- The reasons for considering a joint venture in China and success stories.
- The reasons to doubt about a Chinese joint venture and examples of failures.
- The conditions and steps to register a joint venture, upon sector regulations.
- The incorporation formalities and deadlines for the project as a whole.
- The capital level to consider, accounting, tax and reporting matter, customs special regimes
- The preparation of a proper cooperation contract (CVJ) and careful review of Articles of Association
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A Shareholders Agreement is not mandatory, yet strongly recommended. If needed, it must be drafted in accordance with Chinese law, before applying for the JV business license. This agreement comprehensively outlines each party's share allocation, profit distribution, procedures for liquidation, and other essential management details.
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Do you represent a company that plans to set-up a joint venture in China ?
Already in discussion with a targeted partner to (re)negotiate the terms of cooperation ?
Do you simply wonder about the legal and regulatory environment to consider for your investment project in China ?
Need assistance with auditing a JV partner?
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8. Hiring foreign employees in a joint venture
A sino-foreign joint venture has the legal personality. As such, it can be the domestic entity qualified to apply and obtain a working visa for its resident foreign employees.
9. Recommendations before establish a joint venture in China
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