What Foreign Companies Should do to Achieve Full Compliance in China

In terms of legal developments, China emphasized that it will strengthen oversight to ensure compliance with the constitution, advance constitutional review, and safeguard the authority of the constitution. For U.S. firms seeking overseas expansion opportunities, China is perhaps a natural candidate. China is now one of the most lucrative international markets in which to conduct business.

There are both internal and external reasons to why compliance in China is so challenging. Internally it is hard because of language, habits and culture differences. Besides these more obvious differences, it is difficult because of the difference in administration, HR, and other departments regulations. Western people simply do not have the time to learn every detail of running a business in China. One way to make sure you are compliant is to make sure all business components are handled by professionals. This is obvious, and it is not difficult for big corporates and other large organizations to achieve.

However as small/medium enterprise or a start-up, it can be financially challenging to involve a CFO or third party. We know keeping your spending in check is important in order to become successful as a smaller organization. However, hiring qualified financial and legal experts will save you a lot of potential trouble. When you first established your operations in China, you probably had many challenges you needed to solve to operate in China, some of which were not completely legal. There are many common questions you need to know, such as:


1. Are you compliant with China’s employment laws?

2. Do you have good enforceable contracts?

3. Are you financially compliant?


China Labor Contract Law

In 2007, China has revised its Labor Contract Law and included clauses that addressed issues on employment contract and redundancy. Being knowledgeable with the updated laws will help you save more money and be a better employer to your employees. Also, you need to be aware of Chinese Labor Law so you have an idea of the mandatory benefits and employee welfare and include it when you are coming up with a budget for your company set-up in China.


Annual Compliance Requirements in China

Annual compliance requirements include several items. They are different for ROs and WFOEs. For ROs, the requirements are annual audit, annual tax reconciliation, annual reporting to the Administration of Industry and Commerce (AIC). For WFOEs, in addition to these three steps, you also have to file another report to SAFE, and another combinative reporting including several government bodies. Without doing those annual compliances in a fixed timeline, the company may face penalties, also at the risk of getting their license suspended or cancelled by the AIC. Leveraging internal and external resources to monitor policy changes and identify risks to current operations or future plans. Some companies have also developed processes to inform their suppliers and customers about changing policies. To maintain supply chain integrity and ensure regulatory compliance, companies should conduct robust due diligence and regular audits of suppliers, industrial parks, JV partners, and M&A targets.

For several reasons, China presents itself as an ideal jurisdiction within which an overseas company can do business. To that end, it is not surprising that there are scores of foreign companies which have Chinese subsidiaries.

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Safeguard your IP While Developing Product in China

Intellectual property (IP) covers any original ideas, designs, discoveries, inventions and creative work. Patents and copyrights can offer you some security, but don’t always mean that your design is completely protected, as copies can certainly emerge. Safeguarding your creations and works from infringers, copycats, and thieves has become vital to any business while developing products with a China factory.

IP is divided into two categories: Industrial property includes but is not limited to patents for inventions, trademarks, industrial designs and geographical indications. Copyright covers literary works like novels, poems and plays, films, music and artistic works.

Be aware of your Intellectual Property Rights

While developing your product in collaboration with a Chinese factory, invest some of your time in making you and your innovative team aware of the crucial IP rights. Further, deeply study the relevance of copyrights, trademarks, patents, etc. to protect your business from the last-minute shocks in future. And yes, remember to formulate a strong policy for your IP protection.

Split the R&D of your product

Another practice is splitting R&D into modular tasks and allocating some core tasks to the headquarters group, with specific tasks allocated to the group in China. Although this requires close collaboration between headquarters R&D and the China R&D center, it can provide protection, as the research can be compartmentalized. Try to manufacture the product in China without transferring the technology and separate your R&D section.

Protect Your IP in China by Registering your IP in China

Laws and registrations offer you legal remedies after your work has been used improperly, but they don’t actually prevent your work from being stolen in the first place. Some people may not be aware of the law. Others don’t care. And sometimes even a thorough patent or trademark search misses something. Register your trademarks, copyrights, and patents in China. Registering your IP in the United States or the EU or Australia or any other country does not provide you with IP protection in China. The very first thing you need to do is register your IP as early as possible in China.

Consult with the China IP lawyers

There are still plenty of trap doors for the U.S. entrepreneur. Chinese counterfeiters have become much more sophisticated, even as the U.S. and their Chinese partners improve their own business practices. Chinese copycats have become more adept at exploiting procedural loopholes and invalidating legitimate patents and trademarks, according to the U.S.-China Business Council. They have also developed advanced methods of reverse engineering to effectively co-opt a patent or trademark. Take proper advice from an expert and certified China IP lawyer. Getting advice from the China patent attorney can save you from any sort of IP threat.

Western companies should join together to more constructively facilitate further reforms to China’s institutions, including its IP regime. Further escalating tensions in the trade war may create more harm than benefits to Western multinationals. Foreign companies without a registered office in China can only file patent or trademark applications there through a local IP lawyer. But don’t leave this to your in-China partners (e.g. a distributor or supplier) to sort out – take direct responsibility for it yourself, and engage a China-experienced IP lawyer.

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