Sino-foreign joint ventures
Sino-foreign joint ventures are formed by at least one Chinese company or other economic entity and at least one foreign investor, whether it be a company, other economic entity or an individual. JVs can be established in the form of an equity joint venture (EJV) or a co-operative joint venture (CJV).

Equity joint venture
The corporate form of an EJV is the limited liability company, which possesses the status of a Chinese legal person. It involves joint investment and operation and the sharing of profits and losses, as well as risks in proportion to the partners’ respective shares in the registered capital.

EJVs are governed by the Law of the People’s Republic of China on Joint Ventures Using Chinese and Foreign Investment. According to this law, the foreign partner must contribute at least 25 per cent of the venture’s registered capital. The parties may contribute their respective capital in the form of cash, capital goods, industrial property fights or other assets. Commonly, the Chinese partner contributes cash, land development or clearance fees and land-use rights, while the foreign investor contributes cash, construction material , technology, equipment and machinery.

Co-operative joint venture
In most respects, CJVs are structurally similar to EJVs. Unlike EJVs, however, CJVs can be established either as a limited liability company or as a non-legal person, in which the partners are subject to unlimited liability and thus entirely liable for any losses. The rights and obligations of the JV partners concerning issues such as distribution, investment, operation and sharing of profits/losses and risks are determined by the individual joint venture contract.

Commonly, in these contracts the Chinese party will own all the assets of the venture once the date of expiry is reached, while the foreign party will seek to recoup its investment within the lifetime of the venture. Consequently, the CJV format can be quite attractive to both sides.

Among the two forms of Sino-foreign joint ventures, the EJV is longer-established but provides less flexibility. The allocation of profits is the most significant difference between the two. In EJVs, the ratio of capital contributions made by the partners determines how profits are allocated. By contrast, CJVs allow profits to be allocated according to the terms of the partners’ individual agreement.

Problems often arise with joint ventures concerning areas such as joint management, agreements on profit-sharing and technology transfer. Even so, JVs are still attractive for foreign investors who need a local partner with established connections and a distribution network, or who are looking for a partner with existing facilities and workers.