By: Austin Brown and Joy Nemerson
Throughout American history there have been many who have wanted to limit immigration to the country. The most recent rise of arguments against birth tourism is just the most recent example of these attitudes. Many of the arguments used today to display displeasure with the birth tourism phenomenon are the same arguments used against immigrants in all periods of American history. As America is a nation made up of immigrants it is simply shameful the way the country year after year discriminates against people of all types and turns them away from a land that is supposedly full of promise.
The 14th amendment is the reason birth tourism is a common occurrence in the US. The first section of the amendment states
“All persons born or naturalized in the United States and subject to the jurisdiction thereof are citizens of the United States and of the State wherein they reside.”
Without this section there would be no birth tourism because it states that citizenship is granted to any person born on US soil regardless of the origin of their parents. Some have advocated for laws to be made that close this perceived loophole. Any laws made against birth tourists would be no different than previous laws that have restricted immigration. In particular, there is a history of laws in the US that were created that explicitly target Chinese people and immigration from China.
Some of the first and most extreme of these anti Chinese laws were the Anti-Coolie Act of 1862 and the Chinese Exclusion Act of 1882. The Anti-Coolie Act was an act to protect free white labor against competition with Chinese “coolie” labor and to discourage immigration of Chinese people to California. In the height of the gold rush the California legislature sought to pacify white laborers about salary competition by placing a tax that required anyone of Chinese origin who applied for a license to work in a mine or to do business of any kind to pay $2.50 a month. As the Chinese workers were only getting $3 to $4 a month, at least one full dollar less than American workers, this tax was a huge burden for them to endure.
Even with the implementation of the tax Chinese immigrants did not give up on their attempts of seeking the American dream. The Chinese Exclusion Act came following the long period of high Chinese immigration and job competition. By 1870 over 8% of the population and 25% of the labor force in California were Chinese. This competition combined with an economic downturn led to fierce anti-Chinese feelings, which culminated in the passing of this act in 1882. The act became the first law to exclusively restrict immigration of a specific ethnic group or race to the US. The goal of the act was mainly to limit the immigration of “unskilled laborers” but in reality was applied to all Chinese, as it was hard for them to prove that they weren’t unskilled. Originally it was intended to only be in place for 10 years but after many renewals it was not completely removed until 1943, 61 years later. Over that period immigration from China was almost nonexistent and the Chinese already in America faced fierce discrimination.
Today there is a rising amount of discussion over whether laws should be passed to restrict birth tourism. Much in the way that the Chinese Exclusion Act and the Anti-Coolie movement was intended to only apply to “unskilled laborers,” any law against birth tourism would be used in a manner that only applies to certain groups. As the birth tourism is mainly associated with Chinese and Latin American immigrants these current anti immigration sentiments seem to serve as ways for people to target these specific groups. It would be much more likely that pregnant Chinese woman would be turned away as opposed to a pregnant English woman.
America is a nation that was founded and built by immigrants. Instead of creating laws that oppose any form of immigration, we should be embracing and welcoming immigrants. If a person follows all citizenship or naturalization laws, the way in which citizenship is obtained or the reason for obtaining it should not matter. These birth tourists are merely seeking a better life for themselves and their families. Why should anyone try to restrict people from finding a better life? Is that not what the American Dream is all about?
Published by admin on May 21st, 2015 tagged Uncategorized | Comment now »
We have previously introduced bankruptcy as a potential tactic to enable collection on a court judgment. We have also discussed the additional procedures and authority of the bankruptcy proceeding which allow for much more thorough investigations by the bankruptcy court in determining what assets the debtor company may have, or has attempted to hide. In addition we have reviewed the authority of the bankruptcy proceeding Administrator to reverse some actions by the debtor company or its personnel which have reduced the assets of the debtor company.
Here we will discuss some of the consequences of a final declaration of bankruptcy on the debtor company and for the creditor.
After bankruptcy has been officially declared, the target company will have its Business License revoked. The Business License represents the formal approval of the government to operate as a business, when this has been revoked, the company may no longer operate legally.
Directors, Supervisors or Officers of a company which has been declared bankrupt will face a determination on whether or not they have violated their legal responsibilities of loyalty to the company and of due diligence in the performance of their duties. Those found to have violated these responsibilities may be held civilly liable to the company, or its creditors. Further, these individuals will be restricted from serving as the Director, Supervisor, or Officer of any other enterprise for three years from the date of the end of bankruptcy proceeding. In severe situations, the individual will be subject to criminal investigation and potentially prosecution.
