Corporate Finance Law Blog : Corporate Finance Lawyer & Attorney : Davis Wright Tremaine Law Firm

By Nicole Guo and Ron Cai

Since the outbreak of the global financial crisis, the typical model of China's capital market—that both fundraising and exit of private equity (PE) funds/venture capital (VC) are effected overseas—has begun to attract skepticism. In contrast, Chinese currency PE funds have been growing in past months. Chinese authorities have released a series of policies, meanwhile, to promote the development of equity investment.

At the end of 2008, the General Office of the State Council released “Several Opinions on Providing Financing Support for Economic Development,” which is significant for the growth of China's equity investment industry. Yet, until recently, foreign-funded equity investment, such as VC and PE funds, have only been allowed to form as "venture investment enterprises" or "venture investment management enterprises" (collectively, "Venture Investment Enterprises"); Venture Investment Enterprises were only allowed to take the form of limited liability companies.

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By Ron Cai, Lin Zhu and Kevin Moore

This advisory updates our March 2009 advisory with recently promulgated implementation regulations.

Following a wave of tainted food scandals that rocked public confidence, the Standing Committee of China’s National People’s Congress enacted the Food Safety Law (FSL). The FSL, along with its implementing regulations, creates nationwide standards for everything from nutritional specifications of baby food to pesticide usage.

Effective since June 1, it is a result of years of drafting and revision. Hallmarks include a requirement for detailed record keeping at each step of the food production and distribution process as well as an expansive joint liability structure.

The FSL, which regulates food quality, food-related products and food additives, covers the following industries and processes:

• Food producers and processors (collectively, “Food Manufacturers”), food distributors and caterers (collectively, “Food-Business Operators”)
• Manufacturing and processing of food additives
• Manufacturing and processing of (i) packaging materials, containers, detergent and disinfectant used with food; and (ii) tools and equipment used in production and processing of food (collectively, “Food-Related Products”) 
• Food Manufacturers’ and Food-Business Operators’ usage of food additives and Food-Related Products

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By Ron Cai, Erica Li and Kevin Moore

As China’s larger cities compete in the global economic recession to attract fresh foreign investment, Shanghai launched a pilot program on July 1 that could ease visa requirements for some foreign nationals. Under the program, qualified foreign executives and professionals whose employers are invested or registered in the city’s Pudong District will be able to receive residence and work permits with validity of up to five years, along with their dependants.

Residence applicability and duration depend upon the status of a foreign executive or professional’s employer and his or her long-term need to reside in Shanghai. The Shanghai residence permit is valid like a visa for entry and exit purposes and travel in China. In addition, an “F” visa (business visitor visa) of extended length is available for those who do not need to reside in Shanghai long-term.

“Highly qualified foreign talents, special talents and renowned individuals” may apply for residence permits with validity of between three and five years. The Shanghai Municipal Government's Foreign Affairs Office is drafting detailed guidelines on who qualifies. Similarly, favorable measures are available for renowned foreign nationals, foreign academic leaders, high-tech foreign professionals, and foreign professionals at multinational regional headquarters, research and development (R&D) centers, and investment companies. Foreign executives and professionals of enterprises with registered capital exceeding $3 million are also qualified.

Separately, authorities have also announced a special policy to facilitate the entry of expatriates seeking employment related to World Expo 2010.

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By Ron Cai, Lin Zhu and Kevin Moore

On Feb. 28, 2009, following a wave of tainted food scandals that rocked public confidence, the Standing Committee of China's National People's Congress enacted a Food Safety Law (the “Food Law”). The Food Law creates nationwide standards for everything from nutritional specifications for baby food to pesticide usage. Effective June 1, the Food Law is a result of years of drafting and revision.

This advisory highlights key points of the Food Law and emphasizes new obligations for businesses. Hallmarks include a requirement for detailed record keeping in each step of the food production and distribution process as well as an expansive joint liability structure.

China's State Council is reportedly drafting implementation rules for the Food Law in order to set out further details. We expect that the implementing rules will be promulgated and go into effect when the Food Law becomes effective.
Continue reading...

