vivien chan jp justice of the peace managing partner of vivien chan & co. ceitac arbitrator...

Practical guide for doing business in China

Vivien Chan JP Vivien Chan JP Justice of the PeaceJustice of the Peace

Managing Managing Partner of Vivien Chan & Co. Partner of Vivien Chan & Co. CEITAC ArbitratorCEITAC Arbitrator

Notary PublicNotary PublicChina Appointed Attesting OfficerChina Appointed Attesting Officer

VIVIEN CHAN & CO.SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS &

PATENTS

HONG KONG BEIJING SHANGHAI

VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS

Classic business issues

• How to deal with :-• Core values adjustment• Training – Code of Ethics• Bureaucratic minefield• Lack of Transparency in laws, administrative practices• Protectionism


Values

Background: Confucianism

Cultural Revolution

No mainstream religious following

Market Economy – the pursuit of material success

Sudden relaxation of closed doer policy bring

about abundance of opportunities for :education

exposure

material pursuits


Adjustment of expectations from your work force in China

• Two true reflections:-• The theft law

H.K. definition vs. PRC definitions of theft• The corporate embezzler vs the petty finger in the

till


Solutions

Training

Corporate Code of Ethnics – a must

Check & Balances in financial controls


Bureaucratic Minefields

Due process

Transparency in laws

Administrative practices

Tendency of protectionist rulings and decisions


How to combat protectionism in enforcement

• Protectionism rife at local government levels• Court system, SAIC : controlled by local government• Use of provincial/central government enforcement

machineries• Do no adopt “ the more, the merrier” policy in raids and

enforcement strategy


Solutions• Given the choice :

• A) enforce at

• a superior authority

• e.g. provincial authority to help in local authority

• enforcement

• e.g. Guangdong provincial SAIC vs Hu zhou SAIC

• or

• B) an authority of stature

• e.g. sue in place of sale rather than place of manufacture

• of counterfeit goods

• - former can be in larger cities

• - latter usually in remote provinces/villages


How can Hong Kong help you in China

Post CEPA Hong Kong

How does CEPA Hong Kong compare with1) PRC Free Trade Zones2) WFOE as a business vehicles in China ?

How can you make all or any of the above options work for you ?


Major reason for choosing FTZs

To be able to import and distribute within China through :

1. Direct dealings with wholesalers – who can visit your own WFOE offices in Free Trade Zone

2. To better manage your local distributor

• Therefore FTZs are for distributing & trading of IMPORTED goods from home countries of foreign investors into PRC domestic market


FTZ not relevant for FIE’S manufacturers

1. Selling into the domestic market

or

2. Exporting to a foreign market /other markets(as

products of a global brand.)


Major reasons for choosing post-CEPA Hong Kong

• Existence of favourable business environment - Strong emphasize on intellectual properties protection Strong quality control Free flow of foreign exchange Attractive tax system: dividend and capital gains are not

taxed Credible legal system


post CEPA Hong Kong: Easy access post CEPA Hong Kong: Easy access to PRC marketto PRC market

‘‘Goods of Hong Kong origin’ can be exported to PRCGoods of Hong Kong origin’ can be exported to PRC tariff free. tariff free. For goods from FTZ to non-FTZ parts of China, customsFor goods from FTZ to non-FTZ parts of China, customs duties have to be paid.duties have to be paid.

‘‘Hong Kong service suppliers’ will be allowed to provide wholesale Hong Kong service suppliers’ will be allowed to provide wholesale trade services in any part of PRC and retailing services on regional trade services in any part of PRC and retailing services on regional and county city level in Guangdong province. and county city level in Guangdong province.

They are also permitted to set up wholly owned external trading They are also permitted to set up wholly owned external trading companies. companies.


Post CEPA Hong Kong :

1.Use Hong Kong as a profit centre (low and simple taxation structure, rule of law) to manufacture and import into PRC but beware of transfer pricing rules in PRC

2.Use of a Hong Kong legal corporate entity for entry into service industries which until now is not open to a WFOE e.g. securities and insurance


• If sole purpose is to use PRC as a source of low cost labour manufacturing base for eventual export of goods : -

• you can• a) use a EJV, CJV or WFOE inside PRC• b) Post CEPA Hong Kong will NOT be of use as labour costs• is not competitive with Mainland China• c) FTZs of no use as your EJV, CJV and WFOE may have• right of domestic sale within PRC


Protection of your intellectual property rights in China

• What is the state of the laws and effectiveness of its enforcement regime ?


Which is a better option ? The IP specialised courts/People’s court or The SAIC – if so :• district or provincial or central ?• or• Public Security Bureau• or • The Technical Supervision Bureau• or• The Hong Kong Customs• or• The Hong Kong Courts


The IP specialised court or People’s court

1.Judicial review from appeal boards of National Patent and Trademark office,Technical Supervision Bureau,Public bureau, Chinese customs

2. Infringement cases


SAIC

• National

• Provincial

• District

• Administrative raids


Public Security Bureau

• For “serious” cases

• “serious”ness is not defined in the law


The Technical Supervision Bureau

• For inferior and sub standard goods

• Product Quality Law

• Unfair Competition Law


The Hong Kong Customs

• Transhipment of counterfeit goods can be raided by Hong Kong Customs in Hong Kong :

• Affidavit and evidence of infringement required• Swift low cost and efficient administrative remedy• No damages awarded• Confiscation of counterfeit goods• OKI case


Use of Hong Kong Courts

• Injunction

• ex-parte

• Interim and effective remedy

• nexus


Strategy :

1. Do not practice “ The more the merrier “ in

enforcement raids

2. Timely housekeeping registration of your trademarks/patent/ copyright


Perspective in context of operating in a developing country

Counterfeit goods are to be expected in adeveloping country and must be taken in itsperspective A “minor irritant” as people who buy counterfeit goods are not and should not be target consumer


Solutions

• Retain the same price point as in other major markets impressing the consumer that “what we offer to you is the same”, therefore there must be : -

• (a) minimum price arrangement• (b) anti-dumping provisions upon terminations• and/or breach


THANK YOU

vivien chan jp justice of the peace managing partner of vivien chan & co. ceitac arbitrator...

Documents

solicitors notaries

attesting officer vivien

trade marks patents

china vivien chan jp

decisions slide

till slide

enforcement strategy

prc free trade zones