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China Law Blog Does LinkedIn. We Welcome New Members.
2009-12-13 19:28:00
About a week ago, we went public with a China Law Blog Group on Linkedin. The goal of the group is to gather together people interested in real discussions on Chinese law and business and, sometimes even China in general. There are plenty of other China groups on Linkedin and I am a member of some of them. So why did we form the China Law Blog Group? Well the quick answer is to provide a forum for our readers who are, of course, the best people in the world. But the real answer is because I was dissatisfied with most of the other groups, usually on one of two grounds. First, many groups have been hijacked by a few people whose goals are not to learn or to engage, but to market and sell. Now I have absolutely nothing against marketing and selling....nothing at all. But I do not want to be in a group where that goes on. And what was driving me crazy was how much of this is going on and how badly it is disguised. The typical example I always give is the person who goes on to ...

China Blogs: That's The way, Uh-Huh Uh-Huh, We Like It, Uh-Huh, Uh-Huh
2009-12-12 23:38:00
About three months ago, in Part I of this series, I promised we would go through our blogroll and justify and expound upon each blog, five by five. About a month ago, I did part III of this series. This is the fourth of this slowly running series where I explain, in alphabetical order, why it is that each blog managed to qualify for our blogroll under our admittedly "slippery, vague, and subjective criteria:" Our blogroll basically consists of those blogs we like and which we think our readers will like or should be reading. We tend to like blogs that are unique in their content, well written, or consistently helpful. If we really like a blog, it makes it on no matter what. The less we like the blog, the more we have to believe it can be helpful to our readers. If a blog has not posted for a couple of months, we start seriously consider removing it from the rolls. Three months and it is usually removed. We obviously focus on China related blogs and, within that, we generally...
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How Not To Get (China) Internet Scammed.
2009-12-10 16:58:00
Rich Kuslan over at Aziabizblog has an excellent post up on emails (usually allegedly from China ) that seek to scam attorneys. The post is entitled, "How Not to Get Scammed by a Scam Email," and much of the post serves as an equally good lesson on how not to get scammed by a Chinese seller of product whom you are dealing with only over the internet. Let me back track a bit and talk the attorney scam. These are getting incredibly common and they do sometimes work. The scammer seeks to hire a lawyer to collect money owed to the scammer or the scammer's company. Typically, the attorney quickly succeeds in recovering some or all of the money owed. The fake creditor pays its debt to the attorney by check, the attorney deposits the check into the law firm trust account, and then the trust account cuts a smaller check to the scammer, with the attorney keeping its contingency fee. The only problem is that a few weeks later, the bank comes back to the law firm to announce that the check ...
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That's Hot: Made In China For China. By Foreigners.
2009-12-09 16:28:00
That's Hot. If two years ago, someone had asked me to describe my law firm's typical China manufacturing client, I would talked about a company that was either doing contracting out its manufacturing to China or doing its manufacturing in China itself, all of this strictly for export from China. It just struck me today that our typical China manufacturing client has changed. It is now an American company that is manufacturing in China to sell its products in China. And they are all going about this in very different ways. The following are good (and very recent) examples (with a bit of merging of companies and fudging of facts so there will be no identifiers) of what we are seeing out there: 1. US company that had been making about 50% of its products in China for shipment back to the US for sale primarily to one very large American company. It now has a WFOE (wholly foreign owned entity) in China where it makes about 90% of its product for sale to that same very large Ame...
More About: Made

