Links » Cream » How I Learned to Stop Worrying and Love Joint Ventures

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• How I Learned to Stop Worrying and Love Joint Ventures
• Diaoyu Dispute Sparks Anti-Japanese Protests
• Scenes from China’s Consumerist Revolution
• Cartoon: The Nationalists Go Quack Quack, by Hexie Farm (蟹农场)
• Hexie Farm (蟹农场): The Nationalists Go Quack Quack
• Beijing Flood Censorship Directives
• Motorola China Staff Protest Layoffs, Trade Critics Confused
• Ancient Morality Text Updated for Young
• Miss China on Top of the World
• China, DPRK Vow to Develop Economic Ties

How I Learned to Stop Worrying and Love Joint Ventures Posted: 19 Aug 2012 11:41 PM PDT This article originally appeared in Agenda magazine under the much more informative, yet less funny, title: "A Worthy Venture: What Sino-foreign Joint Ventures Have to Teach Us." Check out the current issue here. Conventional wisdom says that one should avoid a Sino-foreign Joint Venture (JV) if at all possible. You have to deal with a partner, they take a while to set up, there's the partner situation, and management can be complicated. And oh yeah, you need a partner. So why am I offering up a column that seemingly lauds the JV? Does conventional wisdom have it all wrong? Not at all. The advice is still excellent, and I certainly try to steer my clients clear of such entanglements when I can. That does not mean, however, that you should ignore the lessons of JVs, even when the China deal you are contemplating is completely different. My years in the classroom have shown that if my law students can thoroughly understand the way that JVs work, they can do just about anything. For example, let's say you own a valuable trademark and wish to license it to a Chinese manufacturer. Not even remotely similar to a JV you say? I beg to differ. That licensor-licensee relationship looks a lot like a JV partnership to me, although the commercial terms may be somewhat different. That License Agreement will share some of the elements of a Joint Venture Contract, and the operational end of the arrangement (i.e., how things work out "on the ground") may end up looking very much like a JV, depending on how involved the licensor is in the China business. Even an investor looking to drop some cash into an offshore-listed Chinese company could learn a thing or two from Sino-foreign JV history. Consider the recent problems we have seen with Alibaba, GigaMedia, and ChinaCast Education; the common theme here is local management fighting with foreign investors. Sound familiar? If you are still with me at this point, you might be wondering just what JV lessons are most instructive. If I am going to spend my weekend researching Beijing Jeep and the failed Danone-Wahaha partnerships, would should I be looking for? You may wish to start with the following: 1. Legal and Operational Control – JVs would not be challenging without the issue of control. Because you are stuck with a partner, there is a constant struggle in many JVs over who has the legal ability to make decisions and who has the de facto ability to do so – in many instances, these are two different parties. When you read up on your Sino-foreign JV history, consider what sort of legal and actual control issues pertain to your own deal. 2. Relationships – Most China consultants you talk to will totally inflate the importance of relationships (guanxi) to modern business culture. Guanxi is still a big deal in China, but for many commercial deals, it is much less important than it used to be. On the other hand, most deals involve one or more key parties whose cooperation is crucial to your success. A JV presents the most obvious example, but licensees, manufacturers, buyers and distributors are just as important. Take a look at messes like the Danone-Wahaha JV/litigationfest, and you can find many mistakes to avoid. Treat that licensee like you would a JV partner; the relationship will be much better for it. 3. Trust, but Verify – Ronald Reagan's oft-quoted phrase about U.S.-Soviet relations, which he borrowed from a Russian proverb, is always good advice for JV partners. There is a good reason we lawyers draft those lengthy, hard to read contracts. But that is not nearly good enough. JV partners should by all means work on their relationship and keep it friendly, but at the same time, mechanisms must be built into place that allow the partners to check up on one another's activities, just to keep everyone honest. This usually involves lots of disclosure, inspections, and hopefully sharing of operational control. Once again, what's good for the JV is also important for that licensing, distribution or manufacturing deal. You really ought to keep track of what your licensee, distributor or local factory is up to, and not just when they are busy churning out widgets on your behalf. 4. Due Diligence – Most investors understand that if they are contemplating a multi-year equity deal involving a company from another country, some sort of investigation is warranted. That prospective partner might have financial trouble or a cloud on its land use rights. Perhaps it used to launder cash for Golden Triangle drug runners or manufacture shell casings for African dictators. You never know until you start digging. If you buy into this logic, though, why would you jump into bed with a licensee or distributor, for a multimillion dollar and multi-year deal, without also checking out that company? JV horror stories abound of what can happen when those skeletons are left in the closet, only to pop out later, and always at a most inconvenient time (e.g. M&A, IPO). Just to be crystal clear: I still do not like Sino-foreign joint ventures as investment vehicles, at least most of the time. Too few benefits, way too many downsides. But as a teaching tool, an avenue to enlightenment for you prospective investors looking to crack into the market and in need of some quick historical lessons? JV case studies should be at the top of your reading list. © Stan for China Hearsay, 2012. | Permalink | No comment | Add to del.icio.us Post tags:

