8. Tort law
The Tort Liability Law of the People’s Republic of China went into effect as of July 1, 2010. This law consolidates the basic principles of tortious liability into a single piece of legislation, and also includes the tort of product liability. Producers and sellers of product should take note of the inclusion of punitive damages as a remedy for the tort of product liability.
9. Criminal law
As you would expect, China’s criminal law is applicable to anyone, Chinese or foreign, who commits a crime in the PRC (including within the territorial waters and space of the PRC).
In light of recent arrests of employees from gaming companies doing business in or connected with China, it may be prudent for foreign-based executives of any business to check if the relevant onshore entity has any unresolved disputes within China.
10. Directors』 duty of care
The concept of fiduciary duty was introduced into the Company Law of the People’s Republic of China in 2005. This duty involves the duty of care and the duty of loyalty. Some activities, the breach of which is considered a breach of these duties, are listed in the Company Law itself. The Company Law does not provide further information on what else may constitute a fiduciary duty. This may be one reason as to why there have been few fiduciary lawsuits brought before the Courts since 2005.
11. Bankruptcy and the Courts
Some knowledge of the bankruptcy laws in China is helpful, even for those who do not practice in bankruptcy law, if you have become used to relying on bankruptcy as the ultimate end process or sanction when enforcing contractual claims.
Significantly, while there is a bankruptcy law in China, it does not apply to individuals; only enterprises. There is no bankruptcy for individuals in the Chinese legal system at present. In addition to this, there are other constraints on the Courts』 ability to order a sale of an individual’s assets including their home in certain circumstances.
In relation to enterprises (businesses, companies, state-owned enterprises etc.), while the bankruptcy law can give leverage to litigants the outcome is not always as certain as a plaintiff may desire. Litigants, even when they obtain an order for bankruptcy, can experience difficulty finding buyers for assets, often related to the quality of the asset itself (which can sometimes be due to inadequate due diligence when the security was taken), or finding a market for that asset, or sometimes because minimum reserve prices set by Courts are too high.
12. Relations with regulators
It is likely that your local colleagues will be much better at managing the relationship and interacting with regulators. Often, these colleagues have been hired from the regulators themselves or had an entire career’s experience of dealing with regulators and so have a clear understanding of each regulator’s requirements and motivations.
However, it will help to understand that regulators』 offices are almost always replicated from the top down, so that there is usually a head office in Beijing, and then one in each of the provincial capitals, followed by the large provincial cities, to the regional areas and smaller towns etc. This can mean that a business will not only need to meet with the relevant regulator’s national office but it will also likely mean that interaction will be required at the same regulator’s offices in the relevant province, city or region. This can also lead to a business receiving a different or a nuanced interpretation of relevant laws and regulations from different located offices of the same regulatory department, depending upon that office’s understanding of the relevant law and how it determines it needs to be applied within its jurisdiction of responsibility. This can lead to different offices of the same regulator making different requirements of businesses based on the same laws or regulations, but may also present opportunities, depending on the circumstances.
Also, it is not uncommon for businesses to receive communications and instructions from regulators in the form of what is known as 「window guidance」. Window guidance is often used in China and can range from spoken instructions to penciled notes on official policy documents. Its purpose is usually to encourage regulated entities to keep to official guidelines and is often aligned with policy for the macro-economy.
13. Competition law
The Chinese anti-trust regime is relatively young. The Anti-Monopoly Law came into effect in 2008 and applies throughout all of the PRC (excluding Hong Kong and Macao). This law (to some extent in conjunction with the Anti-Unfair Competition Law and the Price Law) regulates monopolistic agreements among, abuse of dominant market positions by, and anti-competitive concentration of, business operators.
The anti-trust laws can result in:
market abuse claims as a result of complaints raised by other operators or consumers, or investigations conducted by government officials;
investigations of possible cartels to see if companies are collaborating with competitors in price fixing, production limitation, market allocation or restricting the procurement and development of new technology or new equipment;
companies needing to apply for clearance from the Ministry of Commerce (often referred to as 「MOFCOM」) for the purpose of merger control when acquiring assets or shares, or establishing joint ventures; or
investigations for striking vertical agreements that might eliminate or restrict competition, including any conduct involving resale price maintenance or allocation of an area for operation or marketing.
To avoid or minimise the risk of the above, businesses may need to consider developing tailored compliance programs and to review business contracts and policies to identify contract terms or business practices that might contradict these laws.
14. Tax
China has a complex system of taxation, which is constantly developing, including enterprise income tax, individual income tax, value-added tax, consumption tax, land value-added tax, stamp duties and real estate tax. Also, local surcharges are levied on top of value-added tax and consumption tax, such as (local) education surcharge levies and urban maintenance and construction taxes for example.
In addition to the above there are also some other forms of taxation or levies applicable to certain investment or business activities, such as a deed tax, as well as motor vehicle taxes.
Like many other countries, China has adopted both the residence and source concepts in its taxation system so that income may be taxed because of the residency of a corporate or an individual (regardless of where in the world it is earned) as well as because that income was derived from sources within that country (i.e. within China).
15. Foreign direct investment
In the past few months (of 2017) China has taken steps to further encourage foreign investors into the China market including relaxing control on the access of foreign capital into the China market as well as streamlining approval processes.
A significant change has been made to the 「Catalogue for the Guidance of Industries for Foreign Investment」 so that there are now less restricted and prohibited industries. This catalogue encourages greater foreign investment in high-end manufacturing and technology as well as environmental protection and energy conservation. There are also relaxations on previous restrictions on foreign investment in mining, manufacturing and services sectors.
