Chamber stance on the governance of joint ventures and the role of Party organisations Go back »

2017-11-03 | All chapters

With respect to the recent calls for Party strengthening within businesses, it is important to make a clear distinction between three separate issues:

1.    The role of the Party within state-owned enterprises (SOEs), including through formal governance mechanisms.

The European Chamber recognises that the approach taken to the structure and management of SOEs within China is a domestic issue that is for the Chinese Government to decide.

2.    The existence of Party organisations within businesses in general, and foreign-invested enterprises (FIEs) specifically.

It is well understood that the Company Law has a provision for the establishment of Party organisations in companies in China, for the purpose of conducting Party activities.  This applies to all companies in China: SOEs, the domestic private sector, FIEs and Sino-foreign joint ventures (JVs).  European companies comply with the Company Law, as they do with all applicable laws and regulations in China.

3.    The extension of SOE Party mechanisms into the formal governance of Sino-foreign equity JVs.

There are some cases where SOE partners in JVs have proposed that the Party organisation within the JV should be formalised within the governance structure of the JV and that the articles of association of the JV should be revised to give the Party a governance and decision-making role in all significant matters of the JV. This development is of great concern to foreign JV partners as it significantly changes the governance of the JV and undermines the authority of the JV Board. The corporate governance requirements under the Company Law and the Equity Joint Venture Law are clear, the board of directors is the highest authority of an equity JV and responsible for all key matters of the JV.

The European Chamber is not aware of any legal development that provides a basis for changing the corporate governance arrangements in JVs in this manner. Clearly, this would represent a significant change from the legal framework under which JVs were negotiated and under which they have been operating successfully for decades.

 A fundamental change of this nature would introduce an additional layer of governance and would have serious consequences for the independent decision-making ability of these JV companies. This in turn would deter European companies from investing in additional Sino-foreign JVs and, in some cases, would lead to a reappraisal of commitments to existing JVs.

The European Chamber therefore stands ready to assist the Chinese authorities and Chamber members who encounter this situation. We believe it is in the best interests of all sides to ensure that the stability, efficiency and integrity of current JV governance arrangements are maintained. 

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Xinhe Fan