Australia-China Chamber of Commerce and Industry of New South Wales
Business Letter No. 2
30 September 2000
Blake Dawson Waldron, Shanghai,
Telephone: 8621 6279 8069; E-mail firstname.lastname@example.org
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
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
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.
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.
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.
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.
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
The approval authority
exercises a broad discretion in approving or disapproving the agreements and
may require amendments to the agreements if they contain any
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.
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.
Malliaté, Total Career Management
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
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.
key elements will make this clearer:
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.
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.
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.
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.
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 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
Information about these
projects can be obtained from the business opportunities pages on the
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
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.
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.
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: email@example.com or
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 (http://www.chinaonline.com), 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
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: firstname.lastname@example.org or
phone: (02) 9365-3151.
Send comments to: email@example.com