Two May 2019 articles by Dan Harris of the Harris Bricken law firm how on how US and I expect Canadian business in China can protect themselves somewhat against the recent Chinese government extraordinarily aggressive enforcement of both laws and regulations. One must keep socialist legalities in mind.
“What concerns me most about this latest announcement though is that some companies operating 100% legally in China are going to get pushed out simply because of who they are and for that there likely is little to no cure.”
Perhaps we are in the middle of a business climate race to the bottom! Petty bourgeois legalities place some restraints on the US and Canada. There are conceivably less in the People’s Republic.
I copied the first few paragraphs and each article with URL links to the articles on chinalawblog.com
Corporate legal person reincarnation is one of Harris’ suggestions.
“If your WFOE or your Rep Office or your Joint Venture share is American or Canadian owned, consider forming a new company (“Newco”) in a country with good relations with China and selling the WFOE Joint Venture share or Rep Office package to that Newco.”
China today announced that it will be ridding China of unreliable people and companies. See China is establishing an ‘unreliable entities’ list that will include companies and people. Specifically, China’s Ministry of Commerce announced it will kick out of China “foreign enterprises, organizations and individuals that do not comply with market rules, violate the spirit of contract, block or cut supplies to Chinese firms with non-commercial purposes, and seriously damage the legitimate rights and interests of Chinese enterprises.”
What exactly does this mean for your company if it is doing business in China? What can you do to reduce the risk of being deemed unreliable and being booted out of the country?
If past performance is any indicator of future performance — and I firmly believe it is — we know well what foreign companies must do to avoid China problems going forward and we set out those things below. Before anyone panic (too much), let me just say that for the past decade or so, China has consistently gotten tougher on foreign businesses in China that are not operating legally there and though this announcement is a really big deal, it is more a change in scope than it is in kind.
By Dan Harris on May 8, 2019
Since the very beginning of US-China trade negotiations we have been unequivocally negative on the likelihood of a deal and we have taken huge amounts of heat for that, via hate e-mail, online, and even from our own clients, some of whom have accused us of being too cynical or too negative about China. Our response to all of this has been consistent. We just kept saying that NOW was (and it still is!) the time for foreign companies (especially those that sell their products to the United States) to work hard on reducing their China footprint.
We first publicly sounded this warning call back in October, 2018, in China, the United States and the New Normal, though we had been warning our own clients months about this for months. This “New Normal” post was an attempt to get in the face of those who had been sending our lawyers hate mail because we had in a September 2018 post predicted manufacturing orders from China were declining and would continue to decline:
I got a badly written and vituperative email yesterday in response to my post, On the Impact of China Tariffs: Is This a Dead Cat Bounce? In my post I predicted a large decline in manufacturing orders from China, starting in the next few months. The email accused me of “hating China” and wanting “to impede its peaceful” rise and of being “jealous of its progress.” All this because we have been writing of late how so many of our law firm’s own clients and so many others are leaving China, or looking to leave China. We have been getting quite a lot of these sorts of emails lately.