Doing Business in China: A JD Supra Legal Reader

A cautionary tale kicks off this latest edition of Doing Business in China: Sixing Liu, a Chinese national with U.S. residency, was arrested and charged with export control violations when returning from a trip to China one year ago. From law firm Miller Canfield:

“Liu allegedly took export-controlled technical data on military technology (Controlled Data) from his U.S. employer in New Jersey back to his home country of China on his laptop without a U.S. export control license…The indictment made no allegations that the Controlled Data was actually disclosed by Liu to anyone in China, but rather simply the fact that Liu took the Controlled Data to China without a U.S. export control license constituted an export that was a violation of ITAR, whether disclosed or not.”

The lesson? Train your employees on U.S. export control compliance before sending them out into the field.

For your reference, a roundup of recent commentary and analysis on the many issues facing companies active in China:

Practical Pointers in Respect to Non-compete Agreements in China (McDermott Will & Emery):

“Before 2008, it was uncommon for employers to ask an employee signing an employment contract to also sign a non-compete agreement. Since then, however, more and more employers are establishing non-compete agreements because the 2008 Labour Contract provided uniform rules regarding a non-compete agreements and, although they may not be the ideal way to protect a company’s confidential information, employers feel it is better to have a non-compete agreement in place than no agreement at all.” Read on>>

China Trade Disputes (King & Spalding):

“The United States and China have filed dueling complaints at the World Trade Organization (WTO) in recent weeks. The United States complaint charged the Chinese with providing its auto parts makers with hundreds of millions of dollars annually in improper export subsidies. China countered with a WTO complaint alleging that the U.S. Commerce Department is deliberately and inappropriately targeting Chinese goods as the subject of anti-dumping complaints.” Read on>>

Intelligence Committee Calls for Expansion of CFIUS Jurisdiction (Patton Boggs LLP) :

“On October 8, 2012, the House Intelligence Committee issued a damning bi-partisan report on what it perceived to be national security risks posed by two Chinese telecommunications companies: Huawei and ZTE. The committee strongly recommended that U.S. government and government contractor systems, ‘particularly sensitive systems, should not include Huawei or ZTE equipment, including component parts.’” Read on>>

China Bulletin – Business, Trade and Competition – October 2012 (White & Case LLP):

“On August 10, 2012, China’s State Intellectual Property Office (SIPO) released a notice to seek public comments on the draft Patent Law (the 4th amendment), aiming to address patent enforcement challenges, particularly those revealed in administrative enforcement issues related to patent infringement.” Read on>>

Court Quashes Summons of Indictment in Economic Espionage Act Prosecution Against Quinn Emanuel Chinese Client (Quinn Emanuel Urquhart & Sullivan, LLP):

“Pangang is one of the largest manufacturers of steel, titanium, and vanadium products in China. The government alleged that the Pangang defendants are state-owned companies controlled by a special government agency of the PRC and that Pangang had violated the [Economic Espionage Act] by misappropriating titanium dioxide production technology from E.I. du Pont de Nemours & Company. On July 23, 2012, a United States District Court quashed the service of the summons, which may have ended the criminal prosecution, by ruling that the government had failed to properly serve the Pangang defendants under Rule 4 of the Federal Rules of Criminal Procedure.” Read on>>

Global Antitrust Cooperation: EU’s Top Regulator Signs MoU with China (McDermott Will & Emery):

“On 20 September 2012, European Commission officials concluded a Memorandum of Understanding (MoU) with Chinese officials in respect of antitrust law. Signed by the Directorate General for Competition and two of China’s antitrust law enforcement authorities, the National Development and Reform Commission (NDRC) and the State Administration of Industry and Commerce (SAIC), the MoU strengthens the relationship between the two jurisdictions’ respective antitrust authorities.” Read on>>

China Life Sciences and Health Industry Client Briefing – September 2012 (Reed Smith):

“MSD, a joint venture between U.S. pharmaceutical company Merck and Nanjing-based Simcere Pharmaceutical Group, went into operation after more than one year’s preparation. Merck, the world’s second-largest drug maker, holds a 51 percent stake in the joint venture, which is located in Shanghai’s Pudong New Area. SMSD currently has about 400 employees and the number is expected to double by the end of this year.” Read on>>

China 20/20 Legal & Regulatory Developments (Orrick, Herrington & Sutcliffe LLP):

“On September 17, 2012, the People’s Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission, China Insurance Regulatory Commission and the State Administration of Foreign Exchange jointly issued the 12th Five Year Plan for the Development and Reform of Financial Industry. According to the plan, China will be making efforts to improve the financial macro-control, deepen the financial reforms and expand the opening-up of financial market during the 12th Five Year period (namely 2011 to 2015).” Read on>>

Obama Administration Blocks Chinese Purchase of Wind Farms on National Security Grounds (Skadden, Arps, Slate, Meagher & Flom LLP):

“Citing ‘credible evidence’ that led him to believe that the Chinese-owned Ralls Corporation or its subsidiaries or affiliates ‘might take action that threatens to impair the national security of the United States,’ President Obama today blocked the company’s purchase of four wind farms located in Oregon with a total anticipated generation capacity of 10 megawatts.” Read on>>

CFIUS Sued by Chinese Investors (Sheppard Mullin Richter & Hampton LLP):