Do I Really Need A Chinese Company?
2009-12-08 03:48:00
I dunno. We recently did a couple of posts on what is required to form a Wholly Foreign Owned Entity (WFOE) in China. In the first of these posts, "How To Start A Business In China -- WFOE," we we set out the four main steps in forming a WFOE. In our second post, "How To Start A Business In China -- The Minimum Capital Requirements For A WFOE," we discussed the minimum capital requirements for such entities. I tagged both of these posts with our newly created "Basics of China Business Law" category. Micah Schwalb, an attorney and blogger at Boulder2Beijing then wrote me with the following: One item it might be interesting for you to touch upon is when you DON’T need to do any sort of formation, as in the case of a foreign business contracting with a Chinese business for certain services, or when companies pay (foreign) employees on the basis of service contracts. I’m not saying that these are particularly, well, legal, but it might make for an interesting post, as it happ...
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China: First Let's Clear Out The Long Time Foreigners.
2009-12-06 13:28:00
A couple weeks ago, I got what for my law firm is a fairly typical phone call. This was from someone in a second tier city who had been operating a business there for seven years, all done on a business visa without having registered the business and without having secured a long term Z (employee) visa. Seems the local authorities had sent him packing and he essentially had to turn over his fairly profitable business to his five employees. He was calling us to see if there was anything we could do. My response was something along the lines of the following: Let me get this straight. You have been operating this business in China for seven years, yet you never registered it and you never paid any taxes on it. You built it up to five employees, none of whom are legal. Do you think one of these employees might have been the one to turn you in? In any event, what is it you think we can help you with? He very wisely chose not to hire us. We get calls like this just about every m...
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The New China Round-Tripper. China WFOEs And JVs Coming Home??!!
2009-12-05 23:28:00
Though most of my law firm's practice involves helping American and European companies go overseas, at least ten percent of our business involves helping foreign companies enter the United States. This number always fluctuates, depending on how things are going economically in the United States versus the rest of the world and on how the US dollar is doing on currency markets. During the dot.com boom, I was getting a ton of work from Korean and Japanese and Russian and other companies seeking US venture capital funding or just seeking to make their mark on the US market. During the height of the US real estate boom, we were handling a fair number of matters for Russian and Korean and a few Chinese clients seeking to own a piece of the American real estate pie. We are starting to see a few inklings of incoming work by foreign (mostly European) investors looking at the United States companies again, now that prices have fallen so much. And then we have always and somewhat consist...
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How To Start A Business In China -- The Minimum Capital Requirements For A
2009-12-05 15:18:00
Yesterday, in a post entitled, "How to Start a Business in China -- WFOE," we discussed the basic requirements for forming a wholly foreign owned entity (WFOE or WOFE) in China. One of the questions we are most frequently asked about how to form a WFOE in China is is how much the Chinese government requires in minimum capital.  This post follows up on yesterday's post by addressing the minimum capital requirements issue. Every company in China must have a stated registered capital. This amount is provided in the Articles of Association of the company and is also noted on the company register. Beginning in 2006, this company register is available to the general public. The registered capital includes all of the components of the initial investment in the company, including its start up cash, contributed property, and transferred intellectual property. Where the registered capital is small, the entire amount must be contributed immediately upon formation of the company. If the...

How To Start A Business In China -- WFOE
2009-12-05 02:38:00
This post is a re-hash of a post Steve did more than three years ago. We are re-running it now as part of a series of posts we will be running over the next few weeks on the Basics of China Business Law. We are even forming a new category for this series, the first since we started this blog! This post focuses on the forming of a Wholly Foreign Owned Entity (WFOE) in China. I am starting with this type of entity because it is the one we do most often. Subsequent posts will detail the steps required to register other forms of entities in China, such as a representative office (RO) or a contractual or equity joint venture (JV). Each of these forms of foreign invested enterprise (FIE) is subject to its own specific laws and to numerous regulations that apply to all FIEs. Every FIE is formed as a Chinese limited liability company (LLC). Where the special laws and regulations of an FIE do not apply, the provisions of the Chinese Company Law control. The Company Law was recently com...
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China Demographics Because They Matter.
2009-12-03 23:28:00
Bill Russo, China car expert extraordinaire, has been running an excellent series of posts on China's car market and he just hit the lucky number 8 and final one and this one really got my attention. It is entitled, "TREND #8: China’s Rapidly Changing Demographics and Growing Demand in Lower Tier Cities," and its focus is on China's demographics relating to car sales in China. But it really is a terrific short briefing on China's demographics as they are relevant to business. If you are dong business in China or thinking of doing business in China, particularly if you are selling product or services in or into China, I suggest you read it. And it certainly would not hurt you to read the seven posts that preceded it. Please don't forget to vote for China Law Blog.
More About: Matter