Diaoyu Dispute Sparks Anti-Japanese Protests Posted: 19 Aug 2012 08:05 PM PDT Anti-Japan protests swept across China on Sunday, after Japanese activists landed on the Diaoyu Islands in the East China Sea and unfurled Japanese flags just days after Japan detained a group of activists from Hong Kong for attempting to similarly assert China's sovereignty on the disputed territory. From The New York Times: The Chinese state news media portrayed the demonstrations as fairly small, each involving fewer than 200 people, and not extending to inland provinces. But photographs posted on Sina Weibo, the country's most widely used microblogging service, suggested that the crowds had been far larger. In one photo said to be from the southwestern city of Chengdu, deep in China's interior, the number of protesters appeared to be tens of thousands. "Defend the Diaoyu Islands to the death," one banner said. Another said, "Even if China is covered with graves, we must kill all Japanese." Another photograph showed a handwritten sign taped to the entrance of Suning, a popular electronics store, telling customers it was no longer selling Japanese products. Some protests appear to have turned violent. According to several postings, demonstrators on Sunday attacked sushi restaurants or other businesses perceived to have a Japanese connection. Several photographs said to be from Shenzhen, across the border from Hong Kong, showed what appeared to be damaged or overturned cars — most of them Japanese models — as well as several police vehicles. Tensions on the Diaoyu Islands (Senkaku Islands in Japanese) have escalated since April, when the governor of Tokyo announced plans for the city to purchase them. Despite warnings from Chinese state media telling the Japanese not to interfere with the boat from Hong Kong, the Japanese Coast Guard detained 14 of the activists before allowing them to return to Hong Kong on Saturday. The China Daily then reported that 10 Japanese activists landed on the Diaoyu Islands on Sunday morning, despite not having approval from the Japanese government. They are believed to be part of a larger fleet of 150 Japanese activists and 21 vessels that planned to hold a ceremony in the nearby waters for those who died in World War II. Xinhua news called the Japanese landing "illegal" and lamented the damage it had inflicted on ties between the two countries: Sunday's landing, along with a barrage of other provocations, has poisoned the atmosphere of the Sino-Japanese relations and constituted another setback for both countries' efforts to further their political and economic ties. The Japanese rightists should immediately stop any action that undermines Chinese territorial sovereignty and be barred from fuelling the tension between the two neighbors. To this end, the Japanese government should act with great responsibility and proceed from the overall interests of the Sino-Japanese relations to seek a peaceful settlement of any disputes. The demonstrations in China "mark the worst deterioration in relations since 2010," according to The Financial Times: Chinese protestors gathered in dozens of cities, in some cases vandalising Japanese-made cars and retail outlets. About 1,000 people marched in the southern city of Shenzhen, overturning a Japanese-made police vehicle and attacking a Japanese restaurant, according to Xinhua, the Chinese state news agency. In the western city of Chengdu, a branch of Uniqlo, the Japanese clothing store, had to close due to the protests. Demonstrations were also reported in a dozen other Chinese cities including Shanghai, Guangzhou, Xian, Jinan and Qingdao. In Beijing, a few protesters appeared outside the Japanese embassy on Sunday morning amid heightened security, but there was no other sign of unrest in the capital. The Nanfang has posted a number of photos that have emerged on microblogging site Sina Weibo, including the ones below: © Scott Greene for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us Post tags: activism, anti-japan demonstration, Chengdu, diaoyu islands, Guangzhou, Hong Kong, Japan, maritime disputes, Qingdao, regional security, Shanghai, Shenzhen, territorial disputes Download Tools to Circumvent the Great Firewall

