The Australia-China Chamber of Commerce and Industry of New South Wales

ACCCI Business Letter No. 2

30 September 2000






Critical Issues to Consider When Establishing Joint Ventures


Opportunities Through the World Bank and the Asian Development Bank

Opportunities Arising from China’s WTO Membership






Mary Studdert, Blake Dawson Waldron, Shanghai,

Telephone:  8621 6279 8069; E-mail

Three key steps:

According to the law on joint ventures, a joint venture company is deemed to be established when the State Administration of Industry and Commerce (SAIC) issues a business licence (article 6 CJV Law [PRC, Sino-foreign Cooperation Law, 1979], article 11 EJV Implementing Rules [State Council, Sino-foreign Equity Enterprise Law Implementing Regulations, 1983]).

However, the following steps must be completed before the SAIC issues such a licence:

Step 1: The parties execute the joint venture contract and articles of association, commonly known as the agreements.

Step 2: The parties submit the agreements to the approval authority for examination and approval

and the approval authority issues an approval certificate.

Step 3: After receiving the certificate, the parties submit an application for a business licence to the SAIC.

Unclear rights and obligations

At each of these steps, interesting issues arise regarding the rights and obligations of the joint venture company and of the parties to the joint venture company, as specified in the agreements. For example, what is the status of the agreements after execution but before they are approved by the approval authority?

The joint venture law states that the establishment of a joint venture is subject to examination and approval by the relevant approval authority (article 6 CJV Implementing Rules, article 8 EJV Implementing Rules).

It is unclear whether, before this approval is granted, the parties remain bound by the agreements or can walk away from their respective rights and obligations at any time and without any liability to the other party.

Amendments before approval

The issue is further compounded if the approval authority requires amendments to the agreements before it will approve them.

In common law jurisdictions, amending an executed agreement is usually made by executing another agreement specifying that amendment. In our experience, some approval authorities have allowed a handwritten amendment or the insertion of a fresh page into the initial executed agreement. These amendment methods may indicate that execution of the agreements is a procedural requirement and the approval authority's approval gives effect to the agreements.

Status of certificates and licences

Another question often asked by foreign parties is: what is the status of the joint venture company after the approval authority approves the agreements but before the SAIC issues the business licence?

The joint venture law states that the agreements are effective from the day the relevant approval authority issues the approval certificate (article 11 CJV Implementing Rules, article I7EJV Implementing Rules). However, as mentioned earlier, the joint venture law also states that a joint venture company is not established until the SAIC issues a business licence.

Question over rights

This raises the question of the status of the rights and obligations of the joint venture company before the business licence is issued. For example, the agreements often require the board of directors of the joint venture company to hold a meeting within several days of receiving the approval authority's approval.

The purpose of the meeting is to make important decisions relating to the joint venture. More than likely this meeting of the board of directors will be before the SAIC issues a business licence.

Approval authority's broad discretion

The whole concept of examination and approval of an executed agreement by a third-party government authority is alien to those who deal in common law jurisdictions. Foreign parties frequently view execution of the agreements as the conclusion of an often frustrating and lengthy negotiation process. For them submitting the agreements to the approval authority for examination and approval is a mere procedural requirement.

The approval authority exercises a broad discretion in approving or disapproving the agreements and may require amendments to the agreements if they contain any "irregularities".

Unnecessary concessions

There have been many instances where, upon a preliminary examination of the agreements, the approval authority has sought amendments to fundamental commercial terms of the joint venture in favour of the Chinese party.

In our experience, foreign parties tend to allow these "eleventh-hour" concessions in an effort to facilitate the authority's approval of the agreements. The reasons may be due to pressure from the foreign party's overseas head office to establish the joint venture as quickly as possible. It's important to remember that negotiations may have been going on for several years.

Alternatively, the representatives of the foreign party may be eager to leave China and return home, especially if they are staying in a local hotel in a rural China.

In many instances, such concessions are not necessary and can be avoided if the foreign party views the examination and approval process as another stage of the negotiations with the Chinese party.





Jean-Marcel Malliaté, Total Career Management

Telephone:  (02) 9518 7314; facsimile: (02) 9518 7024

Negotiations consist of learnt skills that are part of a universal process of achieving specific outcomes. These skills are acquired through experience and through research and analysis of data. The learning process often changes the individual's attitude toward negotiations and reduces the uncertainty that produces a FEAR-acronym -- false evidence appearing real.

Negotiations form an important part of day4-to-day activities in China, where it is sometime said that "everything is negotiable".  For non-Chinese, the difficulties to be overcome arise from language and cultural differences.

As with proverbs, in China conversation, communication and negotiators rely on their cryptic value to achieve a reality that reflects the richness of past experiences and a yet-to-be-determined future. This implies that negotiations in China nave not been transparent.

