Rethinking Joint Ventures in China’s Evolving Market

Alan MacCharles spent 27 years with Deloitte, including 18 years in China, where he was a strategy and M&A partner. Today, he advises foreign multinationals on forming joint ventures in China, while also serving as head of the Executive Education program at Duke Kunshan University. He is a co-author of the book “Unlocking International Joint Ventures: Keys to Formation Success through Cultural, Commercial, and Legal Decision-Making.”

Are joint ventures (JVs) having a revival in China? If so, what forces are shaping this phenomenon? Are JVs being used as a hedge against geopolitical tensions or potential regulatory restrictions?

It’s hard to tell if joint ventures are enjoying a resurgence. The data will take time to emerge, and we will only be able to observe those that are ultimately successful. Last week, a local business chamber suggested that in 2023, JV formation had a 44% year-on-year growth in China. Pre-pandemic, 8% of non-Chinese Fortune 500 companies did a JV in China per year, on average. Most of these JVs had predictable drivers: market access, growth potential, and access to local resources.

But JVs have also always been about finding balance — between opportunity and risk, between access and control, and between two different systems of thinking about business. Thirty years ago, China was an emerging economy with vast labor reserves and limited capital. Today, it’s a hyper-competitive market with advanced technology, mature supply chains, and a rapidly evolving policy landscape.

Given that hyper-competitiveness, plus US tariffs, export controls, and other geopolitical instabilities, the motivations for JVs in China have evolved. JVs are increasingly being used to build ecosystem resilience, support partial exits, and limit tariff risk while maintaining access to critical technologies or materials.

Many of these structures are about long-term survival and adaptation. They reflect a pragmatic understanding that neither side can operate in isolation. Foreign companies must adapt to China’s regulatory expectations, and Chinese partners must navigate global scrutiny and shifting supply chain requirements. For this reason, JVs remain resilient and high value. Increasingly, corporate structures may matter less than their strategic purpose: protecting global competitiveness while leveraging China’s scale, speed, and talent.

For foreign companies, what are the advantages of having a JV in China today versus 30 years ago? Are Chinese partners bringing different assets to the table (e.g., technological capabilities or supply chain networks versus market access)?

Technology transfer is again at the center of JV discussions — but not like before. What we’re seeing now is a two-way flow. Some JVs are returning technologies that once moved from the United States or Europe to China, while others are tapping into Chinese leadership in sectors like green energy and electric vehicles.

Yet the more strategic issue is not intellectual property; it’s supply chains. Once technology is embedded in local production, the practical control shifts to where the supply chain is based. That’s why governments in Washington and Brussels are rethinking how to secure domestic manufacturing capacity, sometimes encouraging JV structures that ensure local know-how and production resilience.

What we’re seeing now is a reversal of roles: the United States, which originally transferred this technology to China decades ago, has effectively lost parts of that capability. Let me illustrate with a deal I’m currently working on.

In this new JV arrangement, the Chinese partner performs the first stage of a chemical process — the part that is particularly environmentally harmful — and then ships the intermediate product to the United States. That intermediate product probably represents just 10% of the value that used to be imported. The remaining processing is completed in the United States, so the final product is “Made in America.” No new environmentally intensive plants are being built in the United States; those early-stage activities stay where the plants already exist.

The US partner is also dependent on the Chinese side for the know-how needed to finish the process. That know-how has been lost in the United States (even though that is where the technology originated). It’s a striking reversal from the last 30 years. It is also important to note that the supply chain integration is not being reduced, either. This model allows the Chinese company to survive (the JV helps offset the losses in sales) and re-localizes part of the production in the United States.

Chinese firms are bringing more than just technology. They bring supply chain strength; a mindset geared toward rapid commercialization, including getting to “good enough” quickly rather than waiting for perfection; and greater comfort with lower margins that enable entry into new markets. Their overall operating behavior is quite different from Western companies.

Chinese partners also possess critical manufacturing know-how. Legally, the IP may belong to a multinational, but the practical expertise — the people, the process engineering, and the supplier relationships — often exists only within the China operations. That means capability that was once transferred from the United States to China now sits primarily on the Chinese side of the organization.

As a result, China has become a powerful source of outbound innovation, talent, and production expertise. If structured correctly, the same technology and skills transfer that flowed from west to east in the late 1990s and early 2000s could now move in the opposite direction. Consider, for example, how to best harness talent in China to drive long-term success for a global business. Great companies have cultures that supersede the national cultures of individuals and enable the movement of people globally.

On a related note, what role does technology transfer play in renewing interest in JVs, and how has the calculus around IP protection changed?

China’s strategic focus has shifted. A few years ago, the government emphasized JVs as a way to ensure technology transfer. Policy thinking today is more sophisticated and pragmatic.

Whether a multinational enters through a JV or a wholly-owned greenfield operation no longer matters as much. The prevailing view is that once the IP and know-how are being manufactured in China by Chinese engineers, those capabilities are effectively in the country, even if the foreign firm still technically owns and controls the IP. We are starting to see this thinking in Europe and the United States — with the requirement to manufacture certain products (such as automotive batteries) in market.

You have written at length about foreign JVs in China. If there was a handbook for success, what are the primary rules that foreign companies should heed?

