Drafting for disputes

As noted in the article “Everything old is new again” in the April 2010 issue, the Sino-foreign joint venture has re-emerged. With the collapse of the European and North American markets during the continuing global financial crisis and the apparent enduring strength of China's economy (now the second largest in the world), many investors now consider China not simply as the place to make things for sale elsewhere. Rather, China is now their target market. Given the challenges of establishing a national or regional footprint in China, many foreign investors are forming joint ventures with established local partners. And just like many first wave ventures earlier this decade that fell victim to disputes between partners, some joint ventures are facing problems today as similar disputes surface.

Good drafting can protect investors when venture disputes develop. Disputes in China today typically arise from disagreements over business strategy, transactions with related parties, and internal compliance policies. A contract that specifies how such issues will be addressed is challenging to negotiate, but much easier while the parties still feel the incentive to commence business quickly.