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Legal considerations for doing business in China

Top Ten Legal Considerations for Doing Business in China

  1. Doing business in China for US companies involves considerations not only of Chinese law, but also of US law. Companies need to understand the impact of both countries’ laws on their business dealings with China.

  2. China’s commercial laws are changing rapidly to correspond to Western commercial laws, but the process is not yet complete, and there remain many uncertainties.

  3. What the law says in China and how it is implemented are not always the same, just as it is in the U.S. Although the laws have improved, implementation of the laws is sometimes spotty.

  4. China has numerous laws that encourage, restrict and prohibit investments in specific industry sectors. If you are thinking of investing in China, learn whether any of these laws apply to your project.

  5. China has made many improvements in its laws for the protection of intellectual property. However, enforcement of these laws remains a problem. U.S. companies doing business in China need to structure their transactions and draft agreements with their Chinese counterparts with an eye toward minimizing the risk of intellectual property rights violations.

  6. China has not yet completed its transition from rule of man to rule of law, and recourse to China’s court system often is not effective. Even more than in domestic business transactions, business strategies should be designed with an eye to minimizing the risk of disputes with Chinese joint venture partners and suppliers.

  7. Remember that differences between Chinese and US cultural norms can lead to parties attributing different meanings to the same set of facts. It is important that in any agreement, you and your Chinese counterpart have a common understanding of what is expected of each of you and what you are agreeing to.

  8. If you are going to import Chinese merchandise into the United States, determine whether these imports are subject to restrictions under US trade laws. Even if the merchandise is not currently subject to import restrictions, you should plan your business activities to minimize the risk of future import restrictions being imposed.

  9. If you intend to export goods or know-how to China, even for use in your own Chinese operations, they are subject to US export laws. Many exports to China are not restricted, but exports of certain products and technology to China are restricted. There are severe penalties for violating US export laws, so it is important to check on the export requirements for the specific product or technology you intend to export.

  10. Although gift giving is an important part of Chinese culture, the US Foreign Corrupt Practices Act prohibits American companies from making “corrupt payments” of money or anything of value to foreign officials for the purpose of obtaining or keeping business. This includes both direct payments and indirect payments through intermediaries. The law provides an explicit exception for "facilitating payments" for "routine governmental action" such as obtaining permits, processing governmental papers, and securing services such as police protection, mail pick-up and delivery, phone service, power and water supply. However, the lines between “corrupt payments” and “facilitating payments” can sometimes be hazy, so when in doubt, seek advice of counsel.
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