HOW TO DO BUSINESS IN CHINA
Qiang Bjornbak[1]
I. Understand the Differences
A. Different Cultural Backgrounds and Expectations 1. Networking versus individual efforts
2. Not litigious
B. Different Mentalities 1. Subtle v. Direct 2. Vague v. Precise 3. Face Saving
II. Target a specific investment area
Regulations Regarding the Administration of Representative Offices of Foreign Law Firms in China
Foreign-funded Financial Institutions
a. WFO banks, foreign bank branches, and equity joint venture banks, b. WFO finance companies and joint venture finance companies
Auto Finance Company
Law on the People's Bank of China Amendment to the Law on the People's Bank of China Commercial Banking Law of the People's Republic of China Amendment to the Commercial banking Law of the People's Republic of China Administration of Foreign-funded Financial Institutions Regulations Provisions relevant to the Implementation of the Circular (PBOC circular) Anti-money Laundering Laws Measures for the Administration of Car Finance Companies Announcement Regarding Further Opening Renminbi Business to Foreign Invested Financial Institutions Measures for the administration of Investments and share purchases of Domestic Financial Institutions by Foreign Financial Institutions Amendment to the Law on the People's Bank of China Amendment to the Commercial Banking Law of the People's Republic of China Measures for the Administration of Car Finance Companies
1. It must be equity joint venture (no more than 50%) 2. A license from MII (Ministry of Information Industries) is required. 3. Two years after accession, 50% foreign share participation for value added services (including e-mail, voice mail, internet access, online information and database retrieval and value-added fascimile services) 4. Five years after accession, 49% foreign equity share for mobile voice and data services (including all analogue, digital, cellular and personal communications services) 5. Six years after accession, domestic and international services (including voice, fax and data). 6. Eliminate geographic restriction for paging and value-added services two years after accession, for mobile voice and data services in five years, and for domestic and international services in six years. 7. Minimum registered capital ranges from 1 million RMB to 2 billion RMB.
Administration of Foreign-funded Telecommunications Enterprises Provisions Catalogue of Telecommunications Services
Foreign Insurance Companies
Insurance broker
Types of foreign-funded insurance companies, insurance brokers and their registered capital
a. Partnership b. LLC c. Company limited by shares
Insurance Law Administration of Foreign-funded Insurance Companies Regulations Provisions for the Establishment of Reinsurance Companies
Interim Provisions on the Establishment of Foreign holding and wholly Foreign-owned Travel Agencies
Foreign-invested International Freight Forwarding Agencies
International Sea Transportation Regulations Administration of Foreign-invested International Freight Forwarding Agencies Provisions Measures for the Administration of Foreign-invested International Freight Agencies Supplementary Provisions to the Measures for the administration of Foreign Invested International Freight Agencies Detailed Rules on the Provisions for the Administration of International Freight Agencies
Securities Law Administration of Securities Investments in China by Qualified Foreign Institutional Investors Tentative Procedures Administration of Foreign Exchange for Securities Investments in the PRC by QFIIs Tentative Provisions Establishment of Fund Management Companies with Foreign Equity Participation Rules Establishment of Securities Companies with Foreign Equity Participation Rules Securities Investment Fund Law of the People's Republic of China
I. Education
Regulations of the People's Republic of China on Sino-Foreign Cooperative Education
J. International trade
Foreign Trade Law of People's Republic of China
III. Investment Vehicles
A. Local distributors
B. Licensing C. Franchising D. Equity Joint ventures Chinese-Foreign Equity Joint Venture Law Interim Measures governing the establishment of Chinese-Foreign Equity Joint Foreign Trade Corporations
E. Wholly foreign owned enterprises Wholly Foreign Owned Enterprise Law Regulation on the Administration of Foreign-Invested Capital Enterprises Catalogue Guiding Foreign Investment in Industry Regulation on Guiding Foreign Investment Direction Decision Concerning Revision of the Interim Provisions on Foreign Invested Investment Companies and their Supplementary Regulations.
F. Contractual joint venture
Contractual Joint Venture Law
G. Merger and Acquisition Administration of the Takeover of Listed Companies Procedures Administration of Disclosure of Information on the change of Shareholdings in Listed Companies Procedures Interim Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors
H. Modified FIE laws
1) Endanger China's national security 2) Violate China's laws and regulations 3) Detriment to China's sovereignty or public interest. 4) Nonconformity with requirements of the development of China's national economy. 5) Possibility of environmental control.
3. Chinese contractual joint venture law
a. Delete foreign exchange balancing requirements.
IV. U.S. Regulations Affecting Doing Business in China
A. Foreign Corrupt Practices Act: bribery versus business B. Export control 1. Written approvals must be obtained before exporting defense articles, technical data, and defense services. 2. Employment of a non-resident alien is deemed an export. 3. Technical data exclude the information in the public domain. 4. Defense services regulate the act of assisting foreign persons in any aspect of defense articles, including providing technical data and military training. Defense services must be in direct support of fundamental research and will be limited to discussion on assembly of an article fabricated for fundamental research or integrating such article into a scientific, research, or experimental satellite.
