Legal Strategies Foreign Companies Need to Adopt in China

Overseas companies willing to invest in China need to understand the requirements of the Chinese government first. Chinese authorities want several things from foreign enterprises that are willing to sell to the Chinese population. Here is a rundown of their requirements-


  • The Chinese government wants that foreign companies must open factories to employ and give preference to employing Chinese workers.
  • Foreign companies must share their technology and forcing foreign firms to hand over their technological secrets as the price of entry to the massive Chinese market.
  • Foreign firms must strictly adhere to the China employment law and do business over here in a Chinese way.


Environmental compliance for foreign businesses in China

China is undergoing an environmental paradigm shift that has dramatically strengthened the enforcement of its environmental regulations. Companies and public institutions that discharge listed pollutants directly into the environment will pay taxes for producing noise, air, and water pollution as well as solid waste. China now has the toughest emissions standards in the world. The foreign companies who have a manufacturing hub in China need to familiarize themselves with the Environment Protection Tax Law as they may now be subject to additional obligations and liabilities.


Conduct a Proper Business Analysis

While China has started to open up its economy in some areas, there are restrictions on the extent to which foreign companies can operate in large areas of the economy. Personal relationship networks can exercise significant influence. There is a widely held perception that local companies may also enjoy greater political protection, including from local courts. Working in and with China is not easy and the Westerners find it very difficult to continue doing business with their Chinese counterparts.


A business analysis risk assessment – assessing, combining, and grouping the risks as identified in this process, as well as determining the Company’s responses to those risks is the most crucial part. China seems like the perfect destination for expansion. But with lengthy bureaucratic procedures and a constant risk of IP threat, having a trusted China law firm on hand to help navigate the complex business arena of China is vital.


The Chinese administration has brought in a legal and policy framework that fundamentally alters the landscape for foreign businesses doing business in China or with China. The most notable thing that US, Canadian and UK businesses should keep in mind that China enforces its laws unevenly. China enforces many of its laws depending on who is violating them.



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Updates on China’s Real Estate and Encryption Law

China Contract

There is one solution foreign service providers can take in order to reduce the risk of tax deduction. The solution is to shift all of the payment-related risks onto your Chinese customers. Put a provision while signing a service contract that all payments must be made net of taxes and fees. If the invoice amount is $50,000, the overseas service provider will receive exactly $50,000. On behalf of the overseas service provider, it is the Chinese customer who is going to pay all the fees and taxes. It is perhaps the best possible way to tackle the tax deduction issue.


A contract stating the purchase of goods is formed only after the foreign purchaser submits the purchase order which is also accepted by the Chinese manufacturer for which the terms and conditions are laid earlier. This contract is however not formed when the foreign buyer does not provide a purchase order and the Chinese manufacturer does not have anything to accept it. In case there is no submission of an order or there is a rejection of order these are not considered a breach of contract. This type of agreement comes without a letter of credit.


Laws on Real Property in Urban Areas

In addition to the Property Rights Law, China regulates real property through a series of other laws and regulations, including the PRC Law on Land Management, the Land Registration Measures, the Interim  Regulations Concerning the Assignment and Transfer of the Right to  Use State-Owned Land in Urban Areas (Assignment  Regulations), and the PRC Law on the Administration of Urban Real Estate (Urban Real  Estate Law). Among these laws and regulations, the Assignment Regulations and the Urban Real Estate Law primarily regulate land-use rights and ownership of residential property in urban areas.


China’s encryption law-

According to DLA Piper, the new encryption classification: encryption products, technologies, and services will now be categorized into three tiers: “core”, “ordinary” and “commercial”. The first two tiers will be used to protect “state secrets”, and so will be more heavily regulated than the latter (i.e., state-monitored security assessments and audits may take place during the development, implementation, and maintenance of such technologies; and it appears that only local PRC vendors may be entitled to sell and provide such technologies). It is anticipated that most businesses will only be dealing with “commercial” encryption, but organizations will need to check this is the case.


How China lawyers can help you

When viewing a particular lawyer’s biography, pay particular attention to their professional activities and credentials.  Do they belong to any professional associations?  Are those associations relevant to your legal issue? Experience is the foremost criteria for judging the credibility of a China law firm. Try to evaluate the success rate of the law firm in dealing with trademark and IP-related cases. Business law is the field where experience matters a lot. A law firm with an ample amount of past knowledge is your best bet.

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