I was just interviewed by a magazine reporter who wanted to know what important business laws impacting foreigners had changed in China in 2012 and what we can expect for 2013. I started out by telling him that if he was counting on big changes, he had no story. I then went on to explain that the legal changes occurring in China for foreign businesses doing business in China have been incremental for years and I did not see that changing. In fact, the level of enforcement of existing laws is probably been and will continue to be more important for doing business in China in 2013 than the laws themselves.
And it is for that reason that I subtitled this post “boooorrring.” It is boring because what I am going to say is just a re-hash of what I have been saying for years. Sorry.
With few exceptions, the business law trends I see for China in 2013 are pretty much the same as what we have been seeing for years. The Chinese government’s primary goal is to stay in power (I think this is true of virtually all governments) and that goal usually drives the enactment and enforcement of its laws. The big, overarching trend I see for China in 2013 is its continuing to more strictly enforce its laws, particularly those that apply to business, and even more so those that apply to foreigners.
I see the following four key things happening on China’s business law front in 2013:
1. China will step up even further its crackdown on foreigners in China violating its visa/immigration laws. If you lack an employee visa, you are at risk. Yes, this is more likely to impact you if you are from Africa or the Middle East, but we are definitely hearing of increased problems for Americans and Europeans too.
2. China will increase its efforts to root out and shut down illegal and unregistered foreign businesses. China has especially stepped up its enforcement against American and European companies that operate in China but have an entity in Hong Kong without one in the PRC. We have seen such an increase in this over the last six months that we are wondering if maybe the PRC is using a Hong Kong list. Providing jobs to Chinese citizens does not let you off the hook on this one. Trust me on that.
3. China will increase its tax collection efforts. This has been going on for years now and if you are doing business in China already I am guessing that your response to this is “yeah, so.” In particular, China has stepped up its transfer pricing efforts and so if your China operations are not making a healthy profit, be prepared for the government to impute healthy profits to it. If you do not already have a good China accountant, get one. Now.
4. Litigation is increasing. The idea that Chinese companies and employees do not sue was never true and it is becoming even less true by the year. Chinese companies are getting quite aggressive in threatening to sue their foreign counterparts both in China and even in the United States. If you fire or lay off your Chinese employee without first getting a signed settlement from them that actually works, your chances of being sued are great. My law firm settles these cases all the time before litigation and after and let me tell you that “before” is a lot cheaper.
Happy New Year everyone.
What do you think?