【Case Study】

China Zhejiang Geely Holding Group Co.Ltd bought Sweden-based Volvo Car Corp.from U.S.-based Ford for US$ 1.8 billion in August 2010 and soon unveiled a five-year plan that called for new factories in Chengdu and Daqing,as well as a Shanghai headquarters.The company said it would ramp up domestic sales to 200,000 vehicles annually by 2015,grabbing about 20 percent of China’s luxury car market.

However,the plans had stalled over legal complications for several years out of the identity crisis of the Volvo Car Corp.The company is also caught between very different legal systems: While Volvo is officially owned by a Chinese company,it is treated as a foreign company in China under Chinese law.Indeed,a Geely lawyer who worked on the acquisition told that Volvo’s national identity was never even considered during the takeover talks.(https://www.daowen.com)

As Chinese law adheres to the criterion of the place of incorporation to establish the nationality of a legal person,Volvo Car Corp.,registered in Sweden,should be classified as a Swedish company,though it is now owned by Geely.Hence,the Chinese government treats it as a foreign company which enjoys different status from Chinese domestic car-makers.For example,under the Chinese policy of car industry,Geely and Volvo have to form a new joint venture for all operations in China.The venture would be foreign-financed but domestically controlled.

A year after the deal closed,Geely Chairman Li Shufu,who also serves as Volvo chairman acknowledged that “people outside China think we are a Chinese company.Chinese people think we are a foreign company.It’s awkward.” He also said that “[T]he government wants us to form a joint venture,and as a company we can only be honest and obedient.We do whatever every government department tells us.We can’t have too many of our own ideas,” though he complained secretly that asking Geely and Volvo to form a joint venture can be compared to forcing a man to marry himself.