While the creditor is not directly involved in the majority of the bankruptcy process, there are some important considerations. The creditor making application to the court to initiate bankruptcy will be required to provide documentation and evidence of the debt and the failure to pay. As discussed previously, this may be in the form of a court judgment and finding by a court enforcement procedure that no assets are available to collect against the judgment.
It may be difficult to know whether there are any other creditors waiting to collect from the debtor company. After the bankruptcy proceeding is publicized and any other creditors come forward, all creditors will be required to meet and decide on a way forward. It may be that the claims of other creditors overshadow the claim of the initial bankruptcy applicant.
Additionally, the creditor, or creditor’s meeting may appoint legal counsel to liaise with the Administrator during the investigation procedure. This may be helpful in arguing whether certain assets or property should be considered part of the company’s assets, or whether certain transactions should be considered suspect.
While the court’s Administrator has broad authority in recovering assets of the debtor company, some of the proceedings to recover such property may be time consuming and ultimately costly, adding to the expense of the bankruptcy proceeding. This is a consideration which should be in the minds of both the administrator and the Creditor.
Once a determination of bankruptcy has been made and assets have been recovered and are ready for distribution, who gets first priority? Unfortunately, the answer is the court.
Assets of the debtor company will be distributed in the following order of priority:
- Bankruptcy expenses will be disbursed to the court;
- “Common Benefits” will be disbursed. Common Benefits include: salaries, medical and disability subsidies, pensions and insurance for employees;
- Social Security payments, and Taxes owed will be disbursed to appropriate government bureaus;
- Remaining funds are disbursed to Creditors.
As Creditors will be paid last, there is a risk that the creditor may never see the funds which inspired the application for bankruptcy. Of all of the three priority payments before the Creditors, the bankruptcy expenses for the proceeding itself are likely to be the most costly.
Pursuing bankruptcy to collect on an unpaid court judgment will therefore not be appropriate in every situation. However, those with a substantial judgment or other unpaid debt may seriously consider pursuing bankruptcy proceedings against a debtor.
Published by admin on May 20th, 2015 tagged Uncategorized | Comment now »
As discussed in our previous Blawg post (here) it is an all too common occurrence in China for a party seeking to enforce a favorable judgment to find their counterparty’s bank accounts emptied. In this case, filing for the bankruptcy of the company having the judgment against it may be the only opportunity to collect on the judicial award.
Bankruptcy may be beneficial as the bankruptcy procedures are much more thorough and invasive than typical judicial enforcement proceedings. The court in a bankruptcy proceeding puts much more effort into finding and identifying the debtor company’s property and assets, and carefully reviews the debtor company’s financial statements and accounting records.
After the People’s Court accepts the application for bankruptcy, the court will appoint an Administrator to take over operations of the company under the bankruptcy proceeding. The Administrator will assume control over the debtor’s property and assets. After an initial investigation the Administrator will make a determination regarding whether the investor of the debtor company has completed its obligation to fully pay-in the company’s registered capital. If it is determined that the registered capital has not been fully paid, the Administrator will require the investor to fully pay the registered capital amount regardless of any previously existing payment schedule.
Additionally, the Administrator has the authority to file an application with the bankruptcy court requesting that registered investors, shareholders, directors, senior management may assume liabilities in connection with the debtor company, and the court may include these individuals’ or entities’ assets as a part of the debtor’s property in the bankruptcy proceeding.
The Administrator is authorized to investigate and to recover any of the debtor’s property that has been illegally decreased through actions of the debtor such as through the hiding or transfer of assets and property to avoid payments of debts or court awards. Red flags the Administrator may look for are falsified debts to third parties; the conveyance of property free of charge or at unreasonably low prices, advance pay offs on debts which are not yet due, or actions taken to waive or disclaim credits or accounts receivable.
All such suspicious activities taken in the period of one year before the application for bankruptcy may be reviewed and reversed by the court. If such activities are found to have caused damage to the interests of the creditors, the administrator may bring an action against the Legal Representative of the debtor company, and other persons directly responsible for the debtor, on the grounds that such persons committed intentional misconduct or gross negligence with regard to the debtor’s property. Where such actions result in a loss to the debtor’s property, the Administrator may demand such persons compensate the debtor company appropriately.
