Doing Business in China

24 September 2015
Dutch Association of Corporate Lawyers

Victor Zheng
Consultant China Practice
Programme

15:15 15:45 Registration

15:45 15:50 Introduction
15:50 16:45 Doing Business in China (1)
16:45 17:00 Pauze
17:00 17:30 Doing Business in China (2)
17:30 18:00 Doing Business in Vietnam
18:00 19:30 Drinks and exhibition Keith Haring
Agenda

Updates on foreign investment related legislations in China

Shanghai Free Trade Zone opportunities for Dutch business

IPR protection in China

Chinese Contracts

Arbitration and litigation in China

China Practice Services

Updates on foreign investment related legislations in China

Look back to the presentation in March 2015

Chinese Company Law (1 Mar., 2014);

Catalogue for Guidance of Industries for Foreign Investment (10 Apr., 2015);

Foreign Investment Law (draft Jan. 2015) and National Negative List;

Three laws for foreign investment in China;

Shanghai Free Trade Zone and other three Free Trade Zones in China (since
September 2013)
Updates on foreign investment related legislations in China

A period of transition which law I should look at?

Catalogue

Chinese Foreign
Company Investment
Law Law draft

Three
FTZ laws
Laws
Updates on foreign investment related legislations in China

Dutch B.V. v.s. Chinese FIE (limited liability company)

Items Dutch B.V. Chinese FIE

Types of company ? Manufacturing or Trading or Services

Company name English/Dutch? Name check? Format of the Pre-name approval

name? +++
Bo Ge Bu Trading (Shanghai) Co., Ltd
+ + +
A Ke Su Nuo Bei Er (China) Investment Co., Ltd
Company address Actual address / PO Box Actual address

Registered capital 1 EURO company 1 RMB company (total investment?)

In theory: yes! In reality: No!
Special licenses Depending on the industries Pre-approval & post-approval

Key positions Directors legal representative/director or executive

director/supervisor/general manager/managers

With reference to State Administration of Industry and Commerce Shanghai Branch

Updates on foreign investment related legislations in China

Dutch B.V. v.s. Chinese FIE (limited liability company)

Items Dutch B.V. Chinese FIE

Business scope General description (catch all sentence) Bugaboo Shanghai:

Wholesale, import & export, commission agency of

strollers, trolleys, bicycles, car safety seats,
suitcases and their components and parts and
provide relating services.
Taxation Corporate Income Tax/VAT Corporate Income Tax/VAT/Withholding Tax

Employment of Mainly Knowledge Migrant Work permit and resident permit

foreign employees Requirements
Social insurances Pension insurance + health insurance + Five types of social insurances + housing fund
others
Updates on foreign investment related legislations in China

Foreign Investment Law (draft) - what will it bring to foreign investment in China?

National Negative List;

National treatment for Foreign Invested Enterprises (FIE)

National Security Review

Re-evaluation of Various Interest Equity structure (e.g.

telecommunications industry);

Information reporting

Pro-active supervision on FIEs operation by bureau of commerce;

Shanghai Free Trade Zone/other Free Trade Zones in China

- Initial idea March 2013, by Premier Mr Li Keqiang for further economic reform

- Approved by State Council August 2013; official opening 29 September 2013

- Originally Waigaoqiao Bonded Area (established in 1990), Waigaoqiao Bonded Logistics

Park (established in 2006), Yangshan Bonded Port Area (established in 2005) and
Shanghai Pudong Airport Comprehensive Bonded Zone (operating since 2010)

- Expanded to Lujiazui financial area, Zhangjiang Hi-Tech area and Jinqiao Development
Zone (April 2015)

- Offices in Los Angeles, London, Frankfurt, Goteborg, Tokyo and Osaka (July 2015, in
progress)

- New FTZs in China in Tianjin/Fujian/Guangdong (April 2015)

Shanghai Free Trade Zone and other Free Trade Zones in China

Waigaoqiao Bonded
Area

Jinqiao Development
Zone

Lujiazui Financial area

Zhangjiang High Tech

Park

Pudong Airport Area

Yangshan Deep Water

Port

Resource of the picture: http://www.china-shftz.gov.cn/Overview.aspx

Shanghai Free Trade Zone and other Free Trade Zones in China

Key figures of Shanghai FTZ

From Sept. 2013 Nov. 2014

More than 12,600 companies registered (mainly trading and services companies);

1,784 foreign-invested enterprises;