China Company Formation: Meet The New Hong Kong. Same As The Old Hong Kong
2009-09-23 19:28:00
Won't Get Fooled Again. My roommate my senior year in college was a Who fanatic. And when I say fanatic, I mean fanatic. This guy had lived a few years in London and he had the urban trench coat and the British accent down pat. Most annoyingly, the only beer he would buy was Guiness, which he would not even refrigerate. He did this knowing full well that neither I nor our other roommate would ever touch the stuff. He had about 1000 Who albums, and before you tell me that the Who never made 1000 albums, let me tell you that about 990 of those were bootlegs or "European editions," or whatever. He had the Who doing just about every song you can think of. Seriously. Sorry for the rambling, but I thought of the Who today when a reader sent me a China Daily article, entitled, "HK attracts record investment in 2008," and asked how much of this might be due to an increase in companies investing in China through Hong Kong . I do not know, but I am sure some of it is. Ten years ...
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Understanding China FCPA Risks. Who Is A Foreign Official?
2009-09-22 19:46:00
I am becoming obsessed with the Foreign Corrupt Practices Act (FCPA) because I see it as one of the the "most missed" things for United States companies doing business in or with China . The other day, I was interviewed by a news service reporter who asked me whether the FCPA is a big issue for my firm's clients. She was calling me to discuss a post I did earlier this year about a client who chose to walk away from a China deal out of fear of violating the FCPA. She asked me if this was common and whether my firm's clients are concerned about the FCPA. I told her this was actually the first time in years a client had even raised an FCPA issue with me and that clients never even broach the subject with us when going into China. I told her I am the only one who ever brings it up and when I do, clients are generally not terribly interested. I see this as a huge mistake, particularly since the US Department of Justice has made clear it intends to increase its pursuit of FCPA c...
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China Marketing And Branding. Reading The Tea Leaves.
2009-09-20 22:08:00
The DragonBeat blog has a great post, entitled, "Why foreigners are beating China ’s tea-makers on their home turf." The post is on why China has none of the leading tea brands worldwide, but what it says pretty much applies across the board to Chinese branding in general. The comments are interesting as well, with many of them complaining about how bad Lipton tea is and how the Lipton market is completely different from the market for Chinese tea. Wrong. If anything, Lipton is a classic example of great branding and of how a Western company has managed to take a ho-hum product (in this case, Lipton tea) and market it in such a way as to trump the market. When will there be a Chinese Lipton and who will that be?
More About: Marketing , Reading , Branding , Leaves

China Law Journals In English
2009-09-20 21:28:00
Chinese Law Prof Blog recently did a post on Chinese law journals in English . His list consists of the following journals currently in publication: Frontiers of Law in China . Peking University Journal of Legal Studies. No online edition, but you can subscribe here. Tsinghua China Law Review. This is brand new, but it shows tremendous promise. I was provided with its first issue and I was quite impressed. It reads like a legitimate U.S. law school law journal in pretty much every respect. The Tsinghua journal's Board of Editors is comprised of "students at the Tsinghua University School of Law, both Chinese law students and foreign students in the LLM Program in Chinese Law." I know its Editor-in-Chief, Carlton Willey, and I know how committed he is on making this Journal a must read for those doing legal business in China. I suggest you check it out.
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Everything You Always Wanted To Know About China's Education System.
2009-09-16 08:28:00
Teachingtips.com did an article entitled, "25 Surprising Facts About China ’s Education System ." (h/t to China Economics Blog) And though I am not prepared to say all 25 will surprise you, certainly most of them are at least pretty interesting. On top of that, each fact has a link to its source, which usually provides more interesting/surprising information.
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The FCPA And China. Do I Need To Get All Loud On You?
2009-09-15 19:08:00
I spent my high school junior year living in Istanbul, where my father was teaching while on sabbatical. There was one other American family in our Bebek apartment building: the Richards. Adelle Richards was the matriarch of that family and there are three things I will always remember about her: 1. No matter how many times we told her we were from Kalamazoo, Michigan, she would always introduce us and refer to us as being from Illinois. Frankly, with her listening skills, I was just impressed she even remembered it to be somewhere in the Midwest. 2. When there was a small fire in our building and everyone was evacuated, she asked my father to run into her apartment to take something out, even though her husband was standing right next to her. My father actually did it, but the explanation for that will have to come in another post. And anyway, there ought to be a limit to one trashing per family per post. 3. I absolutely hated seeing her in any of our neighborhood stores b...
More About: China , Loud