Where any Director, Supervisor or Senior Management of the debtor company takes advantage of their authority to gain increased compensation or a financial bonus, the Administrator is authorized to recover these funds and is authorized to hold such individuals responsible.
As can be seen, the investigative process at bankruptcy is significantly more in-depth than the court’s normal enforcement proceeding following an arbitration or judicial award. At an enforcement proceeding, the company must only evade the courts inquiry into one or more bank accounts. By contrast, the bankruptcy proceeding entails a detailed review of current assets and recent transactions. Most importantly, the bankruptcy proceeding entails the threat of personal liability for shareholders and company management personnel which are found to have dealt dishonestly or unfairly with the company, or attempted to hide assets.
Published by admin on May 18th, 2015 tagged Uncategorized | Comment now »
One of the most frequent complaints heard from foreign firms involved in arbitration or litigation against a Chinese company is the difficulty to collect after a judgment in their favor.
A typical situation goes like this: There is a dispute, for example a WFOE sells products to a Chinese company, yet the Chinese company fails to pay the purchase price as agreed. The WFOE takes the non-paying company to court, or arbitration, and because they have a clear and effective Chinese contract drafted by a China lawyer, and have a well preserved chain of evidence, the WFOE wins at court over the protestations and indignation of the Chinese company.
Typically, the Chinese company will have 10-15 days to comply with the ruling by paying the WFOE the ordered amount of damages. But often, the Chinese company refuses to pay, forcing the WFOE to bring a new enforcement proceeding at court. The Court in the enforcement proceeding has the power to freeze, access and distribute funds found in the bank account of the Chinese company… so long as the WFOE can provide evidence of the correct bank account number.
Sometimes this enforcement process is successful; often the court finds an empty bank account as the Chinese company has transferred and withdrawn as much funds as possible in anticipation of the Court’s enforcement action.
What is the WFOE to do? Is the court’s favorable judgment and award meaningless?
In this situation, the Chinese company has become a debtor to the WFOE, and as such the PRC Enterprise Bankruptcy Law offers a potential solution. According to the Enterprise Bankruptcy Law, a creditor has the right to apply for the bankruptcy of a debtor where that debtor is unable to pay debts owed. Relevant People’s Supreme Court of China interpretations have stated that the inability to pay debts at an enforcement proceeding before the court meets the criteria allowing the creditor to initiate bankruptcy.
The initiation of bankruptcy serves as a strong incentive for the debtor company and its principles to relent and pay the court judgment.
- In bankruptcy, as may be expected, the debtor company cannot continue normal operations. At the start of bankruptcy, the court will appoint an administrator to take over operations of the company. The administrator will assume control over the debtor’s property and assets and will be entitled to rescind or continue the performance of ongoing contracts per the administrator’s decisions on the benefit to the company.
- The court will further impose restrictions on the Legal Representative and management personnel of the debtor company. This may include a court order that these individuals may not leave their area of domicile without court approval. They will also likely be prohibited from undertaking any new management positions in any other companies (which they may seek to establish as part of efforts to avoid the bankruptcy proceeding). They will be obligated to maintain and report to the court regarding the status of the debtor company’s property, financial records, official documents, company seals and other official items and information of the properties. These persons would face fine or detention by the court if they refused to comply with these bankruptcy procedures.
Being forced to bring a bankruptcy proceeding against a company that owes you money is of course not ideal, but these restrictions put pressure on the debtor company which may allow for the ideal resolution of the Bankruptcy. When faced with the court assuming control of the company and reviewing its financial and accounting information; the attitude of those which have been resistant to payment after the initial judgment or the enforcement proceeding will likely change. If they do so, and the court is satisfied that there are no remaining unpaid creditors, the court has the authority to end the bankruptcy proceeding.
As is often the case in China, legal compliance is not found by simply presenting someone with the law. Compliance is often resisted until an actor feels the direct authority of the law and the impending threat of real consequences.
Published by admin on May 15th, 2015 tagged Uncategorized | 1 Comment »
Dear fellow Intellectual Property professional,
I attended my first INTA in 1974. Well, it was the USTA then, I was attending the conference with my parents, a self-entitled, narcissistic teenager. My father was an intellectual property lawyer at the time. The conference of about 225 IP professionals was held around a pool.
