New Law of Busi­ness

With China’s new For­eign In­vest­ment Law tak­ing ef­fect, ex­perts are hop­ing that it will achieve its goals of cre­at­ing a uni­formed le­gal frame­work and level play­ing field for over­seas firms.

Norway-Asia Business Review - - F OREWORD - CHEYENNE HOLLIS

in­vest­ment needed is at dif­fer­ent than what was of use in the past. There are op­por­tu­ni­ties, but they are changing,” Ms Li says. “To­day, in­vest­ments in ecofriendl­y and tech-friendly sec­tors are more wel­comed. In many ways, this makes it a good time for Nor­we­gian busi­nesses to come to China since many of them have prod­ucts and knowl­edge fo­cused on sus­tain­able growth and de­vel­op­ment that are in real de­mand in the mar­ket here.”

She adds that if for­eign in­vestors think there is a gen­uine need for their prod­ucts in China and those are not in the neg­a­tive list of sec­tors, they do not have to worry much about the le­gal as­pects of in­vest­ment.

Fu­ture of forced tech trans­fers

Forced tech­nol­ogy trans­fers have long been a sore spot for over­seas busi­nesses op­er­at­ing in China. A sur­vey con­ducted by the Euro­pean Union Chamber of Com­merce founded that 20 per­cent of Euro­pean com­pa­nies do­ing busi­ness in China were sub­ject to a forced tech­nol­ogy trans­fer. This was nearly dou­ble the to­tal from its 2017 sur­vey.

When Mr Wang Shouwen, a Chi­nese Vice Com­merce Min­is­ter, an­nounced the new FIL would end the prac­tice, it was met by gen­er­ally pos­i­tive re­views from the for­eign busi­ness com­mu­nity even if the law hasn’t been re­leased in its en­tirety with de­tailed im­ple­men­ta­tion rules.

“Forced tech­nol­ogy trans­fer is a big area of con­cern and while it cur­rently doesn’t hap­pen a lot, it is some­thing busi­nesses think about. The new law will be the first to have the guid­ing prin­ci­ples pro­tect­ing free tech­nol­ogy trans­fer clearly writ­ten into law,” Ms Li re­ports. “It makes it a busi­ness de­ci­sion, not a govern­ment de­ci­sion. There are still some ar­eas of the law where things aren’t en­tirely clear, such as es­tab­lish­ing a clear sys­tem of com­pen­sa­tion for in­fringe­ment of in­tel­lec­tual prop­erty, but these will likely be re­viewed. Ul­ti­mately, more com­pa­nies will be pro­tected as a re­sult.”

She ex­plains that Zhong Lun Law Firm is com­fort­able about how the reg­u­la­tions re­gard­ing en­cour­ag­ing vol­un­tary tech trans­fers will be ap­plied due to a govern­ment change in rel­e­vant laws that en­sure there is no con­fu­sion. The new FIL also puts into a place more ro­bust frame­work for in­ter­na­tional busi­nesses to chal­lenge the govern­ment on de­ci­sions they do not agree with.

“The new law puts into place mech­a­nisms where busi­nesses can chal­lenge govern­ment de­ci­sions. There will now be a clear le­gal frame­work for for­eign busi­nesses to bring com­plaints against au­thor­i­ties through var­i­ous means should they deem it necessary,” Ms Li notes. “Ad­di­tion­ally, com­pa­nies un­happy with de­ci­sions of the govern­ment may also con­sider whether to try in­ter­na­tional in­vest­ment ar­bi­tra­tion.”

New struc­tures

At the mo­ment, Zhong Lun Law Firm is field­ing a lot of ques­tions from busi­nesses about what they need to do to ad­just to their cur­rent struc­ture. The FIL is in­cludes some changes that ex­ist­ing firms might need to ad­just to dur­ing a five-year tran­si­tion pe­riod.

“Un­der cur­rent FDI laws, the board of direc­tors is the high­est author­ity, but the new FIL makes share­hold­ers the high­est author­ity to com­ply with the Com­pany Law of China. Com­pa­nies may need to change to meet this re­quire­ment. Cor­po­rate gov­er­nance will also change un­der the new law,” Ms Li points out. “It will be im­por­tant for com­pa­nies to re­visit their cur­rent struc­ture and make sure they com­ply with the new laws af­ter this tran­si­tion pe­riod passes.”

For new busi­nesses en­ter­ing China, the ex­ist­ing FDI laws cov­er­ing joint ven­ture struc­ture have also changed as a re­sult of the new law and Ms Li be­lieves this brings with it several ben­e­fits if you are a ma­jor­ity share­holder in a joint ven­ture com­pany.

“Cur­rently, mi­nor­ity share­hold­ers have a larger say un­der the ex­ist­ing laws cov­er­ing for­eign in­vest­ment since full con­sent of all share­hold­ers is needed in cases such as share trans­fer. Un­der the new law, this will be reduced to more than half of the share­hold­ers’ ap­proval and now will be deemed to have ap­proved if no re­sponse is made within a 30-day pe­riod af­ter re­ceiv­ing the no­tice of share trans­fer. This makes the en­tire process much more man­age­able and flex­i­ble for busi­nesses. There will also be changes to the div­i­dend pay­ments to bring it in line with global stan­dards,” Ms Li de­tails.

Ms Li points out that the FIL high­lights China’s will­ing­ness to fur­ther open its doors to over­seas busi­nesses and should pro­vide a greater level of com­fort for in­vestors. That be­ing said, it doesn’t re­move all the ob­sta­cles fac­ing for­eign firms in China.

“It is very im­por­tant to have good lawyers that un­der­stand the com­plex laws and reg­u­la­tions in China as well as the cul­ture of both sides. Com­mu­ni­ca­tion is im­por­tant and some­thing that is re­quired when travers­ing com­pli­cated land­scapes,” Ms Li says.

How­ever, it is an­other step in the right di­rec­tion ac­cord­ing to Ms Li who has ob­served the busi­ness land­scape dur­ing her time at Zhong Lun Law Firm.

“Our firm has grown a lot in the 13 years I’ve been here. This growth matches the growth of the Chi­nese econ­omy and in­ter­na­tional in­ter­est in in­vest­ing here. We hope these new laws will at­tract more for­eign in­vest­ment since it should make it eas­ier to do busi­ness in China,” Ms Li con­cludes.

PHOTO: ZHONG LUN LAW FIRM

PHOTO: DONG FANG

Above left: Ms Audry Li noted the new for­eign in­vest­ment law is a step in the right di­rec­tion, but more clar­i­fi­ca­tion is needed. Above: China’s Na­tional Peo­ple’s Congress passed the new For­eign In­vest­ment Law in 2019.

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