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Nordic Centre, Fudan University, 25 June 2012
Professionalization of foreign businesses in China
Managing Partner, Wikborg, Rein & Co., ChinaChairman, Norwegian Business Association, Shanghai
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Two Images from old China
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Two Images from old China
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In Asia since1965
The largestScandinavianlawfirmin Asia
About40 lawyers(Norwegian, Singaporean, British, Americanand Australian) workingfrom officesin Singapore, Shanghai &Japan
Wikborg Rein clientsin Asia include: The majorityof theNorwegianbusiness communityin several
Asiancountries
National governments, hereunder Norway, Finland,Cambodiaand Guam
A number ofstate-ownedand Fortune 500 companieswithinthemaritime & energymarkets, hereunder theChineseOilGiants
Wikborg Rein in Asia
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Ranked by Asian Legal Business (ALB) among the 30 fastestgrowing lawfirms in Asia in 2010
Recommended by Chambers and Legal 500, as the onlyScandinavian lawfirm, in several Asian countries
Lloyds List Maritime Lawfirm of the Year in Asia 2011
Shortlisted finalist for Maritime Law Award, Seatrade, 2012
A Wikborg Rein partner listed by ALB among the 100 mostinfluential lawyers in Asia and as a Leader in the Asian legalcommunity in 2011.
Wikborg Rein Credentials in Asia
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Ease of doing business index ranks economies from 1 to 183,with first place being the best. A high ranking means that theregulatory environment is conducive to business operation.
Singapore number 1
USA number 4
Norway number 6 China number 91
Still, China is the worlds second largest trading nation, the largestexporter and the second largest recipient of FDI
The World Banks ease of doing business Global Rankings
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Slowdown?
Slow but steady RMB appreciation
The wave of outbound investments is just starting
Go west
Successful Party influence in all important parts of society
A few current trends in China
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Considerable professionalization and complexity
Development:
cheap production -market proximity - outbound opportunities
More focus on hiring high qualified Chinese employees, butforeign companies are becoming less popular as employers
A different and more diverse community of businesses
Private Equity and Venture Capital will rise
A few current trends in theScandinavian Community
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A short-or long term contract is entered into between a foreignand a Chinese company
A foreign company acquires a Chinese company or the other wayaround
A Chinese and foreign company enters into a Joint Venturecooperation in China or abroad
A Chinese company establishes a wholly owned presence inScandinavia or the other way around
The above examples of interaction necessitate various degrees of
contact with individuals, authorities and legal institutions in eachothers countries
Sino-foreign commercial interaction takes
many forms
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Cultural differences: just as much of an opportunity as a challenge
Scandinavia is homogeneous; China is a developing country withextreme diversities
Scandinavia is a Christian, guilt avoiding culture. China is ashame avoiding culture, in which shame/loss of face, not guilt or
bad conscience, is to be eluded Difference between ideals of guanxi vs. charity (nestekjrlighet)
Communication barriers due to different verbal approaches, evenwhere the parties share a common language (English, etc.)
BUT: our differences are what makes us attractive to the Chinese,and the window of opportunity is now!
Sino-foreign interaction a few basics to keep in mind
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The traditional lack of focus on written contracts
Chop equals signature
The importance of business scope
Choice of law and dispute resolution mechanism a key clause inevery contract; lack of which may render the contract meaningless
Sino-Norwegian contractual relationships - Norwegian
awareness with regard to Chinese contract law and mentality
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Negotiations are likely to be perceived as chaotic and unsystematicwith A lot of people involved It being hard to spot who the decision-maker is, if he is even there Skipping back and forth between the clauses and activity often
perceived by Westerners as back-trading on points youconsidered as closed and settled
The Chinese will also be patient. Be prepared for a lot of sightseeingand meals before ever getting down to business
Do not get frustrated or angry; that is the intended purpose! Special notes on co-operation with Chinese state-owned companies:
Complicated approval processes What is the personal motivation on the other side of the table? Face issues on the companys even Chinas behalf The importance of involving high level people on your side
Negotiating with Chinese Take a deep Breath
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Chinese culture; relations and guanxi
Guanxi involves having a relationship in which one may expectfavors and reciprocities from each other
While we are suspicious of doing business with relatives andfriends, the Chinese are suspicious of doing business withsomeone they do not know
Scandinavian companies may be prosecuted under bothScandinavian, Chinese, British and American law for actionscommitted in China by company employees or agents/middlemen
Doing business in China without establishing
- How to structure agent relationships?
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Investment restrictions -The Investment Catalogue and Guidelines
Encouraged
Permitted
Restricted
Forbidden
Investment incentives (corporate income tax, VAT and importduties)
Investment structure, ownership and capitalisationissues
Approval requirements
The tax reform from 1 January 2008 less incentives but stillavailable
Establishing a Scandinavian owned presencein China
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Representative Office
Wholly foreign-owned enterprise (WFOE)
Joint Venture (Equity Joint Venture or Co-operative JointVenture)
Limited liability partnerships (new regulations in force 1 March2010)
Heavy restrictions on foreigners ability to invest in listedcompanies
Typical foreign business vehicles in China
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Significant authority involvement
Need for structural changes if the company acquired is a domesticcompany (need for transformation from domestic to FDI company)
All rules portrayed above still apply
The Catalogue needs to allow your business involvement in
that particular type of business You need to go through the same approval processes
Capital requirements
Etc.
Acquisition of an already existing Chinese entity
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In addition to the normal Western style due diligence, pay specialattention to
Irregularities in the target company (tax issues, accounts fordifferent purposes, etc.)
The people involved (background check important)
Labor disputes (exploded after new labor law in 2008)
Review of local authorities and the relationship to these
Land use rights and various licenses/approvals
Investing in China Special attention
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A few practical examples
80% of the worlds fake goods are produced in China
Registration of all intellectual property rights is the first step ofprotection
Contractual techniques to minimize exposure
Protection of intellectual property in China
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There are risks and challenges related to investments in China
These risks are, however, increasingly manageable due to i.a.maturing of the Chinese business climate and professionalizationof the Norwegian infrastructure in China
A majority of multinationals established in China are moreprofitable there than anywhere else
There are windows of opportunity now that are likely to benarrowed or even closed within just a few years
Conclusions
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Contact persons:
Geir Sviggum [email protected]
Yafeng Sun [email protected]
Steffen Pedersen [email protected]
Tormod Ludvik Nilsen [email protected]
Tlf. (+86) 21 6339 0101Fax (+86) 21 6339 0606
Visiting address:Suite 1902, No. 300 Middle Huaihai Road,
200021 Shanghai, China
Contact us
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