As the INTA approaches this year, I look back and I guess I can call myself an “old-timer.” Having attended the conference for years, I’ve learned a few things which I am happy to share. Consider these my personal tips for success at INTA and in your broader career.
1. Everyone can succeed: With over 9,000 attendees and a variety of events, there’s a risk to be overwhelmed. Take an organized and thoughtful approach to the conference; plan your time and what events you would like to participate in. The event is an excellent opportunity to meet like minded people with similar experience and interests, as well as to learn something new. By managing your time well and “Running your own race,” you can maximize the benefits the conference offers.
2. Follow the Ribbons: As you may know event organizers and committee members are marked with ribbons hanging on their nametag. Identify and engage with these people. They will be connected and knowledgeable. Consider joining a committee. There will be a time commitment, but there will also be additional opportunities and professional exposure.
3. Focus on Sustainable Relationships: With over 9,000 attendees one could spend all day meeting people, talking briefly, and then never think of them again. A better alternative is to identify and spend time with a few individuals with whom you are able to build a sustainable professional relationship with.
4. Professional Presentation: INTA is a gathering of professionals. Those who demonstrate respect for their colleagues and respect for themselves by maintaining professional presentation and demeanor will find others afford them greater respect in return.
5. Sweat the Small Stuff: Conference attendees are provided a lanyard and nametag, however, one size does not fit all. Make sure your name is clearly readable, not a distraction. Ideally your name should be under your left shoulder. Use a clip if necessary. Remember to bring enough name cards with you, and to make eye contact with those you are speaking with. Prepare a short “elevator talk” to introduce yourself in those quiet moments.
6. Be 15 minutes early, or you are 15 minutes late: When attending a Table Talk, or a speaker, arrive early. Often the presenter will be alone in the room preparing. Use this time to introduce yourself and express your interest in the subject. This will likely be your only opportunity for a one-on-one with that person. After the presentation, there will be a long line waiting to speak with them. That is, if the speaker doesn’t dash out of room as quickly as possible.
7. Rely on your own merits: It may be tempting to point out to potential clients or partners the faults of your competition. However, remember success cannot be achieved by relying on the failings of others. Instead, convey the strengths and successes of yourself and your firm and let those speak for you.
8. Get Oriented: if this is your first time to attend the INTA, be sure to stop by the First-Time Annual Meeting Registrant Orientation & Networking on Saturday. This is a great way to get your bearings at the start of the conference. It also provides a valuable opportunity for introductions to others who are sharing a first time experience.
9. Download the App!: Visit the INTA website http://www.inta.org/ to download the INTA app. Use the app to assist in planning your time, look up schedules and speakers. Consider having a messaging app (such as Whatsapp) on hand. Use this as a convenient tool to establish immediate contact with new professional connections.
10. Get your CLE Credits: Many lectures at the conference offer CLE credits. Check with your local Bar Association as to how to have these credits recognized. Review the available lectures and attend those that interest you. Getting your CLE credits couldn’t be easier! You’ll have an excellent networking opportunity in the process!
11. Relax over a glass of wine: There will be plenty of opportunities at the event to share a select beverage with a colleague or new friend. However, remember conference attendees are expecting professionalism. You won’t impress that potential new client by out drinking them! You won’t maximize your time at the event if you are hangover or groggy during the next day’s event. “Alcohol is a wonderful servant but a terrible master.”
I hope you’ve found one or two nuggets of wisdom here. As an “old-timer” I am always happy to help those who are seeking their own success. As a China legal professional for over 28 years and the first foreign lawyer to work in a Chinese law firm, I have seen first hand the growth and changes in China’s intellectual property law and policies.
Lehman, Lee & Xu maintains one of the strongest and most well respected practices in Intellectual Property law in China today. We are licensed to act as agents and lawyers for intellectual property matters, including prosecution, registration, and litigation in the People’s Courts, as well as judicial and administrative enforcement.
China has recently instituted a new intellectual property court and new intellectual property laws have been promulgated which are more positive for brand owners. To help educate foreign associates and brand owners we are hosting a series of intellectual property round tables during the INTA event. If you wish to learn more, or sign up for the round table please visit:
Additionally, our law firm provides services in three other separate jurisdictions where we maintain offices, Mongolia, Hong Kong and Macau. It would be a genuine delight to speak with you at the Lehman, Lee & Xu booth (No. 1928) if you have time to stop by. If you don’t have a chance to speak with me at the conference, contact me at firstname.lastname@example.org, or connect on Linkedin. I am always interested in learning new things and in hearing new perspectives. I will be happy to share thoughts on INTA experiences or about the broader Intellectual Property profession internationally and within my country of expertise, China.