"Socialized" Medicine In China And The US. What's That You
2009-09-14 19:38:00
Mr. McGuire: I want to say one word to you. Just one word. Benjamin: Yes, sir. Mr. McGuire: Are you listening? Benjamin: Yes, I am. Mr. McGuire: Plastics.From the movie, The Graduate. "Where have you gone, Joe DiMaggio? Our nation turns its lonely eyes to you. What's that you say, Mrs. Robinson? Joltin' Joe has left and gone away." From the song, Mrs. Robinson, by Simon & Garfunkel Earlier this year, in a post entitled, China Has Health Care Too I talked about health care as one of the great opportunities for foreign businesses in China: A few months ago I was on a China panel at Northwestern's Kellogg Business School where, among other things, we were asked to list China's best opportunities. I stressed that because I am not a China business expert, I would have to answer the question based entirely on what I was seeing of my firm's clients and, based on that, I listed health care, technology, and food. If I had to pick just one of the three, I would pick hea...
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Topless Women, Rule Of Law, And Perceptions Of China.
2009-09-13 23:28:00
Matt Schivenza's always interesting blog has a new post up on nudity (well, sorta) in China , entitled, "Foreign Woman Removes Top At Beach in Qingdao, Causes Major Disturbance." The post tracks exactly what I was talking about this morning with a client. No, not nudity, but rule of law in China and how so many Americans misunderstand its extent in China and misperceive what China is really like. Bear with me here as I discuss the rule of law in China as the nudity discussion will follow. The client with whom I was having this discussion is a very successful and sophisticated international businessperson who has been doing business in China for around five years. He was telling me of how an American competitor of his had gotten into legal troubles and was on the verge of pulling out of China. My client told me he thought his competitor had brought the problems onto his company by believing he could get away with not following Chinese laws. We then talked about how when i...
More About: Women , Rule , Perceptions , Rule of Law

Love In China. Actions Speak Instead Of Words.
2009-09-12 10:08:00
I just love this post, "Saying “I love you” with a toilet: of indirect displays of love in Chinese families," over at the Speak ing of China blog. I love it because it perfectly illustrates how Chinese express an emotion (in this case love) differently than in the West. Differently, not necessarily better or worse. The post is about an American woman, married to a Chinese man, and how her in-laws show their affection for her by first installing a stand-up toilet, and then adding on rooms to their house. A Chinese client of mine (who has been living in the United States for probably 15 years now) told me of how her father never once told her mother that he loved her, but that her mother always knew from the way he acted. There has to be a way to relate this post to doing business in China and I would love (see how easy we Westerners are with that word) for someone to expound on it.
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Protecting Your IP In China -- The Basics.
2009-09-10 21:12:00
Stan Abrams over at China Hearsay is (or will be?) speaking on China intellectual property at an IP conference for SMEs in the Netherlands and he has mapped out on his blog what he is going to say. And here it is: 1. Register your IP as early as possible. 2. Don’t sacrifice IP protection for speed (i.e. don’t jump into the market before you take care of your IP). 3. Have a well-crafted, reasonable, and feasible China IP plan in place before anything goes wrong. 4. Do your homework (keep your eyes open for infringement and listen to your distributors and agents). 5. Check up frequently on licensees, distributors, agents, and manufacturers. 6. Avail yourself of all reasonable enforcement measures (after doing a cost benefit analysis of course), but understand the obstacles involved. Couldn't have said it better myself.
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How China's Birthday And Shanghai's Expo Are Good For The Legal B
2009-09-09 12:58:00
I have to admit one of my favorite things is forming a China WFOE for foreign companies. I love them because co-blogger Steve Dickinson and our Chinese affiliated lawyers do all the work. I also love them because it is the rare WFOE that does not also need real estate, labor law, and IP assistance to go with the new company. They often require additional work as well, such as contracts, environmental compliance, government approvals, etc. In other words, the forming of one WFOE is almost always the forming of a long term and fruitful legal relationship. Which is why I have to admit to loving China's 60th Birthday celebrations and Shanghai 's upcoming Expo . Please allow me to explain. Every time China has a big event, (see the Olympic games for past proof), it starts tightening up on visas. Over the last few weeks, we are hearing more and more about foreigners getting stopped on the street or in their apartment lobby! So why is this a good thing for my law firm? Becaus...
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Our First China Hummer Post. Our Silence Said It All.
2009-09-09 12:28:00
Virtually every week, somebody emails or calls me with the perfect (usually distressed) United States company for me to pitch to "all the people" I know in China . I have even gotten calls from government agencies asking me what they should be doing to lure Chinese businesses. Here is what I am seeing. Chinese companies looking to buy American companies are usually looking for a valuable technology or commodity or, to a much lesser extent, a strong brand name. If the company you are pitching has neither, the chances of a Chinese company buying it are really slim. People have told me that Chinese companies "have to be" interested in companies with really good marketing people. They tell me Chinese companies are terrible at marketing and so they obviously will be buying American companies that are good at it. That's true in theory, false in reality. There are a few oddball purchases and formations out there and those generally consist of the following. -- The wealthy C...
More About: Hummer , Post , Silence

