In defence of joint ventures

When China began opening up its economy to foreign direct investment (FDI) in the 1980s, precautions were taken that compelled foreign investors to partner with Chinese, usually state-owned, counterparts. This structure was heralded as a win-win situation and there is logic behind the joint venture (JV). From a Chinese perspective, a JV allows for the acquisition of foreign technology, know-how, insight into international management practices and access to foreign markets. For the foreign partner, the JV promises benefits stemming from the resources of the Chinese party and its knowledge of the market, as well as familiarity with local culture and business practices.

Whether the JV structure was practical or not in the past, recent developments show they are becoming less common. Since China's accession to the World Trade Organization in 2001, legal restrictions on foreign investment have gradually been lifted. Partnering with a Chinese company has become an option rather than an obligation and as a result the landscape has shifted. Many existing JVs have been dismantled and new wholly foreign-owned enterprises (WFOEs) greatly outnumber new JVs. For example, in 2008 30% of all German-invested companies in China were JVs, while by 2011 this proportion had decreased to a mere 11%. It is apparent that investors need to consider when a JV is the right strategy for China investment and what steps can be taken for a foreign party to protect its interests in the JV.