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By Ron Cai, Jojo Bai and Kevin Moore

China's new Labor Contract Law (LCL), which became effective on Jan. 1, 2008, emphasizes employee rights, but employers in China are not without recourse when it comes to underperforming employees. Nonetheless, employers should make efforts to remedy underperformance before taking more drastic measures. In China's fast developing labor market, employees are increasingly aware of their rights. (Please also refer to our earlier advisories: The LCL and its impact on business and the LCL Implementing Regulations.) Continue reading...

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By Ron Cai, Sisi Liu and Kevin Moore

China's National People's Congress recently adopted a new amendment to it's Patent Law, which will take effect on Oct. 1, 2009. The Patent Law of China was formulated in 1984 and took effect on April 1, 1985. It has been amended three times: first in 1992, second in 2002, and most recently on Dec. 27, 2008. This article provides an overview of major changes under the third amendment (“New Law”). Continue reading...

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By Ron Cai, Vincent Wang and Kevin Moore

For many enterprises, an important first step in establishing a China presence is to bring in experienced overseas staff. This advisory describes the procedure and documentation required for expat employees to obtain work visas, and outlines the scope of China's expatriate employment policy. Continue reading...

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By Ron Cai, Yuping Wang and Kevin Moore

For subsidiaries of U.S. companies in the People's Republic of China (PRC), the fiduciary duties and liabilities of corporate directors and officers arise not only under the extraterritorial effect of U.S. law, but are also addressed substantially by Chinese law. This advisory focuses on the fiduciary duties and liabilities, under PRC law, of directors and officers of companies operating in China. We will address three key areas and offer additional information as follows:

• Definition of corporate directors and officers
• Statutory duties of corporate directors and officers
• Legal liability
• Observations

Continue reading...

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By Ron Cai, Kevin Moore and Ning Ding

On Aug. 3, 2008, two days after implementation of the PRC Anti-Monopoly Law, China's State Council promulgated and effected the Provisions on the Reporting Threshold for Concentrations of Business Operators (the “Rules”). The Rules clarify uncertainty arising from the Anti-Monopoly Law (the “AML”) while neglecting other issues, such as undefined key terms used in the AML. (Please see our earlier Preview of China's New Anti-Monopoly Law.)

By replacing the AML's hollow notification provision with the threshold laid out under the Rules, business operators can now better comply with and anticipate China's anti-trust policy and regulatory schemes. In this advisory, we define the concentration notification threshold stipulated in the Rules and offer some guidance and foresight. Continue reading...

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By Ron Cai and Jim H. Young

The new Anti-Monopoly Law of the People’s Republic of China (the “AML” or the “Law”) adopted by China’s National People’s Congress on Aug. 30, 2007 will become effective on Aug. 1, 2008. Importantly, under the Law, any foreign or domestic company with more than one-tenth share of any given product market or territorial market, based on a number of “dominant market status” criteria, can be presumed to possess the dominant market status, with the burden of proving otherwise placed upon the company.

While it is not yet known exactly how the AML will be implemented and enforced, or even which governmental authority will enforce it, foreign companies that merge with or acquire companies in China should be aware of the AML’s potential implications, which may be substantial, since any merger and acquisition (M&A) transaction that increases the size of a company can be under scrutiny. Distribution arrangements will see increased scrutiny under the AML, and businesses must be more careful of pricing arrangements with distributors, since the Law introduces “monopoly agreement” and “abuse of dominance” language that can affect distribution agreements.

Companies with intellectual property interests should also stay abreast of the Law’s implication. Under the existing law, the interaction between intellectual-property protection and restriction of competition is not well depicted. In comparison, the AML has looked more closely at the issue that some entities may use their intellectual property rights to improperly enhance their market dominance.

The AML mainly deals with (1) monopoly agreements, (2) abusive market dominance, (3) concentration activities, and (4) abusive governmental or administrative conduct. The AML provides some quite detailed procedures that a new, yet to be designated, anti-monopoly law-enforcement agency under the State Council (the “Agency”) will be required to follow when conducting investigations of potential violations. Under the Law, businesses may both be liable for administrative penalties for violation of the AML and be subject to civil liabilities to third parties who suffer as a result of the monopolistic conduct at issue.

The following analysis of the AML summarizes the major provisions of the Law and their impacts on business activities in China. Continue reading...

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