94 licensed financial institutions (branches of Chinese banks and foreign banks, financial leasing
companies, etc.);

107 outbound investment projects, in total USD 2.3 billion;

More than 70 Dutch invested enterprises;

From 1 Jan. 2015 Aug. 2015

11,186 companies registered with total registered capital of RMB697,66 billion;

2,084 foreign-invested enterprises;

Resources from Shanghai Municipal Government

Shanghai Free Trade Zone and other Free Trade Zones in China

Opportunities for Dutch Business

- Elimination of threshold for foreign investment;

- Financial sector (Dutch banks in FTZ?);

- Further trade facilitation;

- E-Commerce;

- Outbound investment from China;

- Other industries (gaming and entertainment industry/travel agency/foreign invested

hospitals/training services/legal services/ship management )

E.g.

In Sept. 2015: biggest foreign invested hospital in SHFTZ by Raffles Medical Group (70%, Singapore);

In Aug. 2015: V-Ships (UK) WFOE in Shanghai FTZ for ship management;
Shanghai Free Trade Zone and other Free Trade Zones in China

Reviews on Shanghai Free Trade Zone

- Greatly facilitation with foreign investment in permitted/encouraged industries in the

aspects of registration procedures;
- Facing criticism on speed and depth of the openings/reforms;
- Investors normally just set up shell companies and are waiting for business opportunities;
- Some reform in financial sectors, e.g. more flexible flow of fund within group companies,
Free Trade Accounts, improvement on free convertibility of RMB, etc.;
- Great facilitation on import & export procedures, which stimulates the logistics industries
in Shanghai FTZ;
- No land/tax incentives;
Shanghai Free Trade Zone and other Free Trade Zones in China

Reviews on Shanghai Free Trade Zone

A FTZ to attractive foreign investment? Or to encourage outbound investment?

One Belt One Road Initiative and Go Global strategy;
Outbound investment from approval to filing;
776 private equity funds (till Aug. 2015);
From Jan. to Apr. 2015, the number of outbound invested enterprises is 130,
investment amount reached USD11,43 billion, more than the investment amount of
entire year 2014;
Overseas Investment Services Platform (July 2015)
September 2015: overseas acquisition case between BHR Partners (Equity
Investment Fund)/China Aviation Automotive Industry Co., Ltd & Henniges
Automotive (US) amounted (USD 572 million);
Shanghai Free Trade Zone and other Free Trade Zones in China

Tianjin

Shanghai

Fujian

Guangdong
IPR Protection in China

Trademark

- Latest Chinese Trade Mark Law (1 May 2014)

- China Trade Mark Office (CTMO)/Madrid System/procedures of registration

- What can be registered in China?

text, graph, alphabetic letter, number, three-dimensional symbol, color combination, sound or any
combination thereof (Article 8)

- General description or Classes/Sub-Classes? (Nice Classification 10th edition)

- Liabilities of trademark agents in China

- Principle of honesty and credibility

- Registration in bad faith

- Chinese company name/Chinese mark two systems

IPR Protection in China

Trademark - Case Study

Land Rover v.s. Geely

Lu Hu Lu Hu
(Road Tiger) (Land Tiger)
IPR Protection in China

Trademark - Case Study

Land Rover v.s. Geely

- was registered by Geely in 1999, when Land Rover was still not very
famous in China;
- Land Rover claimed that they have already started using for promotion in
China before 1999;
- is not the Chinese translation of Land Rover according to its
pronunciation;
- Was Geelys registration in 1999 in bad faith?
- After registration, Geely did not use the trademark on cars but motorbikes and
components and parts;
- Has Land Rover infringed Geelys trademark rights?
IPR Protection in China

Patent

- Chinese Patent Law (1 October 2009);

- State Intellectual Property Office (SIPO)

- Three types: invention, utility model and design;

- Conditions: novelty, creativity and practical applicability;

- Procedures for patent registrations in China;

IPR Protection in China

Patent

Patent or trade secret?

Trade Secret Patent

Unlimited protection period
Simpler procedure and relatively low cost
Scope of protection: technical information
& operational information
Non-disclosure of information
Unknown to public, commercially
beneficial, practical and reasonably
protected
No territorial restriction
Limited protection period
20 years/10 years
Complicated procedures and fees
Scope of protection: technical information
Disclosure of information
novelty, creativity and practical applicability
Protected within territories
IPR Protection in China

Copyright

- Copyright registration in China

Copyright Protection Centre of China (CPCC)

Why?

