China Law BlogChina Law BlogChina Law for Business. Legal aspects of doing business in China. Articles
Licensing Software In China. Registration Required?
2011-12-01 16:48:00 Just got an email as a cc from co-blogger Steve. It is to a client that is selling/licensing its software through a distributor in China . Steve was responding to a question about the need to register the software licensing agreement. The below is a portion of Steve's response to that question, watered down to remove any identifiers. I am posting this email because it nicely explains the vagaries of registering license agreements in China and when that is necessary and when it may not be. Here it is: In general, if a contract is characterized as a "license," payments under that contract are characterized as "royalties." Under Chinese law, to receive royalty payments, the contract must be registered as a foreign technology transfer contract. This can be simple or it can be complex, depending on the district in which the paying party is located. However, many districts treat software agreements these as normal sale contracts and do not require registration. The decision is made at th... More About: Software , Licensing
Chinese Manufacturing. Profit Margin, What Profit Margin?
2011-11-29 15:48:00 A loyal reader just sent me an absolutely fascinating "case study" on a small Chinese manufacturing business. The case study is part of Emerald Emerging Market Case Studies, which dubs itself as providing a "library of teaching cases spotlighting the world's emerging economies." The case study on the Chinese business is called "The changing landscape for Chinese small business" and it highlights a company that started out making school uniforms for China's domestic market, and then shifted to making bags/purses/backpacks for export. I hate to say this because I am not even close to being an expert on Chinese manufacturing businesses, but in reading the case study, just about everything in it sounded "typical" to me. This bag company sounded like most of the Chinese manufacturers my firm's non-Chinese clients have sought to buy, have bought, or have bought product from. In particular, the company's lack of rigorous accounting and pricing and its unbelievably low profit margins, r... More About: Profit , Margin
China's Slowdown And YOUR Employees
2011-11-28 05:28:00 Spoke last week with a long-term client. I asked him how things were going for his company in China these days and his response was "good and bad." This is a company that makes product in China strictly for US sales. Product sales are good, he told me, and on that front not much has changed. On the labor/employment front, however, is where things are "getting interesting." He told me that in the last few months he has been able to bring in better employees for less than he would have expected and this is because "so many Chinese companies" are either laying off employees, cutting their hours, or cutting their pay and he is "getting the sense that it is becoming prestigious again to work for an American company, even a small one." That's the good news. The bad news is that the amount he is having to pay his terminated employees to get them to sign an agreement never to sue the company has gone up. According to our client, terminated employees are no longer of the view that the... More About: Employees
Two More Reasons To Avoid China Stocks.
2011-11-26 15:08:00 As regular readers of this blog know, I am not a fan of Chinese stocks. My usual reason for not liking them is that I rarely trust their numbers. I am even less likely to invest in Chinese stocks now. I have two additional reasons for my increased pessimism regarding China stocks. The first is real estate and the second is loans. The Sydney Morning Herald just did an article, entitled, "Bonds show 60% of Chinese companies dabble in property," describing how about 60% of Chinese companies that sold bonds in the past six months admit that they invest in the property market. Of course nobody knows what percent of the 40% invest in real estate but have not come clean about that.One should assume that the numbers for China's publicly traded companies (on all exchanges) are somewhat similar. In addition to real estate investing, I have every reason to believe countless publicly traded Chinese companies are also in the business of engaging in grey market lending. Much grey market lending... More About: Stocks , Reasons
Everything You Always Wanted To Know About China VIEs. The Transcript.
2011-11-23 20:28:00 On November 4, CLB's own Steve Dickinson participated in an Internet discussion regarding Variable Interest Entities (VIEs) in China . The discussion was entitled, "Foreign Ownership in China: Still VIEable?" and the other participants were China Hearsay's Stan Abrams (an attorney), China Accounting Blog's Paul Gillis (an accountant), and China Finance Blog's Fredrik Öqvist (a financial analyst). A full transcript of the proceedings can be found here. If you have any interest in VIEs or investing in the companies that have VIEs, I strongly urge you to read the transcript. I also urge you to check out this post on VIEs, which has a long list of good readings on VIEs. What I found most interesting about the discussion is that everyone seemed to agree that Chinese courts will not enforce the contracts on which VIE structures are based. In light of this, what exactly do U.S. listed companies with VIE structures really have in China?
