China Briefing's Volume XII - Number VI focuses on reevaluating and reconsidering the use of joint ventures and mergers and acquisitions (M&A) as investment vehicles in China. This is particularly relevant as China shifts from an export-driven economy to one focused on domestic consumption. The publication highlights that although investors still harbor skepticism towards joint ventures and M&As, especially after recent high-profile failures, there remains potential for these structures.
Key points include:
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Economic Shift: China's economy is evolving from export-oriented to consumer-driven, leading to increased interest in joint ventures between Chinese and foreign companies, as well as foreign-led M&As.
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Historical Failures: The 2007 dispute between Danone and Wahaha, and the Coca-Cola-Huiyuan acquisition in 2008, both failed to meet the Anti-Monopoly Law criteria, illustrate the challenges faced by multinational corporations in China.
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Market Motivations:
- For foreign firms, the Chinese market represents growth opportunities with local market knowledge and networks remaining within Chinese firms.
- For Chinese SMEs, joint ventures offer access to capital and continuity of governance, addressing difficulties in capital access and succession planning.
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Current Trends:
- There's a growing trend of joint ventures and M&As between China and foreign entities.
- Both structures present challenges but require strategic cooperation and careful preparation.
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Investment Considerations:
- Foreign investors must understand specific challenges during joint venture formation, operation, and dissolution.
- Clauses for dissolution should be included in contracts to protect assets and capital integrity in case the venture fails.
In summary, while joint ventures and M&As in China come with their set of challenges, they remain viable options for businesses looking to enter or expand in the Chinese market, especially considering the country's economic transformation.