Scenes from China’s Consumerist Revolution Posted: 19 Aug 2012 07:50 PM PDT A precarious economic outlook and efforts to stem officials' conspicuous consumption have prompted fears for the health of China's luxury market. Sales of prestigious Moutai liquor have indeed drooped, but Hermes and Remy Cointreau both insisted last month that they had seen no slowdown in China, and while prices of cheaper jade products have tumbled, the high end has held steady. At New York magazine's The Cut, April Rabkin recounts a series of encounters with some of the luxury shoppers tirelessly battling to keep the bauble rolling. "I like luxury goods; I love to consume," he says. "I have money; I gotta spend it." He is wearing Ferragamo shoes, an Armani polo, and Kiton pants. The wallet is from Bottega Veneta, the socks from Prada. The underwear? He says I have to accompany him to the hot springs to find out, but he assures me that they cost more than 800 yuan, or $125. "We all used to wear plastic slippers," a young man named Wu Ruiqi says while sipping Champagne. "There wasn't fashion before. Everyone wore the same thing. Now there are two kinds of shoppers: fashion-forward, and clichéd customers who all buy whatever brand just for the logo, like a swarm of bees." "I don't have any other hobbies," she says. "My only hobby is shopping." She is wearing a white-lace dress and a diamond Dior monogram necklace, the same one that a girl who walked out of Chanel a few minutes before her was wearing. "Beijing girls, they all buy the same luxury items," she says. "It doesn't matter if it takes a month's worth of salary. Chinese people are blind followers. Some people say they hate rich people, but it's just sour grapes. If they had money they would buy it too." The article also includes an illustrated guide to fashion jargon, from 暴发户 to 自拍. The broader retail sector has cooled both in China and elsewhere in Asia, and CNBC recently reported that middle class Chinese are increasingly shunning luxury goods in favour of foreign travel. But with prices abroad far lower than in China, the two often go hand in hand. Hubei TV reporter Tong Li wrote in Global Times this month that colleagues covering the London Olympics had descended in a "shopping frenzy" on the nearby Bicester Village outlet centre. At The New Yorker last year, Evan Osnos described a 'Grand Tour' of Europe with a coachload of bargain hunting Chinese tourists. © Samuel Wade for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us Post tags: consumerism, fashion industry, luxury, luxury goods, moutai, nouveau riche, waste Download Tools to Circumvent the Great Firewall

Cartoon: The Nationalists Go Quack Quack, by Hexie Farm (蟹农场) Posted: 19 Aug 2012 06:49 PM PDT The Nationalists Go Quack Quack © Samuel Wade for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us Post tags: Download Tools to Circumvent the Great Firewall

Hexie Farm (蟹农场): The Nationalists Go Quack Quack Posted: 19 Aug 2012 06:33 PM PDT For the latest instalment in his CDT series, cartoonist Crazy Crab of Hexie Farm shows a flock of ducks mounting an anti-sushi protest outside the famous Quanjude Peking roast duck restaurant. They brandish placards reading "Love The Hung Oven", "Safeguard Quanjude", "Safeguard The Hung Oven", "Boycott Sushi" and "The Closed Oven is Ours Too", oblivious to the fates of their brothers and sisters in the restaurant yard. The hung oven (used at Quanjude) and the closed oven are the two methods of roasting Peking duck. The camera carried by one of the ducks is a reference to a photo of a protester wearing a "Boycott Japanese Products" T-shirt with a Japanese Canon camera slung around his neck. Read more about Hexie Farm's CDT series, including a Q&A with the anonymous cartoonist, and see all cartoons so far in the series. [CDT owns the copyright for all cartoons in the Hexie Farm CDT series. Please do not reproduce without receiving prior permission from CDT.] © Samuel Wade for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us Post tags: diaoyu islands, gas, hexie farm, oil, Peking duck, senkaku islands Download Tools to Circumvent the Great Firewall

Beijing Flood Censorship Directives Posted: 19 Aug 2012 06:00 PM PDT The following example of censorship instructions, issued to the media and/or Internet companies by various central (and sometimes local) government authorities, has been leaked and distributed online. Chinese journalists and bloggers often refer to those instructions as "Directives from the Ministry of Truth." CDT has collected the selections we translate here from a variety of sources and has checked them against official Chinese media reports to confirm their implementation. State Council Information Office: Some changes have occurred today in the online discussion of the Beijing flood: challenges and calls for accountability have markedly increased, while some people have seized the opportunity to attack the Party and the government, as well as the social system. We request that all websites boost their manpower and do everything possible to clean out harmful information on the Beijing flood. Attention: Leave untouched general messages calling the situation into question, but diligently erase those which are malicious and hostile. Furthermore, judging from the current situation, online discussion of the "7.23" anniversary has clearly heated up, and a number of malicious and hostile messages have appeared. Measures must be taken to delete messages which use this issue to attack the Party and the government, as well as the social system. Related discussions must be played down. Websites must not actively recommend and promote these messages. (July 23, 2012) 国新办：今天有关北京暴雨的网上舆情发生了一些变化：质疑和问责的言论明显增多，有人借机发表攻击党和政府、攻击社会制度的信息。请各网加强工作人力，全力清理有关北京暴雨的不良信息。注意：一般质疑反思的不要动，恶意攻击的要坚决删除。而且，从现在情况看，网上涉"7.23"周年纪念的言论明显升温，出现了不少恶意攻击性言论，要采取措施，坚决删除借此事攻击党和政府、攻击我社会制度的信息，相关讨论要淡化，网站不得主动推荐、置顶。 © Anne.Henochowicz for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us Post tags: Beijing, beijing flood 2012, censorship, Directives from the Ministry of Truth, Ministry of Truth, propaganda, State Council Information Office Download Tools to Circumvent the Great Firewall

