Doing Business in China: Seek Proper Legal Solutions for Your Successful China Business

World Law Group
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World Law Group

[co-authors: Scott Guan, Scott Yu]*

1. What is the current business climate in your jurisdiction including major political, economic and/or legal activities on the horizon in your country that could have a big impact on businesses?

Generally, China is endeavoring to further open up its market, eliminate foreign investment and trade barriers, and promote stable growth of China’s economy. Consistent with the trends in other jurisdictions, China has also witnessed tightening supervision in recent years in compliance and data protection. The Chinese government is taking actions to improve its overall regulatory framework on compliances of enterprises, especially in the areas of privacy and consumer welfare protections. At the moment, COVID-19 will continue to have an impact on doing business in China. Due to border restrictions imposed by the government, without special ad hoc approvals, foreigners are still not allowed to travel to China. This has inevitably caused disturbance to cross-border transactions. The full resumption of normal entry of foreigners will require some time depending on the pandemic situation in China and the rest of the world.

2. From what countries do you see the most inbound investment? What about outbound?

For inbound investment, Asia is the top source of foreign investment for China, followed by the EU and North America. According to the statistics promulgated by the Ministry of Commerce, the top 5 jurisdictions with the highest number of newly-established enterprises in China are Hong Kong, Taiwan, the European Union, South Korea, and the United States. The top 5 jurisdictions attracting China’s outbound investment include Hong Kong, the British Virgin Islands, Singapore, the Netherlands, and the United States.

3. In what industries/sectors are you seeing the most opportunity for foreign investment?

Restrictions for foreign investment in transportation, infrastructure, culture industry, value-added telecom, agriculture, manufacturing, and mining industries have been further abolished or loosened by the latest versions of the national and free trade zones’ Negative Lists for Foreign Investment. As a result, there are many opportunities for foreign investment in such industries. Further, in recent years, we have seen foreign investment very active in the financial sector, sports industry, electric vehicles, etc. Free trade zones, where more preferential investment/trade policies are adopted, are popular destinations for foreign investment.

4. What advantages and pitfalls should others know about doing business in your country?

China’s market still maintains its traditional advantages of low cost and great economic development potential. It needs to be noted that China is the largest single market with a unified legal system, under which national laws and standards apply to all provinces and cities in China. On the other hand, different regions in China vary in labor cost, natural resources and development level. This unique ecosystem has provided China with constant internal energy for furthering economic growth.

Although China has a unified national legal system, in different regions, differences still exist in local regulations, government practices and business customs. Such local differences can sometimes be neglected by foreign companies and thus become their pitfalls when doing business in China.

5. What is one cultural fact or custom about your country that others should know when doing business there?

Chinese culture values personal trust between acquaintances and emphasizes nurturing close relationships with business partners, thus strengthening mutual trust. In business negotiations, it is very often that foreign partners try to lay down all details in a contract with the purpose of achieving the highest possible level of trust, while their Chinese counterparts may dislike such excessive level of details and deem it as an indication of distrust. In China, Zhongyong, (Chinese: “Centre” and “Unchangeable” or “Doctrine of the Mean”) is a highly valued Confucian philosophical concept. In practice, zhongyong means countless things: moderation, rectitude, objectivity, sincerity, honesty, truthfulness, propriety, equilibrium, and lack of prejudice. In business dealings, Zhongyong requires partners to adopt a more balanced approach with regard to the details of certainty and the vagueness of trust. When a foreign businessperson can appreciate and master the art of Zhongyong, they will be able to avoid unnecessary misunderstandings or even destruction of a good relationship, and thus enjoy a smoother collaboration with their Chinese partner. This certainly does not mean foreign investors shall make their decisions solely based on oral promises of their Chinese partners – a set of comprehensive and well-drafted legal documents are still essential for successful investments, but foreign investors are suggested to understand and bear in mind the concept of Zhongyong and try to achieve a good balance between certainty and trust.

*Zhong Lun Law Firm

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