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According to popular wisdom, you can invest all you want into China, but you can’t take your money out. Not so, says Gasgoo. As a matter of fact, would it not be for China, the bottom line of many a car company would look ugly.
Volkswagen for instance gained nearly half of its pretax profit from the Chinese market in the first quarter of this year.
The formula for joint ventures now is 40 percent of the capital investment, and 70 percent of the profits, Gasgoo quotes an analyst. What many popular wise persons overlook: Even if a 50:50 joint venture is required, the profits don’t have to be distributed 50:50. As a matter of fact, the profit distribution can be freely agreed upon in the joint venture contract.
3 Comments on “You Can Make Money In China. Boy, Can You Ever...”
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Adds a nice twist, but still serves to prove what you have been saying all along.
I am not sure what you are saying. Profits earned by a foreign joint venture will show up on parent company financial statements on an accrual basis even if they cannot be repatriated. US companies often leave foreign profits overseas in order to avoid US taxation.
I am guessing that the JV being a different legal entity, they do not need to provide products & technology to the JV for free (like a “normal” division).
If the JV needs to pay royaltee fees back to the company, then the company get profits = (royaltees + 50% of JV profits).
Then, that explains why the company gets more than 50% of JV profits, based on the negotiated joint venture contract.