Motorola China Staff Protest Layoffs, Trade Critics Confused Posted: 19 Aug 2012 10:50 AM PDT Cutbacks in staff will reach 700 in the Beijing based company, said a software engineer of the company, adding that the company noticed [sic] the employees to sign the termination agreement within one day, and some pregnant staffs [sic #2] were seen on the list of the layoffs. It is said that employees who lost their jobs gathered around the company's building in Chaoyang district in Beijing at around 11 am on Friday. The protest lasted more than one hour. (Xinhua) OK, here's a U.S. company laying off Chinese workers because of cost/productivity concerns. I'm not up on the latest criticism of international trade, so help me out here. As a loyal American populist, should I: 1. Be mad at Motorola for cutting jobs? 2. Be happy that a U.S. company is hiring fewer Chinese workers? 3. Be disappointed that Motorola isn't closing its China operations entirely and moving back to Illinois? Seriously, the whole thing makes me dizzy. I'm reminded, indirectly, of a Matt Miller Op/Ed in the Washington Post (couple years ago maybe, and sorry, no link) in which he posed the following question to critics of free trade (and I paraphrase loosely): what's the moral basis for protectionist policies that may save a few jobs at "home" if it means that a poorer country, or any country for that matter, loses out on those jobs and that income? It's a good question, and one that also pulls in issues relating to nationalism. But let's put it another way. Suppose Motorola was really going to close down a big operation here and move back home. China would lose, just for the sake of argument, 5,000 jobs, while the U.S. would benefit from that loss. Where's the good and evil in that tale? Would protectionists be OK with China giving Motorola a big fat tax break to stay? Seems to me that when you reverse Country A and Country B in these tales, you can't help but think about this stuff a little differently. And keep in mind that in the very near future, Chinese companies are going to be coming to North Carolina or Mississippi or wherever and hiring folks there. Then we'll all be confused when we talk about trade policy. © Stan for China Hearsay, 2012. | Permalink | 2 comments | Add to del.icio.us Post tags:

Ancient Morality Text Updated for Young Posted: 19 Aug 2012 11:28 AM PDT China has updated the '24 Filial Exemplars', an ancient morality text, to promote filial piety among the new generation. From Tania Branigan at The Guardian: The original 24 Filial Exemplars date from around the 14th century, when Yuan dynasty scholar Guo Jujing collected the tales of obedient children. They were endlessly reprinted in the centuries that followed, until the Communist party banned them as it sought to eradicate backwards thinking. The heroes of the work include the son who strangled a tiger to save his father and Dong Yong, a Han dynasty figure who sold himself to pay for his father's funeral rites. […] The new list, promoted by the All China Women's Federation and the China National Committee on Ageing, appears more prosaic. It urges people to ensure their parents have sufficient health insurance, to take them for medical checks and to give them enough spending money. […] Changing social mores, the embryonic state of the social safety net and the demographic "timebomb" of a fast-ageing population have made officials keener than ever to promote filial piety. © Mengyu Dong for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us Post tags: aging populaion, cultural heritage, cultural preservation, demographics, filial piety, traditional culture, values Download Tools to Circumvent the Great Firewall

Miss China on Top of the World Posted: 19 Aug 2012 09:59 AM PDT As China embraces beauty pageants, Miss China Yu Wenxia was crowned Miss World on Saturday. She is the second contestant to win from China: 2007′s Zhang Zilin was the first Chinese contestant to win an international beauty contest. From the Associated Press: China's Yu Wenxia has been crowned the 2012 Miss World. The first runner-up is Sophie Elizabeth Moulds of Wales and the second runner-up is Jessica Michelle Kahawaty of Australia. The 23-year-old Yu is a music student who says she wants to become a music teacher. This is the first time for the Inner Mongolian city of Ordos to host the international beauty pageant. The host city of Ordos is known as "China's biggest ghost town" following a burst of government-funded construction that far outpaced utilisation. Pageant contestants expressed optimism about the city's future, however. From AFP: "Ordos could be the next Dubai," Marielle Wilkie, representing the Caribbean nation of Barbados, confidently predicted. Albanian contestant Floriana Garo chimed in with her own bold statement. "In ten years, this city will be booming," she said. Architecture in Ordos, where the city museum is shaped like an undulating blob, is "world class," added Markysa O'Loughlin, representing St. Kitts and Nevis, also in the Caribbean. © Melissa M. Chan for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us Post tags: beauty contest, Inner Mongolia, miss china, Ordos, soft power Download Tools to Circumvent the Great Firewall

