Category: China M&A

Legal Position of Anti-Smuggling Risks in Processing Trade

To most foreign invested enterprises (“FIE”) that carry out a reasonable compliance standard, smuggling should be a rather remote concept. However, this may not be the case for those FIE that treat Chinese operation as the sourcing site and relies heavily upon the business model of processing trade (in a nutshell, processing trade refers to importation of materials free from Chinese duties and VAT (“Bonded Materials”) to manufacture finish goods and in turn export such finished goods back overseas pursuant to Chinse laws and regulations.

Are Buyers’ Sourcing Agreements Free From Anti-Trust Concern?

The strength of anti-trust enforcement of Chinese government (Chinese Development and Reform Committee (“NDRC”) in particular) against price fixing arrangement with distributors has become unprecedented. The amount of penalties has reached hundreds of millions of RMB, not to mention the scary process of investigation such as dawn raid and the corresponding interruption to business.

Legal Caveat on Joining Trade Associations II

Following the article about the general position regarding the legal positon about joining trade associations, we appreciate that the reality that most small or medium size enterprise may not have the necessary resources to follow our tips that decisions regarding joining trade association should be referred to senior legal in-house counsel.

Therefore, we would like to supplement the following list do-and-don’t as the preliminary roadmap for reference:

Legal Caveat on Joining Trade Associations I

In our ever changing regulatory environment driving by the emergency of new technology that change our lives overnight, it is indeed critical for the government to hear the voices of the industry. It has been a long while joining trade associations in various forms to fulfil such purpose, by way of the platform provided by such trade associations to carry out research, raising common concerns, pointing out joint issues and sharing best industrial practice.

What Can “Life Time Guaranteed” Advertisement Claim Legally Guarantee?

When you open your television, walk by a bus station or come across any other media, it is more than often to see advertisement pop up to claim that their product or service are “life time guaranteed” in certain respects. This is especially the case when the products are pretty long lasting such as renovation / decoration products or white household electronic products.

In most cases, alongside the eye catching advertisement claim slogan, there will be some explanations / disclaimer printed in a way much smaller font (probably because the advertisement claim is reviewed by the in house legal department before issuance?)

Chinese Recent Efforts to Lower Labour-Related Cost

Chinese economics is unprecedentedly slowing down and what incurs most anxiety is the failure of previously effective policy to stimulate market demands. In response to such uncertainties from the demand end, how to improve the other end of the economic circle, namely the production end, has become one of the hottest terminology politically and academically. Simply put, if no one is buying your products, you will have to lower your costs if you want to survive the difficult instead of simply winding up your entrepreneurship.

Management of Accrued and Carried Forwarded Annual Leave

Chinese people are reputable for ““work hard, save hard“ and barely take leaves. Therefore, even though most foreign companies offered way more generous annual leaves entitlements to the Chinese staff beyond the statutory annual entitlements, it is very common that such contractual annual leave entitlements will not be taken in whole during a calendar year.

Most foreign companies in China will have internal policy about such accrued but untaken annual leaves. The routine approach is to provide through internal policy that such untaken annual leaves cannot be carried forward and will be considered forfeited otherwise.

New Safe Harbors for Fixed Re-Sale Price Arrangement under NDRC Guidance of Automobile Anti-Monopoly?

Since 2014, continuous anti-monopoly enforcement by the Chinese Development and Reform Committee (“NDRC”) in the scale of hundreds of million RMB has raised serious compliance concern among foreign investors, particularly those in the area of trading and distribution. Among others, the landmark enforcement against Mercedes Benz reached the unprecedented amount of RMB 350 million.

Most of such enforcement targeted the very common commercial arrangement that fix or restrict the minimum re-sell price of the distributor to a third party (“Vertical Pricing Restriction”). Vertical Pricing Restriction is explicitly prohibited under Article 14 of PRC Anti-Monopoly Law, unless the exemptions exemptions under Article 15 of PRC Anti-Monopoly Law may apply (“Article 15 Exemptions”).

What If Your Contracting Party Is PRC Government?

Not everyone in small business will have the opportunity to have a contract with the local government. However, this is rather common for foreign direct investment (“FDI”) with relatively large size to have a so-called “cooperation agreement” with the local PRC government.

Typical contractual provisions in this type of contract normally provide for the commitment of the local PRC government (“Government”), including without limitation:

Legal Consequences of Illegal Liquidation in PRC

We have written in the last article to discuss various options for foreign investors to walk out of China during the recent risky period of time. One of the most commonly seen alternatives is for the foreign investors to take initiatives to dissolve and liquidate their PRC vehicles (collectively as “FIE”) voluntarily, which include the following major steps:

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