For your own protection

The gradual opening of Chinese industries that were traditionally dominated by the state over the last decade has provided great opportunities for private investors, particularly in the sectors of infrastructure, transportation, and manufacturing. Investors have generally been most interested in forming a joint venture with state-owned enterprises (SOEs) due to the dominant position of these enterprises in the relevant domestic market and their well-established relationship with the governing authorities. Investors hope that both will ensure the long-term development of the joint venture.

    SOEs do not always share this idea, however. For political and/or economic reasons the SOE may choose to walk away during the course of the JV or private investors may attempt to buy out their partner. In both cases, the private investor will face a dilemma about how to protect its pre-emptive right during the mandatory listing process of transferring the equity owned by the SOE in the JV. There are several possible solutions available in these circumstances.

The legal puzzle: pre-emptive rights v protection of state-owned equity