Doing Business in China: A Legal Reading List

China Business Updates: here’s a roundup of recent commentary and analysis on doing business in the world’s second largest economy, as written by leading lawyers and law firms on JD Supra»

Intellectual Property

Trademark Protection Strategies In China (McDermott Will & Emery):

“Companies doing business in China frequently ask: ‘How do we develop an effective IP strategy to protect our trademarks, logos and brand names in China?’ Some companies are very frustrated when they discover that their famous trademarks have already been registered as trademarks and/or domain names by an unrelated third party. They are eager to know if and by what process they can recapture their trademarks. Some multinational giants are becoming increasingly exhausted by the need to deal with an unending stream of fake/counterfeit products coming forth continuously.” Read more»

China’s Growing Constellation in the Global IP Sky (Finnegan):

“A year in China speed might as well be years, perhaps even decades, in other nations. In just one year from 2009 to 2010, China climbed from sixth place to fourth largest patent filer in the world under the Patent Cooperation Treaty (“PCT”). China filings increased a whooping 56.2% from 2009, making it first in growth rate. In 2010, new patent applications filed by Chinese domestic companies in SIPO exceeded the one million mark. China’s growing constellation in the global IP sky is shining bright.” Read more»

Antitrust

US & China Sign Antitrust Memorandum of Understanding (Sheppard Mullin Richter & Hampton LLP):

“On July 27, 2011, the US and China signed an antitrust memorandum of understanding (‘MOU’) in an effort to promote communication and cooperation among the antitrust agencies of the two countries. The MOU was signed by the US Federal Trade Commission and Department of Justice, together with China’s Ministry of Commerce (‘MOFCOM’), National Development and Reform Commission (‘NDRC’), and State Administration for Industry and Commerce (‘SAIC’). … The MOU does not change the existing antitrust laws of either country, but rather aims to enhance the effective enforcement of competition laws by ‘creating a framework for long-term cooperation.’” Read more»

China’s MOFCOM Gets Tough on Merger Control? (McDermott Will & Emery):

“There is considerable speculation in China that many large transactions that should have been notified for clearance by China’s Ministry of Commerce (MOFCOM) have not been properly notified, and Chinese government is going to go after the concerned concentrating parties. Recently, the speculation came into being and all public comments must be filed before 23 June 2011. New Draft Regulations, “Preliminary Regulations on the Investigation & Treatment of Failure to Report Concentration of Undertakings (Opinion Solicitation Draft),” clarify and provide MOFCOM with the power to investigate, fine and order divestiture of mergers and acquisitions that should have been, but have failed to be, notified and cleared by MOFCOM.” Read more»

An Update on China’s Merger Control Laws – From a practical perspective (Michelle Taylon):

“Chinese merger control practice has undergone great development over the past two years. A number of implementing rules and guidelines have been issued by the Ministry of Commerce (“MOFCOM”) to secure the establishment of a sound merger control mechanism. However, from a practical perspective, it is strongly advisable for companies contemplating a notification to MOFCOM to note several issues in the current review process, including the review timetable, data required and legal consequences of non-compliance…” Read more»

China Releases New Rules on Merger Control Review (Steven Su):

“The Provisional Measures outline the basic principles and methodologies for assessing competitive effect of a merger. It reflects MOFCOM’s effort, after having gained some experience in this area, to make its review process more transparent, as the agency is keen to exert greater influence on international transactions. Unfortunately, due to the limited practice in China, the Provisional Measures are sparse of details comparing to the rules applied in the more matured antitrust jurisdictions like the US and EU.” Read more»

Labor and Employment

Excuse Me Sir there is a Stop Order in Place Preventing you from leaving China (Richard Kimber):

“A discussion of the little known but powerful court and administrative tool which is often used to exert pressure on foreign invested companies or foreign individuals in civil cases and how to reduce the operational risk for management employees working in China.” Read more»

Foreigners Caught by China’s Social Security Laws (Richard Grams):

“There has been quite a lot of news recently about China’s new social security law, not all of it accurate, and we hope that this China Alert clarifies how foreign investors in China will be affected. … The new law, together with proposed implementing regulations, could require all foreign employees working in China to participate in China’s social security system. This will add significant costs and complexity to every company in China that employs foreign staff.” Read more»

China Releases Draft Interim Social Insurance Measures Covering Foreign Employees (Davis Wright Tremaine LLP):

“According to the draft Interim Measures, expatriates who are legally employed by enterprises, public institutions, social groups, privately owned non-enterprise units, foundations, law firms, and accounting firms in China are required to participate in basic pension and medical insurance, work-related injury insurance, unemployment insurance, and maternity insurance. Employers and expatriates should pay social insurance contributions in accordance with relevant regulations.” Read more»

Shanghai Issues Implemental Rules for the New China Social Insurance Law (Davis Wright Tremaine LLP):

