Tom Orlik has a great article out in a recent edition of The Economist Intelligence Unit’s Business China [$10 to purchase]. The article, entitled, “Legal Obligations,” nicely summarizes China’s key recent law changes that will affect foreign businesses in China going forward. It, very rightly concludes that “fears for the worst may be overblown.”
The article focuses on five major legal changes:
1. China’s moving over to equal tax treatment of foreign and domestic companies. Orlik notes that “high technology and research-focused companies will continue to benefit from incentives, as will firms investing in China’s priority sectors, such as environmental conservation, or in the country’s most impoverished provinces.” and that “a grandfathering scheme further softens the blow by phasing in changes over a five-year period.”
2. China’s New Labor Law. As regular readers know, this is my “favorite.” Orlik thinks foreign companies will “undoubtedly” be the “main target” of this new law because they “are blessed with deep pockets.” He then quotes me as saying that the new law may actually give legitimate foreign companies a competitive edge:
Dan Harris, a partner at Seattle based international law firm Harris Bricken notes that for firms already operating above board in China, the costs of compliance will be limited. Some companies might even benefit as their less scrupulous competitors scramble to get in line.
For more on China’s new Labor Contract Law, check out the following:
— “China’s New Labor Law — It’s A Huge Deal. Huge I Tell You.”
— “Power to the People”
— “China’s New Labor Contract Law “(podcast interview with Steve Dickinson over at the China Business Network.)
— “China’s New Labor Law Gives SOME Employers The Jitters”
3. China’s Anti-Monopoly Law. Due to become effective on August 1st, “authorities could very well use the Anti-Monopoly law to push back any foreign investor who might get in the way of their goal.” But it also has “welcome elements” in that it “brings together the patchwork consumer protection and competition laws that already exist into a single, more coherent package” and it may “pave the way for greater competition in energy, natural resources, telecoms, and other sectors currently dominated by government owned companies.”
For more on this new law, check out, “Meet China’s New M&A Policies. Same As The Old Policies.”
4. New Foreign Direct Investment (FDI) Catalogue. Divides foreign investment into “encouraged,” “restricted” and “prohibited” sectors. “Local governments can approve foreign investment in the encouraged category without recourse to Beijing. For investments in the restricted or prohibited category the permission of Beijing is both required and routinely denied.” The new catalogue substantially restricts foreign investment in real estate and continues curbs on “foreign investment in publishing, media, and market and social research,” now expanded “to cover Internet publishing.” Also restricts “Investment in manufacturing solely for export, heavily polluting or energy-intensive industry.” It does, however, open various service sectors “wider to foreign investment, including logistics and outsourcing.
For more on China’s FDI policies, check out, “China FDI: Quality Not Quantity.”
5. New Property Law. “Gives equal protection to public and private property” and affirms “that China’s long march towards a modern market economy continues. For more on China’s New Property Law, check out our four part series explaining the new law: Part I, Introduction, is here. Part II, General Principles, is here. Part III, Rules Of Real Property Ownership, is here. Part IV, Real Property Use Rights, is here.
I see the New Labor Contract Law as likely to have the most impact, simply because it applies to every business in China, be it foreign or domestic, large or small. It already constitutes a full employment act for lawyers.
Update: The article is now online (free) in Commonwealth Magazine,