Due diligence is a much misused term in China, with many investors either ignoring it, assuming everything will be OK or believing that it is expensive and largely unnecessary. This is a mistake. Due diligence, more than ever as Chinese companies face increasing competition and pressures to perform, should be conducted at every stage of negotiations with a potential partner – be them in trading, in a JV or as part of an acquisition. In this article we highlight just some of the issues at stake, provide advice and mention case studies.
A JV in China is a type of investment that creates a legal entity owned by the partners based on pre-defined terms. The regulatory regime over ownership and the equity varies according to the type of JV, but essentially it is common for the foreign investor to contribute cash, and the Chinese land and buildings as part of the deal. Consequently, attention must be paid to land as a lack of knowledge about Chinese law provides a relatively easy way for the Chinese party to deceive an unwary partner.
This article discusses:
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