Everything old is new again for Sino-foreign JVs

During the mid-1990s, Sino-foreign joint ventures were de rigueur for foreign companies wishing to invest in China. For years, People's Republic of China law permitted no other choice – joint ventures were the obligatory vehicle if your company wanted to invest in China. However, even if the law had permitted an alternative structure, many foreign investors would have opted for a joint venture due to the widespread view that the complexity of the China market, the government's active role in the economy and the lack of transparency made a local partner vital to their business strategy.

As part of its accession to the World Trade Organization (WTO) in 2001, China made specific commitments to open many of its economic sectors to foreign investment. At the same time, PRC law evolved to allow foreigners to establish wholly foreign-owned enterprises (WFOEs) and eventually to engage in direct distribution activities without the need for a PRC-owned distributor. Soon, WFOEs and the later foreign-invested commercial enterprises (FICEs), which are WFOEs with distribution capabilities, became the favoured vehicles for foreign investment. Eighteen months ago, many market observers predicted this trend would continue.