If you’re doing a JV, do it quick. The longer the formation process drags on, the less likely the deal is to complete. In our book, there’s an eight-point framework on how to do them quickly (see Figure 1.)

Start by making sure you’ve got a viable deal with a trustworthy partner. And pay attention to good governance. A lot of companies get into trouble because of sloppy governance. If you’re an American company, you should have some Americans in your business structure. If you’re a Finnish company, some Finns. It’s needed to help with communication back to headquarters and to make sure that know-how is exchanged so that the organization’s culture is transplanted into the subsidiaries or JV. There can be a different culture on the ground, but the core needs to be the same. Those transplanted individuals do not need to be the CEO, but they need to be trusted and respected so that help from headquarters is available when required.

Beyond lack of control, what are the primary disadvantages of ceding ownership to a Chinese partner?

The key disadvantage is you don’t own it anymore, and that means your dividends and flexibility to move employees and make decisions is reduced. Those disadvantages need to be offset by the ability to take capital out or raise capital locally, increased market access, and other protections or advantages that a partner may bring.

What other kinds of ownership models are available to foreign companies in China besides a JV or sole ownership? Are any of these enjoying a revival?

There’s a spectrum being put into use. Increasingly, companies are thinking about their China business as part of a portfolio. In that portfolio, there may be pieces they own wholly. There may be pieces in a JV. There could be pieces with private equity. There are ecosystem plays with fund structures to deal with some of the costs but then take a series of micro investments. There’s a whole series of partnership plays with no equity involved. That could be in the R&D space — we see a lot in life sciences. It’s a very active and dynamic market, as executives are figuring out how to protect the MNC position but also manage hypercompetition and continue to be successful by taking the best of China to the world.

When you look at foreign companies restructuring their ownership models in China, do you see industrial or sectoral differences? For example, do JV dynamics differ between business-to-business (B2B) versus business-to-consumer (B2C)?

The whole economy is under tremendous pressure. There are segments in B2B that are doing well. Most of those companies are keeping a low profile. There are also segments in B2C that are doing well. Overall, however, most companies are finding that the market has gotten significantly more difficult, and that growth has slowed. I don’t see much industrial or sectoral difference.

You also see the mimicking of deals. There’s a perception that the McDonald’s CITIC Capital deal was hugely successful, so now Starbucks is doing one with Boyu Capital, trying to replicate or find that secret sauce.

I see differences in managerial mindsets where the governance or decision-making responsibility is located in the market rather than retained at headquarters. This delegated authority mindset and in-China decision making will probably have bigger impacts for companies pursuing innovative structuring models or investing than those doing defensive plays. Structurally, however, the innovative model and the defensive model usually look very similar on paper. For example, a JV can be both a forward-thinking investment and/or a partial exit. Using the example above, McDonald’s bought its stake back from Citic Capital; is Starbucks planning the same once the issues are fixed, or is it selling down? Most likely, Starbucks doesn’t know the answer and views the deal as an option to be exercised in the future.

Looking forward 10 or 20 years from now, what do you expect to be the primary business model for Western companies operating in China?

I don’t think there’s a primary business model. The best model is always when you own it yourself and you’re in a stable, long-term situation. A lot of companies start as JVs and eventually become wholly-owned subsidiaries. Over the long term, you would expect that to be the default position, but in any dynamic and highly volatile market like the United States, Western Europe, or China, you would hope to see all kinds of business models in play. MNCs with larger operations have several different business models (and corporate structures) in play.

Chinese companies are now going overseas. Do you anticipate that many will choose to do so with Western partners? How many of those partnerships will be founded in partnerships now operating in China? Will the models of those JVs be different as Chinese companies go overseas?

 For several reasons, they’ll choose Western partners. In many cases, Western partners are 100 years ahead of them, and they have distribution or other infrastructure on the ground that makes it highly desirable to partner. For machinery maintenance or anything requiring service infrastructure, for example, it’s much easier to partner with someone than to build it from scratch. There is also know-how and trust that’s been built up between these companies, particularly where they’ve cooperated in China, and that lays a foundation.

Another driver is the demand for supply chains to be re-localized. There are Chinese companies that are very comfortable manufacturing in China and don’t want to leave because their supply chain is there, their efficiency is high, and their automation is high. They’ve invested in their plants but are being told if they want to retain work, they need to set up operations overseas. This will drive them into JV relationships.

As global supply chains recalibrate, Western governments are rediscovering the role of industrial policy. So, just as the Chinese government did 20 and 25 years ago, Western governments will force JV and tech transfer arrangements in certain sectors. The United States and Europe have already started, particularly in clean energy, semiconductors, and advanced manufacturing. It’s a natural cycle that some industry needs to return to a home market. These governments need to be a little more prescriptive and defensive in certain sectors to ensure that there’s a manufacturing base, a supply chain, and the know-how to function in the modern economy.

Any final thoughts?

The lasting value of a JV lies in its ability to link complementary capabilities, align diverse interests, and drive innovation across boundaries that no single company can cross alone. But that value only materializes when the JV is structured properly: interests are aligned, governance is clear, and trust is actively maintained. Using frameworks like the eight principles below, partners can navigate these complexities, bridge cultural and operational gaps, and create a foundation for long-term collaboration and sustainable competitiveness.

Done right, a JV transforms differences into shared advantages and opens opportunities that would be impossible to achieve independently.