Published by admin on April 24th, 2015 tagged Uncategorized | Comment now »
March 08, 2015, Beijing – Mr. Edward Lehman, Managing Director of Lehman, Lee & Xu joined CCTV’s live coverage of the annual meeting of the National People’s Congress. Mr. Lehman added his voice to Professor Li Zhaojie from Tsinghua University in commenting on the 2015 Work Report of the Standing Committee of the National People’s Congress as presented to the broader gathering of the National People’s Congress (NPC). With over 2,987 members, the NPC is the world’s largest parliamentary body. Mr. Lehman has participated in commentary on the NPC’s annual meeting for the last 14 consecutive years, and is happy to continue offering his unique insights as a 28+ year resident of China and the country’s first foreign manager of a local law firm.
During the broadcast, Mr. Lehman shared his knowledge of the Chinese legislative system and the process by which an official motion undergoes review and formally becomes law. As a long resident of China Mr. Lehman expressed optimism that reforms in the legal system are “moving in the right direction.” While many of Lehman, Lee & Xu’s foreign clients may view the NPC as a “rubber-stamp’ legal body, Mr. Lehman pointed out that recent years have seen important progress in the official process of drafting new laws and opening up proposed drafts for public review and comment prior to formal passage.
Several new laws have been passed in the previous year each highlighting a different area of reform. These include a revised Environmental Law, a new Anti-Terrorism Law, an Anti-Corruption Law, in addition to other efforts to broadly reform the judicial system and practices. Each newly revised law is an important symbol of the continuing reform process in China, and a recognition by Chinese leaders of the need to maintain social momentum toward new standards in a changing society.
Published by admin on March 12th, 2015 tagged Uncategorized | Comment now »
Lehman, Lee & Xu’s Managing Director, Edward Lehman, was quoted in an article published by the Wall Street Journal on Wednesday in relation to the nearly $1 billion fine issued by China’s anti-trust authority against Qualcomm, a maker of microchips. Edward Lehman’s areas of practice focus primarily on corporate commercial and regulatory matters, as well as intellectual property law. Mr. Lehman is admitted to the Chartered Institute of Patent Agents, the professional regulatory body which supervises the profession in the United Kingdom. Recognizing Mr. Lehman’s tenure and vast experience in the Chinese legal market, the WSJ quoted him as indicating that the fine against Qualcomm amounts to a slap on the wrist. According to Mr. Lehman, the Chinese regulators simply sidestepped the issue by issuing a fine of this monetary value.
We are pleased that the WSJ has sought the insights of our Managing Director, as this demonstrates our firm’s preeminent standing in the Chinese legal market. In particular, as the case against Qualcomm touches on patentable technology, we are proud that Lehman, Lee & Xu continues to be seen as an authority on this subject in China.
To view the entire article, click here.
Lehman, Lee & Xu is a full-service licensed Chinese law firm. For inquiries, please email email@example.com.
Published by admin on February 11th, 2015 tagged Uncategorized | Comment now »
On January 19, 2015, China’s Ministry of Commerce (“MOFCOM”) released the first exposure draft of its new Foreign Investment Law (中华人民共和国外国投资法). It has incorporated 170 articles in total and divided them into 11 Chapters. The proposed Foreign Investment Law (“FIL”) is intended to replace three existing laws which currently govern foreign investment in China: (i) the Sino-Foreign Equity Joint Venture Law (“EJV Law”), (ii) the Sino- Foreign Cooperative Joint Venture Law (“CJV Law”) and (iii) the Foreign Invested Enterprises Law (“FIE Law”). The new FIL will significantly change the existing regulatory landscape controlling all foreign investment in China. Also, it will impact on the Variable Interest Entities (“VIE”).
The purposes of the exposure draft are as follows:
1. The FIL shall be considered as the basic law which unifies the management and promotion of the foreign investments.
2. Innovating the management mode of the foreign investments.
3. Abolishing the case-by-case approval on foreign investments, drastically reduce the restrictions on foreign investments and strengthen the information report system.
4. Improving the promotion, protection and supervision systems on foreign investments, changing the governmental function.
