Joint Venture in China

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Topic: Joint-Venture – China – Wall Panelling
Once a foreign investor is put into the mix, a wealth of legal, administrative or operational violations that a solely-owned Chinese firm may have been able to survive with, will most likely not be tolerated by the local authorities (Devonshire-Ellise & Hoffman, 2010; Norris, 2011). Therefore an array of legal and contractual issues may arise for which a foreign party should be prepared. Some of these are outlined below. Environmentally Friendly Wall Panelling:

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As the product involved is classed as building materials the company should make note of Austrade’s guidelines on industry standards for building materials in China (Austrade, 2012). For this environmentally friendly wall panelling the GB/T 50378-2006 regulations will apply (GCiS, 2012). The Issue of Stabilisation:

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Protection measures should also be stipulated through the creation of a Joint-Venture Contract. One of the biggest issues may be found through the difference in law between China and Australia; China having civil law and Australia having common law. Therefore in order to have the Joint-Venture contract protected from future changes in the Chinese civil law system a stabilisation clause is highly recommended (Coale, M.T.B, 2001-2002). Types of Joint-Ventures in China:

What makes the selection of a joint-venture so important is that even though China’s Choice of Law provisions follow international practices; this doesn’t apply for Joint-Ventures. The only time a foreign party within a Joint-Venture may have a choice of law is when settling disputes (Gao, 1989, p.560; Wei, 2000, p.40; Sino Foreign Joint-Venture Law Article 2). Types of Sino-Foreign Joint-Ventures in China: Refer to Appendix 1.

Equity Joint-Venture (EJV):
An equity Joint-Venture in China takes the form of a limited liability company (JVL Article 4 and Article 2 RICJVL; Kluwer Law International, 2005; Nee, O.D, 1992, 83-101). In this type of Joint-Venture both parties contribute to the registered capital and risks; profits and losses are all taken in regards to the proportion of that contribution. Four Basic attributes (Kluwer Law International, 2005; Wei, 2000, p.74-75): 1. Established in accordance to the law of the People’s Republic of China. 2. Necessary Property or Capital

3. Possesses its own name, structure and premises
4. Assumes civil liability independently.
Cooperative (Contractual) Joint-Venture Creating Chinese Juristic Person (CJVCJP): Also a limited liability company which assumes responsibilities for the ventures total assets however can have a separate internal arrangement on debt liability of each party (Articles 11,12, 14 of RICJVL; Wei, 2000, p.75-76). The structure and status of this type of venture is a lot more flexible than for EJV’s, with precise aspects being able to be defined by contract (Kluwer Law International, 2005; Nee, O.D, 1992, 83-101). It also has liberty of negotiation of product or profit distribution method while still being a separate legal person with the parties’ liability limited to their capital contributions (Article 14 of RICJVL; China Business Law Guide, 2005; Cooperative Joint-Venture Law and Cooperative Joint-Venture implementing Law). Cooperative (Contractual) Joint-Venture Not Creating Chinese Juristic Person: (CJVWCJP): Does not create a Chinese juristic person (Article 52 of RICJVL) and parties take unlimited liabilities for the debts of the Joint-Venture jointly and severally. All investments are administered in a unified manner and consent is needed for the disposing of a party’s investment (Nee, O.D, 1992, 83-101). -------------------------------------------------

It has loose structure, high risk and low degree of control and cooperation (Nee, O.D, 1992; Wei, 2000, p.176)....
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