LEGAL RISK OF INVESTING OR DOING BUSINESS IN CHINA Risk ...
Transcript of LEGAL RISK OF INVESTING OR DOING BUSINESS IN CHINA Risk ...
LEGAL RISK OF INVESTING OR DOING BUSINESS IN CHINARisk Management Day PresentationOrganized By:Quebec Risk Insurance and Management Association
SPEAKER: EDMOND C. LUKEMarch 16, 2006
Introduction
Characteristics of the Chinese Legal SystemOrganizational Structures for Foreign EntitiesForeign Investment Guidelines and RegulationsContract LawProperty RightsLegal Due DiligenceDispute Resolution
Legal System Characteristics
China’s Contemporary Legal SystemRooted in Confucianism, Daoism, LegalismTreaties between China and Western PowersInfluence of Marxism-Leninism, Mao Ze Dong Thought and Soviet Legal SystemAdoption of laws from international sources in commerce, foreign investment and securities regulations
Legal System Characteristics (cont’)
Legislative InstitutionsNational People’s CongressPresidentState CouncilMinistriesAdministrations and CommissionsLocal People’s Congress
Legal System Characteristics (cont’)
MinistriesMinistry of CommerceMinistry of Information IndustryMinistry of Labour and Social SecurityMinistry of EducationMinistry of Science and TechnologyMinistry of Land and Natural Resources
Legal System Characteristics (cont’)
Administrations and CommissionsState Environmental Protection AdministrationState Reform and Development Planning CommissionState Drug AdministrationState Asset Regulatory CommissionChina Banking Regulatory CommissionEtc.
Legal System Characteristics (cont’)
RisksTradition, adoption and imitation of lawsLegislative bodiesLack of transparencyAmbiguous languageAdministrative policies and directivesPolitical interferenceGuanxi – relationship influences
Organizational Structures
Foreign Investment Enterprises (FIE)Representative OfficeWholly Foreign-Owned Enterprise (WFOE)Equity Joint VentureCooperative Joint VentureHolding CompanyForeign-Invested Venture Capital Investment Enterprises (FIVCE)
Organizational Structures (cont’)
Risks:High restrictive and lacks flexibilityStrictly monitored and regulatedLimitation on business activitiesProtectionism
Foreign Investment Guidelines and Regulations
Catalogue Guiding Foreign Investment“encouraged”“restricted”“prohibited”“permitted”
Foreign Investment Guidelines and Regulations (cont’)
Risks:State planned economyApprovals, Approving authorities, Approval proceduresForeign Exchange Restrictions
Contract Law
History and characteristicsFormationLanguageForum and jurisdictionApprovals and registrations
Contract Law (cont’)
RisksSimplied formoral representationsProcedural compliance affecting validityAffect of administrative rules and regulations
Property Rights
State ownershipRight to use landRestrictions on useAcquisition methodsTransferability
Property Rights (cont’)
RisksSearchesPayment of user fees and taxesChange of usePre-emptive right to purchaseExpropriation
Legal Due Diligence
Investment in State Owned businessValuationApprovalsTechnical capabilities of assetsEnvironmentalPermit and LicensesOwnership of assets
Legal Due Diligence (cont’)
Risks:Accessibility to informationAvailability of investigatorsProper approvalsNon-compliance to standardsReliance on local government assurances
Dispute Resolution
Forms of dispute resolutionConsultationMediationArbitrationLitigation
Dispute Resolution (cont’)
MediationPrimary vehicle of dispute resolutionMediation during arbitrationMediation during litigationJoint Mediation
Dispute Resolution (cont’)
ArbitrationChina International Economic and Trade Arbitral Commission (CIETAC)Domestic arbitral commissionsEnforcement of Awards
RisksInvalid arbitration clauseRefusal to enforce
Dispute Resolution (cont’)
LitigationCourt system:
Supreme People’s CourtHigher People’s CourtIntermediate People’s CourtBasic Level People’s Court
Risk:Process and ProcedureEnforcement of foreign judgmentConsistency
Conclusion
Risk versus OpportunitiesLegal Development TrendResources