How To Achieve Problem Free China Outsourcing. Or Not.
2011-11-22 16:28:00 We are always preaching that if you 1) choose a good manufacturer, 2) use a good OEM contract, 3) engage in good quality control monitoring, and register your trademark, the odds are overwhelming that you will do just fine in outsourcing your product from China . The odds just went down. In 2009 and 2010 and the first half of 2011, I estimate that I would receive maybe two emails a month from someone who had sent money to a Chinese manufacturer and received no product. And of those emails, I estimate that pretty much all of them involved a relatively unsophisticated buyer who had done none of the three things listed out above. In the last three months or so, I have received probably 4-5 emails from buyers who have been burned by Chinese manufacturers but have a very different story to tell. These buyers have been burned by Chinese manufacturers with whom they have been dealing successfully for many years. The following is a fairly typical example: I did not receive my most recent or... More About: Outsourcing , Free , Problem
China Film Law Q And A. Part III.
2011-11-22 01:48:00 This is the third and final part of a series of posts in which our Beijing-based attorney, Mathew Alderson, is interviewed by CMM-I as part of CMM-I's sector report "Feature Film Co-production in China ." In this post, Mathew explores issues relating to the regulations governing foreign involvement in film production in China. Part s I and II of this series can be found here and here. CMM-I: What are China’s regulations governing Sino-foreign co-productions? Alderson: There are several layers of rules and regulations and they include the following: Guiding catalogue for Foreign-Invested Entities 外商投资单位指导目录 The Regulations on the Administration of Movies 电影管理条例 The State Administration of Radio, Film and Television Interim Provisions on Operation Qualification Access for Movie Enterprises 国家广播电影电视总局对电影 业经营资 格的暂行规定 Any applicable treaty, such as The Austra...
Going To School On How To Build A China Business Relationship
2011-11-18 23:58:00 This post was written by Matthew Dresden. Matthew handles China matters out of our U.S. office and this is his first post for the blog. Matthew speaks and reads Mandarin and has lived in both Beijing and in Shanghai (but is too politic to tell us which he prefers). Here's Matthew's post: There has been a spate of recent stories in the media about the large numbers of Chinese students applying to U.S. colleges who have doctored their records. A paragraph from an article in the New York Times neatly sums up the issue: Colleges, eager to bolster their diversity and expand their international appeal, have rushed to recruit in China, where fierce competition for seats at Chinese universities and an aggressive admissions-agent industry feed a frenzy to land spots on American campuses. College officials and consultants say they are seeing widespread fabrication on applications, whether that means a personal essay written by an agent or an English proficiency score that doesn... More About: Business , Relationship , School
Don't Be A Bull In The China [Movie Production] Shop. A Seminar In Aus
2011-11-17 04:28:00 The Screen Producers Association of Australia (SPAA) hosts a big annual conference each year that is the main event in Australia’s film industry calendar. At this year’s SPAA Conference in Sydney (running through November 16), our Beijing-based attorney, Mathew Alderson, will be sitting on a China film panel, entitled, "Don't be a Bull in the China Shop ." Mathew has spoken at previous SPAA Conferences (he says they are great) on the legal aspects of film production on China and this year he will be sharing the podium with William Feng, Chief Representative, China, Motion Picture Association of America and Mario Andreacchio and Pauline Chan. Mario directed and produced "The Dragon Pearl,"Australia’s first official Chinese Co-Production . Ms Chan produced and directed "33 Postcards," Australia’s second official Chinese Co-Production. Paul de Carvalho, Director of Production Attraction at Screen NSW, a leading government film-funding organization based in Sydne... More About: Movie , Seminar
China's Huaxi "Tower." Rife With Meaning?
2011-11-15 08:58:00 Every once in a while I see an article that is so potentially rife with deep meaning and symbolism, I find myself not up to the difficult task of interpreting it. This China Dialogue post, entitled, "Village that towers above China," is that sort of article. It is on the famously wealthy town of Huaxi. My only comment is that even the name of the article's author, Jonathan Watts, seemed somehow appropriate as the tower he is writing about has some similarities, I think, to the Watts Tower s. What are your thoughts? More About: Meaning
Bribe Paying Countries. China Is Second Worst.