China, DPRK Vow to Develop Economic Ties Posted: 19 Aug 2012 10:01 AM PDT As a visit to Beijing by Kim Jong-Un's uncle, Jang Song-thaek, comes to an end, China Daily reports that China and North Korea vow to develop economic ties: China and the Democratic People's Republic of Korea said on Friday that they would push forward in developing economic zones. The message came during a meeting between Chinese Premier Wen Jiabao and a DPRK delegation headed by Jang Song Thaek, chief of the central administrative department of the Workers' Party of Korea. Wen said the government would continue to push bilateral ties forward, support DPRK to improve its economy and people's well-being. He is confident the country will also make progress in national development. Jang said Kim Jong Un, top leader of DPRK, attached importance to the bilateral relations, believing the friendship will be passed from generation to generation. Aside from developing joint economic projects, Wen has urged Pyongyang to allow the market to revamp North Korea's economy. From Reuters: Premier Wen Jiabao encouraged North Korea to allow "market mechanisms" help revamp its economy, state media said on Saturday, and laid down other pre-conditions as China tries to wean its impoverished ally off its dependence on Chinese aid. As well as allowing freer rein to market forces, the Chinese premier also recommended Pyongyang encourage economic growth by improving laws and regulations, encouraging business investment and reforming its customs services. Beijing has had difficulty managing the relationship with North Korea, which it views as a strategically critical buffer between itself and U.S. military forces in South Korea. But North Korea is often more cantankerous than China would like, in particular towards South Korea, even though the economic relationship between China and South Korea is far more important. Bilateral ties are also not always smooth. According to the New York Times, Jang's visit has garnered an unusual amount of attention from North Korean media: Mr. Jang, 66, widely seen as Mr. Kim's point man in overseeing the development of the zones, is the most powerful North Korean official to visit China since Mr. Kim's father, Kim Jong-il, went there in August 2011. South Korean analysts consider Mr. Jang to be a significant influence in Kim Jong-un's recent efforts to tame his military and carry out his economic revitalization program, which, according to South Korean news media, includes allowing farmers to own part of their annual yield as an incentive. Such a plan, if put into effect, would be one of the most drastic reforms in North Korea, which officially sticks to "socialist economic principles." Mr. Jang is the brother-in-law of Mr. Kim's father, who died in December. When Kim Jong-il was alive, Mr. Jang often preferred to stand in the background while party secretaries and military leaders stood closer to the elder Mr. Kim during official functions. Mr. Kim once banished Mr. Jang from Pyongyang, the capital. But his prominence has risen with the ascension of Kim Jong-un. Mr. Jang and his wife have climbed the party hierarchy as they worked to ensure a smooth transition of power in the Kim dynasty. North Korea's state-run news media have provided daily updates on Mr. Jang's trip, coverage that is highly unusual for anyone except for the top leader. Bolstering that prominence was China's willingness to grant Mr. Jang meetings with its top leaders — a treatment that South Korean news media called "a level befitting a head of state." Mr. Jang was visiting China as the chief of the central administrative department of the Workers' Party of Korea. Amid continuing speculation on Kim Jong-Un's first visit to China, Jang's visit is seen as a prelude for the young Kim's own trip, China Daily reports: The visit is also widely speculated as a prelude to one by Kim Jong-un to Beijing. Kim has yet to visit Beijing but his father, Kim Jong-il, was a frequent visitor to China in his later years. "It is a custom for the DPRK top leader to pay his first foreign visit to China," said Zhang Liangui, a professor on Korean Peninsula studies at the Party School of the Communist Party of China Central Committee. "In the current situation, it is necessary for Pyongyang to step up communication with Beijing and to let the Chinese leaders and Kim Jong-un know each other." On Friday both Hu and Wen offered condolences for floods which severely hit the DPRK this summer.   © Melissa M. Chan for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us Post tags: bilateral ties, economic development, Kim Jong-un, North Korea. North Korea relations, Wen Jiabao Download Tools to Circumvent the Great Firewall

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