China Sex, Mistresses, And Improper Payments, And What They Mean For Your C
2009-09-08 12:28:00
Yesterday, I wrote a post on how important contracts are in China . The post was about a China Daily article on what has been described as China's first foreign nail house. The China Daily article included an interview with CLB's own Steve Dickinson, who said the case really hinged on the lease agreement (i.e., the contract) between the landlord and the tenant. According to Steve, the lease itself would control whatever compensation the landlord would be required to pay the tenant for the tenant's eviction due to the building being demolished. The thrust of my post, entitled, "China's First Foreign Nail House. Dude, Where's Your Contract?" was that contracts are usually determinative in China. In response to this post, "Sean" asked this great question in the form of a comment: "So when is the contract everything, and when do you have to be worried about a judge ruling against you in the interest of "fairness" to the Chinese counterpart? ("Fairness" in terms of your prev...

Will Obama Soon Be Kicking China Tires?
2009-09-08 05:28:00
President Obama faces a September 17th deadline to determine whether to go along with the International Trade Commission’s recommendation to impose high tariffs on low end Chinese tires. The US has the authority to impose these tariffs under section 421 of China ’s complicated WTO accession agreement. There were six similar cases during the Bush administration, although in no cases were tariffs implemented, including four separate cases where President Bush himself shot down the commission’s prescription. This is the first China trade case for President Obama and it is therefore being watched very closely both in the United States and in China. Interestingly, the tire unions brought this case and the tire companies have been noticeably quiet, presumably in an effort to maintain their good standing in China as they try to capture a piece of the rapidly expanding Chinese tire market. It will be interesting to see how Obama plays this as he tries to avoid angering the Chinese be...
More About: Tires , Kicking

China's First Foreign Nail House. Dude, Where's Your Contract?
2009-09-07 18:58:00
Lara Farrar and Xie Yu have written an excellent article for the China Daily and AsiaOne on the recent controversy swirling around what is being called China's first foreign nail house case. The article is entitled, "1st foreigner 'nail household' in China," and it details the travails Tim Hilbert has been having in getting compensation from his landlord for the demolition of the Beijing building that housed Hilbert's restaurant, "Tim's Texas Roadhouse." This is an excellent article because, near as I can tell, it is the only English language article out there that actually correctly analyzes the legal issues. And yes, it is from the China Daily! The article starts out by setting the factual stage: Tim Hilbert may have been the first foreigner holed up in one of China's famous "nail houses" -- buildings occupied by stubborn tenants who refuse to leave despite the demolition of structures around them. But he told China Daily that he does not want to be tagged a "trouble...
More About: House , Dude , Contract , Foreign