2011-11-14 15:48:00 Transparency International has just come out with a new ranking of bribe paying countries, entitled the 2011 Bribe Payers Index (h/t The Diplomat). This index "ranks 28 of the world’s largest economies according to the perceived likelihood of companies from these countries to pay bribes abroad. It is based on the views of business executives as captured by Transparency International’s 2011 Bribe Payers Survey." Not surprisingly, "companies from Russia and China , which invested US $120 billion overseas in 2010 and are increasingly active in global business, are seen as most likely to pay bribes abroad. Companies from the Netherlands and Switzerland are seen as least likely to bribe." Though I know there is no wholly objective way to measure a country's scale of bribery, I am always impressed by Transparency International's rankings because they always correspond fairly closely to my own "sense" of what is going on out there and the same is true of thi... More About: Countries
The Two Things You Must Know When Choosing Your China Brand Name
2011-11-13 12:48:00 Excellent New York Times article (is it just me or has the NYTimes really picked up its China coverage both in terms of quality and quantity in the last six months or so?), entitled, Picking Brand Names in China Is a Business Itself. The article reaffirms what we are always telling our clients: get help from China branding specialists in choosing your brand name for China. The article talks of how "China is a place where names are imbued with deep significance" and of how "an off-key name can have serious financial consequences." And, just as is true in the United States, choosing a "brand name that resonates" "has become a sort of science, with consultants, computer programs and linguistic analyses to ensure that what tickles a Mandarin ear does not grate on a Cantonese one." The article goes on to discuss the following good branding of Western companies/products in China: Coca-Cola. Called Kekoukele in China, "which not only sounds like Coke’s English name, but conveys i... More About: Things
There Is No Protectionism In China.
2011-11-12 21:48:00 Now that I have your attention with my Global Times-ish headline, I am going to backtrack. The protectionism that people attribute to China is wrong. I have become convinced that the protectionism that people tend to attribute to China does not really exist, or at least barely so. The Chinese government does not care nearly as much about its domestic companies as widely believed, at least those that are not State Owned Entities (SOEs). Instead, the Chinese government cares almost exclusively about the Chinese government. Once you understand this, you will be better able to know where you, as a foreigner, stand. I just read a China Hearsay post noting how China's Ministry of Commerce's recent approval of Yum! Brand's purchase of Little Sheep Restaurant should put everyone's fears to rest about China using its M&A review for protectionist purposes. China Hearsay was not the least bit surprised by this approval, nor was I. I figured the approval would come because the buy...
Second Summit on Chinese Business Law and Practice in Santiago, Chile. Nov
2011-11-11 02:18:00 Last November, the Asian Studies Program and the Law School of Pontificia Universidad Católica de Chile (Catholic University of Chile) hosted a Summit on Chinese Business Law and Practice in Santiago . As I mentioned in my post on that event, I had very high hopes for the Summit, in part because it was organized by Marcos Jaramillo, the head of the University's Asian Studies progrm and someone I have known and respected for years. Sure enough, the 2010 event was a great success, and I am happy to announce that the Second Summit on Chinese Business Law and Practice is now just around the corner. It will be held on Friday, November 18th, again at the Catholic University of Chile in Santiago. Sponsors include the Chilean-Chinese Chamber of Commerce, the Asia Pacific Chamber of Commerce, Clifford Chance, and the Chilean Federation of Industry. And this time, yours truly will be among the speakers. I will be presenting on “Avoiding and Winning Chinese Dispu...
How To Stop China-Based Domain Name Theft
2011-11-10 03:58:00 By Rachel Buker Rachel is an attorney at Harris & Moure whose practice focuses mostly on intellectual property. Trademark infringement with respect to domain names is a very common problem, particularly for those who do business with China or even just manufacture their product there. It is unsurprising that many in China are quick to register domain names similar to those of the foreign companies they see. We frequently see the following sorts of domain name thefts, oftentimes by Chinese companies seeking to hone in on a well-known brand name: Domain names that intentionally contain a common typo of a known trademark. Domain names that take a known trademark and attach a generic word like “outlet” or a word descriptive of the product, such as “shoes." Domain names that are exactly the same as a known trademark’s domain name, but with a different extension. For example, abc.net, instead of abc.com. Companies confronted wi... More About: Domain Name , Stop , Theft
How To Write A China (CIETAC/BAC) Arbitration Clause
2011-11-07 12:48:00 Chinese companies are more and more often requiring a China venue dispute resolution clause. In other words, they are refusing to sign contracts unless they provide for disputes to be resolved in China. In some cases, you will be better off in a Chinese court and in other cases you will be better off arbitrating in China. We typically look at the following factors, among others, in deciding whether to go with arbitration or litigation: The nature of likely disputes; The importance of being able to preserve evidence; The likelihood of needing injunctive relief' The quality of the court being sought by the Chinese party or of the court most likely to hear the case; The power/influence of the Chinese party. In those instances in which we write arbitration in China clauses for our clients, we typically push for the following: 1) A CIETAC (China International and Economic Trade Arbitration Commission) or BAC (Beijing Arbitration Commission) arbitration. These are the two most hi... More About: Write
What Does China Want?
