Sino Foreign Joint Venture in China

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Introduction

Thinking about setting up a company in China? A Sino foreign joint venture (JV) probably helps you best to open the Chinese market. Because you can make use of the local resources thanks to the experience of your local Chinese business partner(s).

And today we’re going to discuss the details about Sino foreign joint venture in China. Including the types, the differences, the benefits and the setup process.

What is a Sino foreign joint venture?

Generally, a joint venture is a business entity that involves two or more parties, as shareholders in companies.

And the shareholders of a joint venture can come from different countries. Like one from China and the others from countries outside China. A Sino foreign joint venture refers to this case. As the word Sino means “Chinese”.

Simply, a Sino foreign joint venture is a business involved with 2 participants from different countries. And at least one of them come from China.

2 Types of Sino foreign joint venture in China

Sino foreign joint venture is the general name for the 2 types of joint ventures in China.

Both equity joint ventures (EJV) and cooperative joint ventures (CJV) are the main puzzles of the thing.

An EJV and a CJV are different in various aspects. Let’s check them out down there now.

Equity joint venture (EJV) vs Cooperative joint venture (CJV)

An EJV(Equity Joint Venture)

Equity joint ventures are one of the most common ways that foreign companies enter the Chinese market.

It’s probably a preferred choice for the Chinese government and the local partners in China.

Usually, an EJV’s business structure is a separate limited liability company (LLC). This kind of structure can provide shields for both companies. With an EJV, companies from two countries can share the risk of the business. Also, with a higher possibility to make the business bigger than a single-owned business.

Meanwhile, parties in a Sino foreign joint venture cannot transfer their shareholdings as flexible as a WFOE. They can do so after the approval by the Chinese government though. On the other hand, before the invalidation of the joint venture contract, investors cannot take out their registered capital. As increasing international joint venters sprout, regulations may become more flexible.

Keep following our blogs, and know more about the latest news on the Chinese market of investment.

An equity joint ventures can help the companies to enter foreign markets with lower costs.

And open the local market more easily.

In an equity joint venture, each company can make good use of their resources. Like the expertise, equipment, and their investment. For a shared goal to make better business in the local market. Unity makes strength, the combination of the companies can play it better in the business world.

A CJV (Cooperative Joint Venture)

A CJV is also established by a Chinese and a foreign company.

One feature makes a CJV different from an EJV. In most cases of a CJV, the Chinese side provides the human resources, land use rights and factory buildings. While the foreign side provides technology, equipment and capital.

This kind of Sino foreign joint venture starts on the basis of a cooperative joint venture contract. That’s the reason for its second name, the contractual joint venture. And how the parties share of profits depends on the contract agreement.

Main differences between the 2 types of Sino foreign joint ventures

Share of profits

So, the first difference between a CJV and an EJV is how they share the profits. In an EJV, it depends on the share of registered capital. While it lies in the contract in a CJV.

The Formation

An EJV is always a legal entity. Typically, a limited liability company.

When it comes to a CJV. It can be a legal entity or not. But mostly, many CJVs choose to be an independent legal entity. Because the partners would remain liable only to the limit of the registered capital with this option.

Although there are differences between the 2 types of Sino foreign joint ventures. They share some benefits for foreign investors at the same time.

Benefits of Sino foreign joint ventures in China

More access to specific business fields

Some business fields are open to joint ventures only.

By Sino foreign joint ventures, foreign companies can get access to more business sectors.

Experience and resources from the local partner

As a Sino foreign joint venture, you can enter the Chinese market more easily. With the experience and resources from your Chinese partners.

And that will save your time and effort in the first place. As one of the difficult parts for foreign companies in China is sales and distribution. It’s not that easy to find good channels to make much profit. With your partners’ help, you can make full use of their existing channels.

Furthermore, boost your sales in the Chinese market.

How to set up a Sino foreign joint venture in China?

The requirements for setting a Sino foreign joint venture in China is now much easier.

Thanks to the latest Foreign Investment Law of the People’s Republic of China.

The new Law is pretty fresh as it took effect on the first day of 2020. You probably find only a few reports about the details on the Internet.

But the good news is you have GEI as your partner.

And we’re going to share with you the latest setup process according to the new Law.

The whole process of setting up a joint venture will take you 5-6 months.

Make sure not on the Negative List

First of all, it is important to make sure your business is not on the Negative List by the Chinese government. Because the Negative List has specified certain fields that foreign investment remains restricted or prohibited to enter.

In other words, foreign investment can enter business fields except for those on the List. If you want to get into the “restricted” items, you might need to apply for special approvals in advance.

Know more about this with GEI

Find a trustworthy local partner

For a better Sino foreign joint venture business, you will always need a local partner you can trust.

Make some research in the first place before you make your decisions.

You can make a list of potential Chinese partners, writing down their advantages and disadvantages. Make a comparison and then find the best option.

Also, we highly suggest a necessary background check of your local partner before the decision. And make sure the company is clean and good to work with. So that you can avoid potential risks beforehand.

Work with our professional lawyer team for the research.

As we said, the new Law makes the setup process more efficient with fewer steps than before.

Still, you will need some necessary files for the process.

Too complicated to figure out all this stuff? Let us help you. The veterans in GEI can boost the setup of your joint venture in China

Files to prepare for the setup of your Sino foreign joint venture

1. The Application for Company Registration

Pretty much a process to fill out the information on the form.

Including the business name, business address, registered capital, and etc.

2. The company’s articles of association

After publishing the articles of association. The legal representative of the company needs to sign on the original copy. Also, with the signatures/stamps by each investor. This is to make it legally effective.

Enterprises with restricted fields need to submit the articles of association approved by the approval departments.

3. The investor’s subject qualification certificate or natural person identification certificate.

Simply, the IDs of the shareholders/investors.

The Chinese investor should submit a copy of the company’s official business license/institution legal entity registration certificate/social group legal entity registration certificate/private non-enterprise unit certificate as the subject’s qualification certificate; the foreign investor’s subject qualification certificate or identity certificate should be subject to Notarized by its national competent authority and sent to our country’s embassy (consulate) for certification.

For investors from countries with no diplomatic relations with China. They need to get a certificate from a third country. The country who has established diplomatic relations with China.

4. Appointment documents and copies of identification certificate for the following persons.

The legal representatives, directors/members of the Joint Management Committee, supervisors, and managers.

5. Proof of legal use of residence (business premises).

Typically, the lease contract of the office.

6. The meeting record for a public company

If you are going to set up a public company, prepare for the meeting records.

7. Approvals by the security regulatory authority under the State Council.

If your company is going to do a public offering. The regulator will require the approval by the security regulatory authority under the State Council.

8. Credit certificate of foreign investors (limited to non-company foreign-invested enterprises).

The capital credit certificate issued by a financial institution that has business activities with the foreign investor.

9. Approval documents by approval authorities (approval and copy of approval certificate 1)

This requirement is only for enterprises involving restricted business fields.

10. Copies of approval documents or licenses

Only for enterprises with specific business scopes.

Conclusion

Today, we talked about the following topics about the Sino foreign joint venture in China.

  • What does a Sino foreign joint venture stand for?

  • The differences between the 2 types of Sino foreign joint ventures in China

  • The setup process of a Sino foreign joint venture in China

  • Benefits of Sino foreign joint ventures in China

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