Also, new foreign investments that are not restricted or prohibited by this catalogue now no longer need Ministry of Commerce approval but rather just have to file with the Ministry. This should lead to shorter processing times and greater convenience.
16. SAFE restrictions and the repatriation of profits
Since China began opening up in the middle 1980s and foreigners started investing into China, there have always been restrictions on the movement and transfer of funds into and out of China.
While the trend over the past several years has been a relaxation of these restrictions, there has been a perceived tightening of restrictions by SAFE (The State Administration of Foreign Exchange) and PBOC (The People’s Bank of China) in late 2016 continuing into 2017, on flows of funds out of China. However, there has since been some relaxing of these restrictions with a resultant easing in cross border capital outflows.
One significant change has been the removal by SAFE of restrictions on the repatriation into China of the proceeds of offshore debt where that debt is guaranteed by a Chinese onshore entity (also known as a 「neibaowaidai」 structure). This should lead to more flexibility and a greater range of options for domestic enterprises looking to take advantage of offshore loan markets.
17. Cyber security
New cyber security laws came into force earlier this year (2017) which make cyber security an obligation for any entity storing personal data or who has a network. Also, that personal information and data now has to be stored in China.
Businesses should look to see that they are not in breach of these laws due to sending data that has been collected in China, or which contains personal information of Chinese citizens, outside of China. Also, businesses may need to look at the systems they have in place to protect data integrity and the confidentiality of that data as well as ensuring that they have obtained the consent of the persons whose information is collected. This may in turn require further due diligence to ensure suppliers are in full compliance with this law and ensuring that adequate confidentiality agreements are in place with all necessary suppliers, third parties and contractors.
18. WeChat
Apart from being a great way to pay for things nearly everywhere in China, and just about everybody in China’s social media app of choice, it is also often used in business transactions by parties as a way of arranging meetings, discussing issues and even to send and receive documents. Do not be too surprised to receive marked up copies of important and confidential documents in your or a colleague’s WeChat account accompanied by a small message and a friendly emoji, late on a Friday evening.
Of course, there are no guarantees of confidentiality with WeChat. Also, attachments to messages (such as documents, for example) are only available for a limited period of time. There are ways, if you find yourself or colleagues receiving communications via WeChat, of structuring incoming messages from certain people so that they are automatically forwarded to an email account. While this will not help from a confidentiality point of view, it may be useful if you are not used to checking your WeChat account so regularly and also to avoid missing a window of time to download documents.
19. Lost in translation
Finally, and straying from the strictly business or legal theme, there are some efficiencies to be gained by improving communications or at least being aware of the inefficiencies that can occur, between native and non-native speakers of English.
It is easy for a lot more to be 「lost in translation」 than is realised when native speakers communicate with non-native speakers. This arises mostly from three main causes; a failure to fully understand what has been communicated, a failure to realise by one party or both that this failure has occurred and (or compounded by) a failure to speak clearly and simply by the native speakers.
A failure to understand can arise because both parties believe, mistakenly, that there has been a successful communication of meaning. However, simple but crucial errors can lead to completely wrong interpretations; did a certain thing happen, or did a certain thing not happen? At conversational speed, small but crucial words, especially if articulated through nuance, euphemism or a colloquialism, can be easily missed. Misunderstanding can also arise because of complexity of subject matter, failure to appreciate subtlety or just too much information to remember in one phrase or conversation in a foreign language.
Often, the non-native speaker will be aware of this failure to understand, but occasionally, neither party will be aware of the error until the consequences of the conversation have materialised, in the form hopefully of just a slightly off-point report or draft letter rather than a catastrophic mistake, where the final product has, say, been built in units of cm’s rather than km’s. Often non-native speakers are keen to be seen as someone with useful second language ability and so may be reluctant to keep interrupting a native language speaker to ask for clarification. Furthermore, misunderstanding some meaning is quite common for non-native speakers during small parts of many conversations until the full picture becomes clearer, and many non-natives have trained themselves to seek understanding by waiting for clues and pointers that can suddenly make a whole narrative become a lot clearer; once a conversation has gone on for too long, however, an admission that the last five or more minutes has been totally incomprehensible, can be embarrassing.
Finally, and perhaps the easiest way to improve communications, is for native speakers of English, when talking to non-native speakers, to do their very best to make everything they say as easy to understand as possible. Some effective ways to do this are to speak relatively slowly and clearly, think about the clarity and straightforwardness of the delivery, not use idioms, euphemisms, colloquialisms, figures of speech, or anything else that isn’t plain, simple English; avoid sporting metaphors, for example, at all costs. Also, avoid abbreviations, flowery language, nuance or any form of subtlety; communications are much more likely to be successful when they are direct and to the point in a polite and simple way. Consider being direct even when you might be more circumspect or use euphemisms with another native speaker due to the sensitivity of what is being spoken; a direct message will be much more likely to be properly understood by a non-native speaker than a round-about message that skirts the issue. Also, look to give the non-native speaker opportunities to show they have understood or to ask questions for clarity; try to avoid speaking for too long, as this is an easy way for meaning to be lost. Lastly, it is easy for native speakers to dominate meetings and conversations because of their language skill advantage, and this can lead to opinions and information never being aired that may otherwise be very useful.
We at King & Wood Mallesons would be happy to discuss any of the issues with you in future detail and our firm has experts in all areas of PRC law which impact each of these issues who we would be happy to put you in touch with.
以上內容您希望有進一步探討，請聯繫您在金杜律師事務所的合伙人，我們將以卓越的專業知識竭誠為您服務，提供具有競爭優勢的商業解決方案。
By Richard Bartlett and Laurance Yuan