2011-11-06 17:28:00 Must-read article by The Christian Science Monitor's Beijing correspondent, Peter Ford. The article is entitled, "Rise of an economic superpower: What does China want?" I liked the article because it does a very good job explaining where China fits in the world right now, where it sees itself fitting, and where it is going. I particularly liked how it concludes that China's future role is uncertain and how it does not jump on the "China will rule the world" bandwagon. The article rightly concludes that China, right now at least, has very little influence in the world beyond economics and even that mostly stems from its internal growth, not from Chinese multinationals, of which there are hardly any. It also contained a quote that is very relevant for business: Nor, frankly, do foreign affairs seem to figure very high on Chinese leaders' agendas. "International questions are an afterthought," says Francois Godement, founder of the Asia Centre, a Paris-based think tank. Instead,...
How To Form A Company In China. The Basics.
2011-11-05 20:58:00 Though we often talk generally about what it takes to form a company in China , a reader recently pointed out to me that we have never set out the basic steps one must take to do so. The following sets out the basic steps a foreigner usually must take to form a Wholly Foreign Owned Entity (WFOE) in China. For more information on what is required to form a company in China, check out How To Start A Business In China -- WFOE and How To Start A Business In China -- The Minimum Capital Requirements For A WFOE. Forming a WFOE in China typically requires the following: 1. Make Sure Your Business is Legal For Foreigners. Determine if the proposed WFOE will conduct a business approved for foreign investment by the Chinese government. For example, until recently, China prohibited private entities from engaging in export trade. Be sure your business will be legal. 2. Provide The Proper Documentation. The investor in the WFOE must provide the documentation from its home country ... More About: Company
China Film Law Q And A. Part II.
2011-11-05 06:58:00 This is the second in a series of posts in which our Beijing-based attorney, Mathew Alderson, is interviewed by CMM-I as part of CMM-I's sector report "Feature Film Co-production in China ." In this post, Mathew explores issues relating to film financing in China. For part I of this series, go here. CMM-I: How trustworthy is the accounting for film performance in Mainland China? What can a foreign co-production partner do to ensure accurate accounting? Alderson: Remember that the only real source of film income in China is box office. Other income streams are generally unavailable. It is effectively impossible to achieve the level of accuracy and transparency expected of box office in the West. If a foreigner wants to achieve something approaching accuracy in relation to box office receipts, they would need to appoint their own independent inspectors to count cinema attendees and work back from there. Some of my cinema-owning clients in the West do this by having ... More About: Part
What To Do When You Receive Bad Quality Product From China.
