How US Businesses Entered China: The Joint Venture Requirement

During China's initial economic opening (1979–2001), American business leaders were required to partner with a Chinese import/export company or form a joint venture to sell goods in China.

Historical Context

• 1979: US-China diplomatic normalization; China begins "Reform and Opening"
• 1979–1990s: Foreign companies could not sell directly to Chinese buyers. Required:

1. Designated Foreign Trade Corporations (FTCs): State-owned monopolies (e.g., China National Machinery Import/Export Corp, China National Textiles Import/Export Corp) — 12 original FTCs
2. Joint Ventures (JVs): Equity partnerships with Chinese entities (min. 25% foreign equity initially). Technology transfer often implicit condition.
3. Licensing/Technical Agreements: Royalties for IP, know-how

Evolution

• 1990s: FTC monopoly broken; thousands of specialized trading companies licensed
• 2001: China joins WTO — phased elimination of JV requirements, trading rights, distribution rights
• 2004–2005: Full trading/distribution rights for foreign firms (most sectors)
• Present: Most sectors allow wholly foreign-owned enterprises (WFOEs). Negative List restricts: telecom, finance, education, media, defense, etc.

Why the Requirement Existed

• Control foreign exchange (scarce resource)
• Technology transfer / industrial upgrading
• Employment for state trading bureaucracy
• Political control over market access
• Infant industry protection

Legacy

Many US companies (GM, Volkswagen, Motorola, Lucent, P&G) entered via JVs with state partners (SAIC, FAW, CNHTC, etc.). These partnerships shaped China's industrial base — and created enduring entanglements. The "partner requirement" was the gatekeeper for China's market for two decades.