If the economists are to be believed, China will have the world’s largest economy in the next 20 or so years. However, the legal system is still developing, albeit like everything else in China at a rapid pace.
We have set out below some Practical Tips that you might wish to consider, particularly if you are currently doing business in China or, at some point in the future, contemplate having business dealings with Mainland China or are concerned to protect your intellectual property rights:
1) Protecting your Trademark and I.P. rights
2) Structuring your Foreign Direct Investment
3) Enforcement of your contractual and other rights
1) Trademark and I.P. protection
Much has been written about the infringement of IP rights in China. You should note that China operates a first to file trademark system and use is not a pre-requisite to register a mark. Accordingly, even for clients that may not be immediately considering setting up in China, they may need to consider immediately protecting their trademarks in China, because if they subsequently decide to establish operations in China, they may find that someone else has already made a filing for those trademarks and the client may then face a very difficult task in being able to use its own trademarks. Oldham, Li & Nie’s Hong Kong and Shanghai offices can assist with the registration, protection and enforcement of trademarks and other intellectual property rights for instance, copyrights, designs, patents and domain names in China.
2) Foreign Direct Investment
As I am sure you are aware there has been a huge amount of interest in relation to foreign direct investment into China and such investments are now almost always channeled through a Chinese Wholly Owned Foreign Enterprise ("WOFE"). There is a degree of bureaucracy involved in establishing such a WOFE which can take time and require the approval of various government departments. Similarly, should you wish to close or sell the WOFE, there would be similar approvals that need to be obtained. Accordingly, we strongly recommend that any such WOFE be in turn held by a Hong Kong, or other offshore, holding company. This facilitates an easier disposal of the China business should the need arise. It also acts, to a certain extent, as a firewall between the main business operations and the business in China. Further, there may, in certain circumstances, be tax and other advantages in structuring the China operations in this way.
3) Enforcement of your contractual and other rights
Little more than 30 years ago the concept of the rule of law barely existed in China. Huge progress has been made in this respect since that time. However, the rule of law is still relatively novel concept and the judicial system is still very much a work-in-progress. For anyone doing business in China the possibility of being subject to the mainland Chinese legal system is not particularly appealing. This is particularly so for overseas entities which may not have the local influential connections that a Chinese counterparty with whom they are in dispute may have. Over the years we have found that it is possible to mitigate this potential problem by providing that contracts with Chinese parties (including contracts for supply of goods) be subject to the laws of the Hong Kong Special Administrative Region of the People's Republic of China and subject to arbitration in Hong Kong. Hong Kong still has a British based common law system of law. However, the fact that it is now a Special Administrative Region of Mainland China means that typically Chinese counterparties will accept Hong Kong law and Hong Kong arbitration as governing such contractual documents. Technically speaking, civil judgments from the Hong Kong courts can be enforced in Mainland China. Unfortunately, there are a number of bureaucratic obstacles in connection with the enforcement of such judgments. However, Hong Kong Arbitral Awards are more readily enforceable in the PRC. This is not to say that enforcement will be entirely problem free, as connections, or "guangxi", are still of great importance. However, in our experience proceeding by these means gives a foreign business contracting with Mainland Chinese businesses a much better prospect of being able to enforce contractual rights.
Oldham, Li & Nie can assist with these any other issues arising out of business dealings in Hong Kong and China and we would be very happy to assist further with any such issues should you wish.
This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.