How should negotiations with Chinese proceed? In my opinion, one factor stands out: Conflict is the worst-case scenario. It reflects an undesirable and unacceptable outcome. Negotiation can prevent and circumvent conflict when it is applied as a multicultural process, and not as a form of "head banging" or as a "splitting the difference" tactic.

A few key elements will make this clearer:

Commitment. Identifying the issues that are worthy of the necessary time and effort establishes more than an agenda. It is a commitment to the process of achieving an operational and durable agreement.

Legitimacy. Possible standards, precedents, benchmarks and prior practices must blend in a multicultural way to produce accepted principles. The seemingly agreeable practice of many Australians in "flipping a coin" or taking turns in "cutting the deck' may not be accepted by one who prefers to rely on arbitrators, mediators, or others with expert opinions.

Alternatives. Generating additional possibilities, or alternatives to the initial "game plan", is an integral and interesting part of the negotiation process. Negotiators sometimes consider the other side's perception of the "best alternatives to a negotiated agreement" and observe ways of changing that perception.

Communication. An ability to reframe statements to create a flow in the communication is particularly important in multicultural, bilingual interactions. This often requires a conscious effort to identify the assumptions that form the basis for a selected method of making a statement. Such "reframing" should continue from the beginning to the end of negotiations.

Relationship. One of the most difficult parts of a negotiation is to separate the people issues from substantive issues. Maintaining self-respect and personal dignity often helps to keep the "win-win" situation visible. Failure to maintain that may produce the often-quoted and less desirable payoff: "they win, you lose" or "they win more, you win less". This is likely to result in dashed relationships with repressed emotions of anger or failure.

Interests. The other party's interests are crucial to the "win-win" situation, and recognition of these interests will deliver outcomes that endure the test of time. Mutual acceptance of personal as well as substantive requirements of each other will trigger positive emotions. Failure to achieve such acceptance is likely to create saboteurs, masters of the "put-down" and emotions that communicate an interpersonal problem or generate anger.

Options. Some options are conveyed in alternative action: "Fight vs flight". "Kill or be killed". "Be shameful or shamed". Others arise from "what-if” thinking: What if this negotiation fails today? What if we can't fool or bluff the other side? It is important that each party, and society as a whole, decide which actions or reactions are desirable and which are undesirable.

These key elements will help to avoid conflict, but they must be used in a structured way.  Some thoughts relating to such a structure will appear as Part 2 of this discussion in the next Business Letter.





Both multilateral lending agencies currently list a large number of procurement and technical assistance projects in China that are open to international competitive bidding. Environmental management, urban development, water supply and treatment and other "social infrastructure" components are becoming more common.

Information about these projects can be obtained from the business opportunities pages on the Internet sites:

Although AusAID has no new China projects listed, several are in progress and others are certain to be added subsequently. The Internet site is:

The Chamber encourages members and associated companies to bid for these contracts. They are useful ways of increasing the mutual awareness of needs and capabilities. Most of the large consulting firms in Australia have already participated. Gaining entry is obviously more of a problem for small and medium-sized firms.

Although we are reluctant to advertise a "help desk” in these matters, the Chamber can provide the following assistance.

A list of new projects relating to China from multilateral and bilateral sources which will be made available as a "mail out" to those who request it.

Putting Australian companies in contact with implementing agencies in China with which the Chamber has had contact over the years.

Using our contacts in China to assist in searching for Chinese companies or individuals to be part of the "domestic component", if such a component is relevant.

Suggesting independent consultants who are willing to assist the small and firms in assembling a team and to help with the necessary documentation.

Chamber contact if you are interested in any of these: John Zerby e-mail: or
phone: (02) 9365-3151





One area that has been singled out as an "opportunity" after China's accession into the World Trade Organisation is environmental management.

A commentary by Richard J. Ferris Jr. and John Barlow Weiner, published by ChinaOnline (, pointed out that WTO members must publish laws likely to affect international trade, including measures to regulate the import, export and sale of goods, in a way that allows other members and entities participating in international trade to become acquainted with these requirements. China does not currently publish environmental laws or standards in a manner that facilitates notice to WTO members and other entities.

In addition, WTO agreements encouraging members to base domestic requirements upon international standards could considerably expand China's consideration and use of international standards in the domestic environmental regulatory regime.

This suggests that environmental considerations will receive greater attention in China, and with that there will be greater opportunities for foreign-enterprise participation, particularly in relation to the development and application of new technology.

The extent to which other industries expand in China, and which may contact, is still being debated. The Chamber has been communicating with the China Federation of Industrial Economics (CFIE) since they are also looking into these questions.

We welcome expression of interest from members and associated companies to participate in these discussions. Workshops or seminars can be arranged later this year, or early next year, if sufficient interest exists.

Contact John Zerby: e-mail: or phone: (02) 9365-3151.







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