The End Of The Recession? The View From Qingdao.
2009-09-07 08:48:00
Just received this email from co-blogger Steve Dickinson: I do my martial arts workout three mornings a week at the beach here in Qingdao. We have a great view of the entrance to the Qingdao port complex. Vessels intending to use the port must "park" for a while as they wait for a berth. For most of the summer, we would regularly see no more than five or six vessels parked and waiting. This Monday, I counted 23 vessels waiting for a berth. This means that the port is entirely backed up and there is simply no room for the vessels. This suggests that activity at the Qingdao port has suddenly increased, leading to a delay in shipments. The Qingdao port is the second largest container port in China. Its capacity is enormous and it is unusual for the port to back up in this way. This suggests that shipments out of China have suddenly increased in the past several weeks.http://www.phrmg.org/phrmg%20docume nts/honor/Hon_Eng.htm What are you seeing out there?
More About: The View , View , Recession

China Has 703 Million Cell Phone Users. The Middle Class Is Rising.
2009-09-06 04:28:00
703 million. (h/t Shanghaiist) Think about that for just a minute. That's about 2.5 times the population of the United States. More than three years ago (gosh, have we really been here that long??!!) I did a post on how China had hit 410 million cell phone users. In that post, I stated the following: I love this sort of hard number because to me it is a very accurate way to measure China's growth and increasing wealth, perhaps even more so than a more standard measure like per capita income, which can be easily manipulated and whose impact is heavily dependent on living costs. The way I see, it, if someone can afford a mobile phone, they are a legitimate potential buyer of Western products and a legitimate potential customer for Western retailers. The comments to that post (and some of our other posts) questioned the validity of the number. I recall someone saying that the number reflected the fact that many users had two phones. One for business and a "black phone" for ...
More About: Phone , Cell Phone , Cell , Middle

China Law On Term Employment Contracts.
2009-09-03 14:28:00
One of our clients is coming to the end of its contract term with the bulk of its China employees. They wrote Steve asking him some questions regarding fixed term employment contracts under Chinese law. Steve's reply is a made to order blog post, so here goes: Pursuant to Chinese law, you are permitted to enter into two fixed term contracts with an employee. The term of these contracts can be any fixed term that is agreed between the parties. Typically, in China, the term ranges from one to five years. At the end of the second fixed term contract, you have two choices. You can chose not to continue the employment relationship or you can chose to continue the employment relationship under an open term relationship. An open term relationship requires a written contract. This contract has no term. It terminates only under the following circumstances: 1) the employee voluntarily resigns, 2) the employee reaches retirement age or 3) the employee is terminated for "cause." Term ...
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On The Demise Of China Manufacturing.....Kidding!
2009-09-03 06:18:00
BBC radio news did an interview last night with the owner of a company out of Houston, Texas, who had moved his manufacturing from China back to the United States. Unfortunately, I tuned in way too late to hear the whole story, but I heard the following (I think): 1. His company pays its US employees $8 an hour. It was paying its China employees 50 cents an hour. 2. He had quality issues in China. He has pretty much zero defects in the United States. 3. His shipping costs from the new US base are considerably less, though he expects costs to run about $2.50 more per piece. 4. His company makes "Chi" brand hair irons. I was planning to tie this BBC story in to a post today on various "hidden" costs of manufacturing in China and why the decision to go there for manufacturing is not as simple as some seem to believe. Then this morning I came across an excellent post on this same story on an excellent blog I just discovered. The blog is China Manufacturing Blog. It is wri...
More About: Kidding

Why Suing Chinese Companies In The US Is Usually A Waste Of Time.
2009-09-02 07:31:00
Ft.com has a fascinating and extremely sad story, entitled, "An accident shows how China treats consumers." (h/t This is China!) It's a great article, but the title is all wrong, at least if you are a lawyer. The title should be "An accident illustrates why it is (almost always) a complete waste of time to sue Chinese companies in United States Courts." I am sure that most of you will read this article and get all angry and ask, how can this be? I read this article and nod my head and think, been there, done that. That is because just about every month, I get a call from some lawyer, somewhere in the United States, calling me and expecting me to be really interested in the great case he or she is offering me. The case usually goes something like this: 1. I have a $16.5 million judgment against this Chinese company for securities fraud. We got the judgment from such and such US court and "all we have to do now" (I swear they nearly always say this as though they just did ...
More About: Companies , Time , Waste