- 14th August 2019
- Posted by: Hakeem
- Categories: Business plans, Finance & accounting
- WeWork owns 59% of ChinaCo, and its key investors in the joint venture are Softbank, Hony Capital and Trustbridge.
- According to WeWork’s website, the company has 115 buildings in Greater China.
- The company said in its IPO prospectus that the China region brought down the overall contribution margin in the six months that ended June 30 by 3 percentage points.
Most big U.S. tech companies are either shut out of China or have been unable to get much traction there. For The We Company, it’s increasingly becoming a core market — and perhaps it’s most complex.
In The We Company’s 350-plus-page IPO prospectus on Wednesday, the company cited China 173 times. Most of those relate to ChinaCo, its joint venture in the world’s second-biggest economy that was set up in 2017. The We Company is the parent company of WeWork.
It’s obvious why WeWork would want a large footprint in China. As a company whose primary business is providing co-working spaces, WeWork sees in China’s rapidly growing technology sector as one of its most attractive growth opportunities anywhere around the globe. According to WeWork’s website, the company has 115 buildingsacross 12 cities in Greater China, about 15% of its total facilities.
But with that access comes a huge amount of economic and political risk. In addition to dealing with a country that, by many foreign policy experts, is considered the No. 1 adversary of the U.S., WeWork acknowledges that its operations in China are run by groups that it can’t control, that locals laws are different in terms of the length of leases and that it’s subject to the 2017 China Cybersecurity Law, which allows for government scrutiny of data storage and security.
Then there’s the Trump Administration’s inconsistent trade policy with China, which has been roiling U.S. markets of late.
“There are concerns regarding potential changes in the future relationship between the United States and various other countries, most significantly China, with respect to trade policies, treaties, government regulations and tariffs,” WeWork said in the risk factors of its prospectus. “The implementation by China or other countries of higher tariffs, capital controls, new adverse trade policies or other barriers to entry could have an adverse impact on our business, financial condition and results of operations.”
WeWork opened an operation in Shanghai in 2016, a year before creating a joint venture with $500 million in capital from Japan’s SoftBank, and Chinese firms Hony Capital and Trustbridge. WeWork owns 59% of ChinaCo, which is the exclusive operator of the company’s business in China, Hong Kong, Taiwan and Macau.