“The Committee on Foreign Investment in the United States (CFIUS) has been sued… According to a filing in U.S. District Court for the District of Columbia, Ralls Corp is requesting a Temporary Restraining Order and Preliminary Injunction to enjoin CFIUS from prohibiting Ralls from developing and operating a wind farm in Oregon. Ralls is owned by executives of Sany Group Co., a Chinese company that, among other things, manufactures wind turbine generators. In recent years, CFIUS has tended to be especially cautious with respect to transactions involving China.” Read on>>

Anti-Competitive Conduct in China: A Dialogue with NDRC and SAIC Officials on Enforcement under China’s Anti-Monopoly Law (Sheppard Mullin Richter & Hampton LLP):

“Enforcement related to anticompetitive conduct is split between the NDRC and SAIC. The NDRC handles price-related violations and SAIC the non-price related violations. The Anti-Monopoly Law has been in effect since August 2008 and continues to evolve on two levels as the agencies adopt additional regulations to provide more guidance and clarification and as the agencies interact with antitrust authorities world-wide.” Read on>>

A New Chinese Policy Could Create Antitrust Issues (Sheppard Mullin Richter & Hampton LLP):

“Chinese companies should be careful not to interpret as carte blanche for anti-competitive behavior a recent policy statement by the Chinese government encouraging PRC companies to coordinate their activities and cooperate with each other while investing overseas. The statement also highlights the need for foreign companies to be on guard for possible anti-competitive conduct by their PRC business partners (and competitors).” Read on>>

WTO Panel Issues Report On China Electronic Payment Services (King & Spalding):

“A WTO Panel, in a final report issued in July, ruled in favor of several U.S. claims that China maintains measures that unfairly discriminate against foreign suppliers of electronic payment services by modifying conditions of competition in favor of China’s national bank card association, China UnionPay. The electronic payment services addressed in this dispute related to services for processing payment card transactions, including credit and debit card transactions.” Read on>>

New Amendment to PRC Civil Procedure Law: An Analysis (Sheppard Mullin Richter & Hampton LLP):

“On August 31, 2012, China’s legislature, the National People’s Congress, approved an amendment (‘Amendment’) to the PRC Civil Procedure Law. The Amendment presents the second time in six months that China’s top legislative body has moved to modify China’s most fundamental laws on procedural justice, following the recent amendment to the PRC Criminal Procedure Law in March.” Read on>>

Senator Schumer Raises Trade Concerns Over Chinese Bid For Canadian Oil Producer (King & Spalding):

“… Senator Charles Schumer of New York sent an open letter to Treasury Secretary Timothy Geitner, who serves as the chairman of the Committee on Foreign Investments in the United States (‘CFIUS’). Schumer urged the CFIUS to block the bid by China National Offshore Oil Corporation, a Chinese state-owned enterprise, for Nexen, Inc., an oil firm based in Alberta, Canada. According to Schumer, the United States is ‘committed to a fair, non-discriminatory review process by CFIUS, regardless of whether the foreign investor is private or state-owned.’” Read on>>

China-Chile Investment Agreement (Jaime Ubilla):

“On September 9th, 2012, China and Chile signed the Supplementary Agreement on Investment to the Free Trade Agreement between the Government of the People’s Republic of China and the Government of the Republic of Chile.” Read on>>

China Increases Efforts On Optimizing Geographic Distribution Of Industries (King & Spalding):

“… MIIT issued the Industrial Transfer Guidance Catalogue (2012) (‘Catalogue’), the first comprehensive policy document promulgated by the MIIT to promote the orderly transfer of industries among regions, mainly from developed regions to less developed regions. The Catalogue is a further effort by the Chinese government to carry out the industrial and regional development strategy for the 12th Five-Year period (i.e., from 2011 to 2015), after the promulgation of the Industrial Transformation and Upgrade Plan (2011-2015) earlier this year.” Read on>>

China Merger Control in August 2012: Wal-mart, e-Commerce and VIE Structure (Yiliang Dong):

“…the Chinese Ministry of Commerce announced its conditional approval of an acquisition by the American company Wal-Mart Store Inc of control over a Chinese online supermarket Shanghai Yishiduo e-Commerce Co., Ltd. In this transaction, Wal-Mart acquired through indirect share purchase the control over an offshore company which conducts the control over Yishiduo based on the contractual arrangement.” Read on>>

China To Cut Production Of Rare Earth Minerals By 20 Percent, Threatens U.S. Manufacturing (King & Spalding):

“In a week that saw Apple, Inc. become the most valuable company in U.S. history, China’s Ministry of Industry and Information Technology announced new rules that will reduce rare earth minerals output in China by 20 percent. Rare earth minerals are key inputs in the manufacture of the full spectrum of high-technology goods, including tablets, mobile phones, and televisions, batteries used in hybrid cars, wind turbines, and precision-guided bombs.” Read on>>

Cartels and Dominance: New Risks and Opportunities for Companies in China (Orrick, Herrington & Sutcliffe LLP):

“China’s Supreme People’s Court recently provided guidance on procedural issues and important aspects of China’s Antimonopoly Law (AML) that will affect private enforcement of the law. The Supreme People’s Court Provisions on Several Issues concerning the Application of the Law in Trials of Civil Dispute Cases Arising from Monopolistic Acts, which came into force on June 1, 2012, outlines recent significant changes to the rules regarding burden of proof in antitrust cases in China. These new rules are expected to lead to an increase in private enforcement of the AML by companies in the courts.” Read on>>

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