2011-11-03 06:18:00 I must get some form of the following at least twice a week: "I just received a shipment of bad product from China and the Chinese company is ignoring my requests for a refund. What do I do?" Needless to say, my initial answer is always, "that depends" -- after all, I am a lawyer. It depends on the following: How much is at stake. The history of the relationship with the Chinese company. The city in which the Chinese company is located. The legitimacy of the Chinese manufacturer. The nature of the defects in the product. Whether there is a written contract and, if so, whether that contract clearly addresses the defect. What the contract says about dispute resolution. Nine times out of ten, I pretty much instantly tell the caller/e-mailer that it makes no sense to involve my law firm, usually either because the amount at stake is too little or because there is no contract on which to base a legal claim. They then ask what they should do and I tell them to try to find a Chi... More About: Product
CLB On The Road. US-China Film Co-Production Summit. Los Angeles, November
2011-11-01 08:00:00 Tomorrow, November 1, I will be attending the second annual US-China Film Co-Production Summit in Los Angeles . Not only will I be there, but two of my firm colleagues, Mathew Alderson and Matthew Dresden, will be there as well. Mathew Alderson is here from Beijing, where he handles the bulk of our China film, media and entertainment work. Before switching to the legal world, Matthew Dresden worked in Hollywood for eight years as an independent filmmaker and as a production executive for Roger Corman's Concorde-New Horizons Pictures. Both speak Mandarin. If you are at tomorrow's event, please be sure to say "hello." In the meantime, here are some of our recent posts on China film co-productions: China Film Law Q And A. Protecting Hollywood Films in China Makes Sense For China China's Sino-Foreign Film Co-Productions. Show Me The Money. Making Films in China. You Talkin' To Me? Sino-Foreign Film Co-Productions in China
China Contracts. Why Even Bother?
2011-10-31 17:58:00 I am often asked usually right after I quote our fee) whether a China contract I am proposing to write "is even enforceable in China." I always give the same answer, which is more or less the following. There are three reasons why it makes sense to have a contract with your Chinese counter-party, and only one of those reasons is enforceability in court. 1. Clarity. The first is to achieve clarity. To make sure you and the Chinese company are on the same page. For example, if you ask your Chinese supplier if it can get you your product in 20 days, it will say "yes" pretty much every time. But if you put in your contract that the product needs to ship in 20 days AND for every day it is late, the Chinese company must pay you 10% of the value of the order, there is a great chance the Chinese company will get honest with you and tell you that 20 days is impossible. At that point, you and the Chinese company can figure out what is realistic and then you know what to expect, realisti...
To VIE Or Not To VIE (in China). Answers Will Come VIa Web Discussion This
2011-10-31 07:28:00 For the last couple of years, there has been massive discussion regarding Variable Interest Entities (VIEs) in China . We at China Law Blog have taken a strong stand on them and our position has always been that we will not do them because we do do not think they hold up to legal scrutiny. Or to put it another way, our law firm is too small to withstand the onslaught of malpractice litigation we forsee when these VIEs start to unravel. Under a VIE structure, a Chinese Internet provider is effectively owned by a foreign entity through a complex set of contractual arrangements, rather than through ownership of stock. The control by the foreign entity is so total and complete that the arrangement is considered the equivalent of ownership under U.S. accounting rules. However, by there being no actual foreign ownership of stock, these VIE structures have managed to operate in China, evading the clear rules restricting foreign ownership. Our concern has always been that the Ch... More About: Answers
China Banquets. A How To/Must Do.
2011-10-30 14:28:00 It's been years since I've written about the etiquette at Chinese banquets, but just saw a really good post (with really good comments) on the subject, so i cannot resist. The post is at Seeing Red in China and it is entitled, "Banquet etiquette for gaining face." Nothing new or unusual there, but very nicely lays out how to act at a Chinese banquet so as to make a good impression. Before I talk about Seeing Red's post, however, let me set out the two key things you have to know about these events, beyond which, all the rest is commentary: Don't sweat the small stuff. Nobody is going to expect the laowai to know every aspect of Chinese banquet etiquette. Read Seeing Red's post, be respectful, have fun, and try your best, and you will do just fine. You have to go and you have to partake, at least a bit. Acting as though you can and should do business in China just the same as you do business in Kalamazoo. I am not telling you to discard your values. Not at all. But ...
China Polyester Writ Large.
2011-10-29 14:28:00 Just read with an excellent article describing what is happening with China 's textile industry, in light of China's most recent (and quite recent) Five Year Plan. The article is entitled, "Five-Year Plan launches China textiles on a new course," but before any of you non-textile people flee this post, let me tell you: DON'T. This post is relevant for anyone who manufactures product in China, has their product manufactured in China or is contemplating doing either one. I like the article because it essentially says exactly what I have been constantly hearing: China is no longer necessarily the lowest cost producer, but it still has supply chain advantages far surpassing its nascent competition. The article quotes our own Steve Dickinson, regarding the decline of China as the low-cost producer and why the Chinese government has no problem with China's low end manufacturers shutting down: In past years, such companies might have borrowed their way through lean times, but th...
Your China Product Supplier. Trust All You Want, But Systematize.
