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Reevaluating China Joint Ventures & M&As

By Dezan Shira & Associates
Posted: 25th October 2011 10:36

In the wake of the financial crisis and the realignment of the Chinese economy from an export-oriented model to one focused on domestic consumption, Sino-foreign joint ventures (JVs) and mergers and acquisitions (M&A) by foreign investors in China are gaining momentum.

Long considered investment structures to be entered carefully but not overlooked, different motivations to enter JVs and undertake M&As are evolving. Although China M&A deals will only account for 8-9 percent of the worldwide total in 2011, there has been a sharp increase compared to the 2-4 percent they accounted for in the early 2000s, according to JP Morgan.

Yet a profound (and not unfounded) distrust of JVs and M&As lingers among foreign investors, largely fueled by the high profile, multinational China JV and M&A deals that have gone wrong in recent years.

Consider the Danone and Wahaha JV dispute in 2007, in which French food group Danone accused China’s Wahaha’s beverage company of illegally setting up parallel businesses outside the two companies’ joint ventures. The dispute escalated into a drawn-out, high-profile legal battle, including mediation by the Chinese and French governments. In 2009, Danone announced it would sell its 51 percent stake in the joint ventures. 

In the M&A realm, the 2008 Coca-Cola Huiyuan deal was the first case that failed China’s anti-monopoly review since the Anti-Monopoly Law (2008). As a part of its localization strategy, Coca-Cola announced its intention to acquire Huiyuan, the number one juice brand in China, for US$2.4 billion. After much deliberation and request for Coca-Cola to supplement additional materials, the Ministry of Commerce (MOFCOM) issued a notice prohibiting the M&A on the grounds that Coca-Cola’s controlling position in the soft-drink market would be carried to the juice beverage market and result in a negative impact on market competition.

Yet the separate needs of Chinese and foreign companies are hardly incongruent - quite the opposite. Particularly for small and medium-enterprises (SMEs), JVs and M&As deserve a bit of reevaluation, as the Sino-foreign JV and M&A landscape today is quite different from several years ago. For many foreign companies, China has become a target market and the local market knowledge and established contacts are held only by Chinese companies.

On the Chinese side of the cooperation equation, at the SME level current drivers of JV and M&A activity are capital and ownership succession strategy. The inability of Chinese private SMEs to access capital has made it difficult for them to expand or even maintain their business. Meanwhile, in their forties and fifties, China’s first generation of entrepreneurs are looking to pass the torch, while their children – with goals and values characteristic of people far more than just a generation apart – are looking away. The credit crunch and succession challenges are particularly obvious in entrepreneurial Zhejiang province, leaving plentiful JV and M&A opportunities.

Like the hands of the Chinese matchmaker, Yue Lao, global trends are headed in the direction of many more Sino-foreign JVs and M&As. These two separate investment structures, challenging in any market, demand cooperation between Chinese and foreign parties in addition to careful planning and consideration.


Dezan Shira & Associates is a specialized foreign direct investment practice, providing business advisory, tax, accounting, payroll and due diligence service to multinationals investing in China, Hong Kong, India, and Vietnam. Established in 1992, the firm is a leading regional practice in Asia with nineteen offices in four jurisdictions, employing over 170 business advisory and tax professionals.

For professional advice regarding Joint Ventures and Mergers & Acquisitions in China please contact Dezan Shira & Associates at or visit



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