V. Antidumping and Countervailing measures A. Better defense from China. Chinese enterprises win more cases on antidumping issues. B. Take initiative to use this tool to protect Chinese industries from imported dumping goods. 1. Pass new antidumping and countervailing laws. 2. A domestic enterprise or government authorities may register a case. 3. The fair trade bureau for import and export under MOC must decide whether to register a case within 60 days. 4. MOC is in charge of investigation. 5. Methods of investigation include questionnaire, sampling, hearings, expert examination, on site investigation and so on. 6. You must retain a Chinese attorney to do the investigation if Chinese enterprises allege the harm from imported dumping goods. 7. Judicial review of administrative decisions by intermediate courts and superior courts. 8. If any country applies discriminatory anti-dumping measures to goods exported from the PRC, PRC may adopt corresponding measures to be applied to that country.
VI. IP Protection
A. New Amendments to Patent law 1. Extend patent protection from 15 years to 20 years. 2. Allow the patenting of chemical and pharmaceutical products as well as food, beverages, and flavorings. 3. Stricter standard for compulsory license. 4. Unauthorized offering for sale is a violation of a patent holder's right. 5. A clearer definition of employment invention. An employment invention is an invention made while performing the tasks of employer or made by the employee using the employer's material and technological resources. 6. The defendant bears the burden of proof of legitimate source. 7. Injunctive relief is available. 8. Judicial review is available for all three types of patents. 9. Invalidation procedures are the only mechanism to be utilized at any time after a patent grant to contest the patent. 10. Standards for determining infringement damages are provided. 11. Statutory damages is provided, from RMB 5,000 to RMB 500,000
B. New Amendments to Trademarks Law
1. Expand the definition of what may be registered to include collective marks and certification marks. 2. Protect three dimensional symbols. 3. Enhance the protection for well-known marks.
4. Provide pre-litigation injunctive relief. 5. A court is allowed to assess damages for infringement in the form of either the amount of the improperly earned profit or, where it is difficult to determine the profit, in an amount not to exceed RMB 500,000.
C. New Amendments to Copyright Law 1. Protection of rental rights in respect of software and films, the right of public performance of works on the public, the right to distribute works via internet. 2. Specifically permits the full or partial assignment of economic rights in copyright subject matter. 3. The restriction in the earlier law that copyright licenses be limited to 10 years has been removed. 4. Explicit protection for database. 5. Categories of media and other media were permitted to use copyright works under certain circumstances without payment of royalties. 6. The fair use by the government must be reasonable. 7. Strengthened provisions on the enforcement of copyright through civil and administrative measures. 8. Preliminary injunctions. 9. The infringer has the burden to prove. 10. The national Copyright administration has a wide range of powers: including administrative injunctions, confiscate illegal income from infringement, confiscate and destroy infringing copies, impose fines. 11. Statutory damages are up to 500,000 yuan if actual damages cannot be determined. 12. Expanded definition of infringement to deter the modern violation of IP rights. 13. Clarification of Administrative Enforcement Powers.
VII. Impact of WTO
A. Positive Development:
1. More than 2300 laws and regulations had been amended to comply with WTO rules and 830 abolished. 2. Reductions of tariffs occurred in 70 percent of all tariff categories. 3. China has begun to take steps to implement its commitment to allow both foreign and domestic enterprises to import and export most goods within three years of the accession. 4. China revised many of its foreign-investment law. China has revised "Catalogue Guiding Foreign Investment in Industry" and its regulations on "Guiding Foreign Investment Direction". Encouraged categories grow from 186 to 262. Restricted categories drop from 112 to 75. Prohibited categories rise from 31 to 34. Chinese government has embarked on an effort to shift away from an operational role in commercial activities to a more detached, regulatory one. 5. Foreign investment in foreign currency services was allowed nationwide. The right to offer Renmibi lending to foreign companies and individuals has been expanded to include Dalian, Tianjin, along with Guangdong and Shanghai. 6. China Insurance Regulatory Commission approved seven foreign insurers to set up or expand their insurance operations in China. 7. China permits foreign investment in the telecom sector if it is a Chinese-Foreign equity joint venture. 8. China has amended its patent, copyright, trademark laws.
B. Negative Development:
1. Legal and regulatory gaps still exist. There is a lack of transparency in implementing the laws and regulations. Legislative language is vague and provides wide administrative discretion. 2. China has tariffs on certain semiconductors and telecommunications. Insufficient implementation of WTO commitments in quota and tariff rate quota. 3. China imposes high capital requirements for foreign enterprises to engage in export and import business. There are also geographic restrictions. 4. Regulations in service sectors require unreasonably high capital requirements and burdensome licensing and re-licensing requirements to establish branch. 5. China's compliance with TRIPS is a long-term effort requiring extensive transformation. [1] Law Offices of Qiang Bjornbak
523 West 6th Street, # 701 Los Angeles, CA 90014 Tel: 213-239 9730 Fax: 213-239 9730 Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it Website: http://www.qianglaw.com |