Domestic parties need to prepare for outbound joint venture disputes

Last year saw a record high of about 600 China outbound deals with a total value of more than US$112 billion. Towards the end of the first quarter of 2016, Chinese corporations were already more than half way towards surpassing that total.

The largest China outbound deal to date was announced in February, with ChemChina’s US$43 billion purchase of Swiss agribusiness giant Syngenta. The same trend spans various industry sectors this year, with Tianjin Tianhai’s US$6 billion acquisition of tech distributor Ingram Micro, Haier Group’s US$5.4 billion takeover of General Electric’s appliance business, and Wanda Group’s US$3.5 billion majority stake in media conglomerate Legendary Entertainment. Chongqing Casin Enterprise Group has even agreed to purchase the 134-year-old Chicago Stock Exchange.

Yet following from some of these prolific cross-border deals is the inevitable risk of disputes. Suppose a Chinese party to an outbound deal decides after a few years that the time has come for its joint venture to end. Market conditions may have changed, profit projections may have fallen, and business opportunities may lie elsewhere. Now the Chinese party seeks an exit strategy.