2011-10-28 13:38:00 Interesting post over at the All Roads Lead to China Blog. The post is called "Developing Trust in China by Building Trustworthy Systems," and it starts out talking of a client who "just want[ed] to get our Chinese suppliers to the point where I can trust them. That they will do the work without constant supervision." I know that lament, having heard it dozens of times from my clients. All Roads gives a good answer on how firms should "operate" in this sort of market. His answer is not an analysis of how to determine what Chinese companies can be trusted or how to find such companies. Instead, it advocates you, the foreign company, set up systems for monitoring your Chinese supplier that you can trust: Systems that can, regardless of human ignorance, greed, inaction, confusion or incompetence, remove the downside risks that comes with the human element of any process. Systems that at the heart of it, are established to minimize human impact, alert system operators (buyers/ c... More About: Product
China. Smells Like 2008, Gloom And Doom Edition.
2011-10-27 18:28:00 I know nobody wants to hear this and I know this is going to cause me to get hate mail from those whose livelihoods are tied in to China 's continuing to boom, but I am seeing all sorts of bad news on the horizon with respect to China's economy. A client meeting yesterday was the last straw. The client I met with is very sophisticated, very large, and, most importantly, very experienced. The client is a very large commodity seller who sells massive amounts to China. This company typically sells its product to Chinese private companies that use letters of credit. Prior to 2008, this client's Chinese customers pretty much always paid. Then in 2008, they started contesting the letters of credit and seeking lower prices than that to which they had agreed. Soon after that, they started rejecting the shipments entirely. My client told me that in the last 3-4 weeks, nearly all of his non SOE (State Owned Entity) Chinese clients have contested the letters of credit and have sought lower p... More About: Doom
Who Should Own Your China IP? Maybe Not You.
2011-10-26 20:28:00 We have been handling way more than the usual number of disputes between our clients and Chinese companies. In a number of these cases, our clients paid money to Chinese factories with whom they had been doing business for years and the Chinese factories simply refused to send over any product. These Chinese companies claimed that our clients owed money for previous deliveries (in which the costs supposedly went up) or for Chinese taxes/duties for which our client is supposedly responsible. These cases (and others like it) are no doubt due to the increasing number of Chinese factories facing economic difficulties. In none of these cases did our client have a good OEM Agreement in place, which gave the Chinese companies at least some basis for their claims. Be that as it may, the Chinese companies (pretty much without exception) threatened to sue our clients and one of them threatened to freeze our client's China trademarks, copyrights and/or patents and then take that IP...
China Film Law Q And A.
2011-10-25 07:28:00 China Media Monitor Intelligence (CMM-I), based in Beijing, is the leading independent business to business intelligence resource for the Chinese media industries. CMM-I analyzes China’s media industry, with a strong focus on content across film, TV and New Media platforms. CMM-I recently interviewed our own Mathew Alderson for CMM-I’s sector report, "Feature Film Co-production in China," which is scheduled for publication next month. With CMM-I’s permission, I have asked Mathew to do a series of blog posts based on the interview. Here is the first post in that series: CMM-I: Can you explain the main legal challenges that Chinese and foreign producers face when they decide to co-produce feature films? Alderson: The most common law-related mistake I see is the failure to bring on experienced China-based film lawyers early enough. Projects are generally in post or initial theatrical release before producers give proper consideration to ... More About: China
Simply China (The Book). Simply Beautiful.
More articles from this author:2011-10-24 05:58:00 One of the perks of writing this blog is that we get countless review copies of books, most of which we never review. We especially get countless travel/journal type books on China and I do not recall us ever reviewing any of those. Simply China is a China photo book too beautiful not to plug at least a little. It is by Nancy Brown, an experienced and well-regarded photographer and the book is beautifully and thoughtfully designed from cover to cover. The book starts with a lively written introduction and then is divided into seven sections: The Forbidden City, Inner Mongolia, Guanxi, Sichuan, Zhouzhuang, Tibet, and Qinghai Province. The book is a visual tour of China that highlights the distinctive qualities of each region. But for me, the most notable quality of Simply China is the photographs of China's people. It makes for a great coffee table book and the proof of that is that it now sits on our reception area's coffee table. More About: Book , Beautiful 1, 2, 3, 4, 5, 6, 7 |
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