“The Social Insurance Law of the People’s Republic of China (Social Insurance Law), adopted by the Standing Committee of the National People’s Congress of the People’s Republic of China on Oct. 28, 2010, will come into effect on July 1, 2011. To implement the Social Insurance Law, the Shanghai municipal government has issued several notices at the end of June 2011 (Implementation Notices).” Read more»

Compliance

China Outlaws Bribery Overseas (Morrison & Foerster):

“China has joined a growing number of countries that are implementing new criminal laws to prohibit payment of bribes to foreign officials. In doing so, China is seeking to encourage good behavior among the growing number of Chinese companies doing business overseas. … The Foreign Bribery Provision brings China’s anticorruption laws into closer alignment with those in other countries, most notably the United States Foreign Corrupt Practices Act (FCPA).” Read more»

China Criminalizes Foreign Bribery (Dinsmore & Shohl LLP):

“The jurisdiction of the Criminal Law—and as a result, these provisions—is rather broad. The Criminal Law applies to all PRC citizens—whether they are located within the PRC or elsewhere—anyone of any nationality located within the PRC, and all companies, enterprises, and institutions organized under PRC law. Generally, that would include domestic companies, Sino-foreign joint ventures, wholly foreign-owned enterprises, and representative offices.” Read more»

Additional Analysis

Outsourcing to China (Morrison & Foerster LLP):

“Outsourcing in the People’s Republic of China (PRC) is subject to an overlapping and potentially inconsistent set of industry and activity-specific regulatory regimes. Typically, the relevant written regulations are drafted in very high-level language which gives the supervising authorities substantial flexibility on implementing the regulations.” Read more»

Chinese RTO Issuers’ Audits and U.S. CPA Firms’ Auditor Liability Exposure (Barry Epstein):

“This article reviews the basics of Chinese reverse takeover (RTO) companies, and of auditors’ responsibilities for the financial statements of foreign subsidiaries examined by other auditors. Some auditors may find themselves in jeopardy because of noncompliance with a seemingly innocuous, but critical, auditing standard under U.S. Generally Accepted Auditing Standards (GAAS) — specifically AU sec. 543, Part of Audit Performed by Other Independent Auditors.” Read more»

AEO Global Recognition – Trend in Global Trade Security and Facilitation, and the China Link (Bryan Cave):

“As one of the two pillars of the World Customs Organization’s Framework of Standards to Secure and Facilitate Global Trade (“WCO Framework”), the Authorized Economic Operator (“AEO”) program seeks to “reward” compliant businesses with simplified customs procedures and controls, as well as guarantee the safety and facilitation of global trade. … China is now in close contact with major trading partners, such as the European Community, the United States, Japan, Korea and Singapore, to explore mutual recognition of AEOs; breakthroughs have apparently been achieved.” Read more»

China REIT Update (Brad Markoff):

“After several years of speculation, it looks like China is at last in the process of implementing a real estate investment trust (REIT) regime. While property developers and investors, who have eagerly been awaiting the introduction of domestic REITs in the PRC, are hailing these recent pronouncements, many questions remain, including the timeframe for introduction and, more important, what the regulatory framework will look like. REIT regimes vary significantly among jurisdictions around the world.” Read more»

China Clarifies and Expands Reporting Obligations of Foreign Enterprises on Indirect Equity Transfers (Sheppard Mullin Richter & Hampton LLP):

“The Announcement clarified the tax reporting obligations of non-resident enterprises to make payments related to interest, leasing fees, guarantee expenses, property rentals, equity investments and transfers originating from China. More importantly, the Announcement contains interpretations of Guo Shui Han [2009] No. 698 relating to Regulations on Enhancement of Income Tax of Non-resident Enterprises (‘Circular 698’) which requires, among other things, all foreign enterprises to report their gains from any indirect transfers of Chinese-resident enterprises to the applicable Chinese tax authorities.” Read more»

New Developments for Foreign Special Purpose Companies and Round-Trip Investment (Sheppard Mullin Richter & Hampton LLP):

“The State Administration of Foreign Exchange of the People’s Republic of China (‘SAFE’) is the principal gatekeeper for incoming and outgoing investment made in foreign currency. SAFE wields tremendous influence over capital inflows and outflows and, as such, the rules it promulgates can significantly affect inbound investments. Recently, SAFE issued Circular 19, the ‘Operating Rules for the Administration of Foreign Exchange in Financing and Round-trip Investment by Residents in China via Special-Purpose Companies’, an important addition to an existing body of rules and regulations of special importance to foreign investors.” Read more»

SAFE Circular 19 Provides New Operating Instructions on Foreign Exchange Administration for Round-Trip Investment in China (Morgan Lewis):

“According to Circular 75, domestic resident individuals have to register with SAFE before they set up offshore entities with the purpose of acquiring onshore assets or equity in a company established under the Chinese laws through such offshore entities. In 2007, SAFE issued Circular 1062 as an implementing guidance of Circular 75, tightening the regulatory environment for round-trip investments. Following the release of Circular 773 in 2009, SAFE stopped registering certain investments….” Read more»

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