Procedures for registration

Case study K3s Heya Mama v.s. The Flowers

- Software copyright registration

IPR Protection in China

Enforcement of IPR in China

- Administrative measures

Who? AIC/China Copyright Protection Centre/Intellectual Property Offices/Customs

SAIC v.s. Taobao (Alibaba)

E.g. in 2014, Shanghai AIC 2,240 cases of trademark right infringement

in 2013, Friso v.s. CR Vanguard (reported by Friesland Campina, confiscation + fine of RMB350K)

- Civil measures

Ruling by special courts in China (Beijing/Shanghai/Guangzhou)

Pre-measures

Court judgement enforcement (it is possible)

- Criminal measures

What the laws say?

 Contracts
A contract in China an end or a start?
Dutch Contract Law
Offer and acceptance. Once accepted an offer
cannot be recalled.
Freedom of contract: in any form, in any language
and under any law or set of rules.
Oral and written contracts are binding: oral no proof!
Law: Dutch, Chinese or law of a neutral country.
Language: English or Chinese
Disputes: Dutch, Chinese or International court
Retention of title
Chinese Contract Law
An offer becomes effective when it reaches the
offeree and can be withdrawn.
An offer cannot be revoked after acceptance.
Freedom of contract: in any form, in any language
and under any law or set of rules, unless required by
laws and regulations.
Oral and written contracts, unless required by laws
and regulations.
Law: choice of law; or mostly closely related law,
unless required by laws and regulations.
Language: Chinese or other languages
Disputes: Chinese court or a foreign court?
Retention of title (Article 134, in purchase and sales
contracts)
 Contracts

Types of Contracts in China

- Purchase and Sale Contracts

- Contracts for the Supply and Consumption of Electricity, Water , Gas or Heat
- Donation Contracts
- Loan Contracts
- Lease Contracts
- Financial leasing Contracts
- Work Contracts (not labour contracts)
- Construction Porject Contracts
- Carriage Contracts
- Technology Contracts
- Contracts of Deposit
- Warehousing Contracts
- Entrustment Contracts
- Brokerage Contracts
- Intermediation Contracts
Arbitration and litigation in China

Civil litigation in China

(Chinese Civil Procedure Law, amended on 1 January 2013)

- Primary Court/Intermediate Court/High Court/Supreme Court

- Interim measures: preservation and advance execution

- Timing First Instance: 6 months + 6 months + ; Second Instance: 3 months + ;

Summary Procedure: 2 months

- Special Procedure: special cases/first instance judgement is final/ normally 30 days +

- Procedure for trial supervision

- Enforcement of a civil judgement in China is possible; enforcement of a foreign

judgement in China is difficult.
Arbitration and litigation in China

Arbitration

- China International Economic and Trade Arbitration Commission (CIETAC)

- Shanghai International Economic and Trade Arbitration

Commission/Shanghai International Arbitration Centre (SHIAC)

- South China International Economic and Trade Arbitration

Commission/Shenzhen Court of International Arbitration (SCIA)
Arbitration and litigation in China

Arbitration

- Conflicts between CIETAC and SHIAC/SCIA

- Peoples Supreme Court settles their disputes

Services of China Practice

Create Value for Clients, Grow together with Clients

- one-stop services for investment and trade between the

Netherlands and China;

- Comprehensive knowledge and practical experience;

- Professionalism and efficiency;

- Network both in the Netherlands and China;

- Chinese speaking staff; and

- Competitive and flexible fee arrangement.

Thank you!
Q&A
Want to know more?

Seminar reeks:

Ondernemen in China: Wet- en Regelgeving & Risico management

Datum: dinsdag 20 oktober 2015 8 december 2015
Tijd: 08.00-10.00 Ontbijtsessie
Wat: Fraude, corruptie, social, financial en milieu riskmanagement,
Wie: Rabobank, BDO en Kneppelhout & Korthals
Info: www.kneppelhout.nl
Contact

Kneppelhout & Korthals Advocaten China Practice

Joost Vracken Peeters Lin LI

Managing partner Director of China Practice
jvp@kneppelhout.nl lli@kneppelhout.nl

Erik van der Molen Lin XU Victor Zheng

Investment advisor Associate of China Practice Associate of China Practice
evdm@kneppelhout.nl lx@kneppelhout.nl vz@kneppelhout.nl