The main contents of the exposure draft are as follows:
Definitions of the Foreign Investor and Foreign Investment
Regarding the Foreign Investor, on the one hand, the definition of “foreign investor” is based upon an “actual control” test, i.e. enterprises (whether based onshore or offshore) under the control of foreign investors will be treated as foreign investors. On the other hand, investments made by foreign investors within the territory of China but controlled by Chinese domestic investors, shall be deemed as the investment made by the Chinese investors.
Regarding the Foreign Investment, it covers investments on green areas, investments through merger and acquisition, medium and long term financing, investments on exploration and exploitation of natural resources, acquiring the control over domestic enterprises via contracts or trusts, etc.
Management mode on admittance of the foreign investor
The competent authority is abolishing the case-by-case approval on application for admittance raised by the foreign investors, and the approval will only focus on the special investments listed by correspondence special directory. Contracts or the Article of Association will no longer be examined by the authorities, while they will review the foreign investor itself and the investing conducts. In a meanwhile, the foreign investors shall fulfill their duty of report.
National Security Review
Compared with the existing regulations, the exposure draft expands the scope of matters that are subject to national security review. Any Foreign Investment that damages or may potentially damage national security is subject to a unified national security review regime, regardless of industry sector or whether it is controlled by a Foreign Investor. The exposure draft also improves the conditions for such review and the formalities during the review. Besides, it clears the possible solutions where it is helpful to eliminate the risk of the national security. The exposure draft further regulates that neither administrative reconsideration nor administrative action may be brought up against the decision on national security review.
Information Report System
In order to timely, accurately acquiring the information of foreign investments, the exposure draft provides that three kinds of report regarding information of the foreign investment shall be submitted by foreign investors: (i) Investment project report; (2) Modification Report for investment project; (3) Periodical Report.
Investment Promotion System
Promotional policies, institutions and relevant regulations on special economical zones have been incorporated in this exposure draft for promoting foreign investments.
Protection measures have been reinforced by the exposure draft in respect of protections on levy, expropriation, state compensation, transfer and the intellectual property right.
Complaints Settlement Regime
The draft consolidates the power of the Complaint Coordinating Institution for disposing/settling the disputes between foreign investors, foreign invested enterprises and administrative organs.
Supervision on Foreign Investment
The draft cancelled the advanced approval for the admittance but reinforced the periodical and post reviews on foreign investment and established the credit filing regime for foreign investors.
The draft explicitly stipulates the administrative liabilities and criminal liabilities for those foreign investors who are in breach of the stipulations therein.
According to Chinese Legislation Law, after collection for comments on this exposure draft of the FIL, revisions may be made, and the exposure draft will become the draft for deliberation. Then, a formal legislative bill may be formed. Then, the legislative bill will have to go through the procedure of revision and voting for final promulgation.
Published by admin on February 10th, 2015 tagged Uncategorized | Comment now »
Recently, China’s ministry of Commerce (MOFCOM) released the initial draft of its proposed revised Foreign Investment Law (FIL) for public review and commentary. The draft, presents a significant change in the thinking of Chinese Regulators as it would see the consolidation of what are now three separate laws. The proposed FIC would take the place of the current Wholly Foreign-Owned Enterprise Law (WFOE Law), the Sino-Foreign Equity Joint Venture Law (EJV Law) and the Sino- Foreign Cooperative Joint Venture Law (CJV Law).
Of particular note in the draft FIL is a substantial reform to the standards for determining whether a given foreign company is indeed a “Foreign Investor.” Previously, Chinese law looked to the place of company registration to determine whether a company investing in China would be considered foreign. Under the current system, where a Company Based in the USA established a WFOE, and the WFOE subsequently established a subsidiary Chinese company, that Chinese company would not be considered a Foreign Invested Enterprise (FIE) under the Law. Additionally, where one or more Chinese nationals established a company in a foreign jurisdiction, and that company established a presence in China, the new China company would be considered a Foreign Invested Enterprise.
Under the proposed new system, the law would look to “Actual Control,” meaning that company established in China by the WFOE would also be considered a FIE, while the company established abroad and controlled by Chinese nationals may not be considered a FIE. The law goes so far as to state that if out of mainland China transaction results in the transfer of equity to the Actual Control of a Foreign Investor, that Foreign Investor would be deemed under the new FIL to be investing in mainland China.
Along with the new focus on looking to “Actual Control” of China entities, the draft law would increase the range of issues which would be subject to review on national security grounds. Under the law, and foreign investment which may potentially damage national security is subject to national security review. IN this regard, Actual Control will not be considered in determining which investments are subject to review. This leaves plenty of discretion for Chinese regulators to define damage to national security in a potentially very broad manner, creating uncertainty for potential foreign investors.
The Draft FIL will leave corporate governance of all foreign invested enterprises to comply with the general Company Law. This is in contrast to certain elements of the previously laws which dictated the numbers of directors some FIE’s must have and who may serve in such roles. The draft law would give currently established FIE’s a three year grace period to ensure they are in compliance with the Company Law.
Specifically as relates to Joint Ventures:
• EJV’s will be required to change the highest authority of the company from the board of directors to the shareholders’ meeting;
• an unincorporated CJV will be required to incorporate as a limited liability company or a foreign-invested partnership; The CJV will be required to revise the highest authority in the company to be in line with the Company law, or the Partnership Law;
• Profit distribution for a former EJY will be allowed to modified and redistributed as the Company Law does not contain the strict equity proportionality requirements of the Current EJV law.; and
• Henceforth it will be easier to sell shares of an EJV as consent to sell will only need to be received from more than half of the non-selling shareholders, rather than all the non-selling shareholders according to the EJV Law or CJV Law.
Overall it is likely that the proposed changes to the FIE establishment and governance regime will be a positive step toward increased efficiency in the establishment of a variety of company structures, and will simplify foreign investment. This continues a trend starting from March 2014 in which initial capital requirements for newly established companies, and capital contribution timelines were eliminated in favor of investor choice.
China is eager to simplify company registration processes as part of push to maintain high levels of foreign investment in the face of a gradually slowing domestic economy. Some potential foreign investors may be spurred to jump at current opportunities for simplified company establishment. However, foreign companies should maintain awareness of the myriad operational laws which domestic and foreign companies alike must deal with in China. Labor laws, product registrations and inspections, and intellectual property protection remain the main area’s our firm sees Foreign Companies encountering problems within China. Foreign Companies in China should take care to address these issues thoughtfully.
Published by admin on February 9th, 2015 tagged Uncategorized | Comment now »
February 09, 2015, Beijing – Lehman, Lee & Xu has been recognized by The World Bank for its valuable contribution to the Doing Business 2015: Going Beyond Efficiency annual report, published on October 29, 2014. The report, a World Bank Group flagship publication, is the 12th in a series of annual reports measuring the regulations that enhance business activity and those that constrain it. Doing Business presents quantitative indicators on business regulations and the protection of property rights that can be compared across 189 economies.
Doing Business 2015: Going Beyond Efficiency finds that entrepreneurs in 123 economies saw improvements in their local regulatory framework last year. Between June 2013 and June 2014, the report, which measures 189 economies worldwide, documented 230 business reforms, with 145 reforms aimed at reducing the complexity and cost of complying with business regulation, and 85 reforms aimed at strengthening legal institutions – with Sub-Saharan Africa accounting for the largest number of such reforms.
Doing Business measures regulations affecting 11 areas of the life of a business. The report cites Chinese improvements in paying taxes and in ease of starting a business in raising China’s overall rank three points from 93 to 90, out of 189 countries surveyed. The report analyzed efficiency of regulations and procedures for starting and operating a business in Beijing and in Shanghai.
According to the report, “China made starting a business easier by eliminating both the minimum capital requirement and the requirement to obtain a capital verification report form an auditing firm.” This reform contributed to a 23 point rise from 151 in 2014 to 128 in 2015 in this metric.
The report also concludes that, “China made paying taxes easier for companies by enhancing the electronic system for filing and paying taxes and adopting new communication channels within its taxpayer service [system].” China rose 7 points in the Paying Taxes metric from 127 in 2014 to 120 in 2015.
Lehman, Lee and Xu has been pleased and honored to cooperate with the World Bank in analyzing changes in Chinese laws and regulations as they effect domestic and foreign invested business establishment in the country. Managing Partner, Mr. Edward Lehman has lived and worked in China for over 28 years and continues to be amazed at the swift pace of economic growth and legal reform. The firm looks forward to continued opportunities for cooperation with the World Bank as it prepares the next Doing Business report for 2016.