China Law Blog Article: China Business Law Trends for 2014. Not Booorrring.

China Business Law Trends for 2014. Not Booorrring.

By Dan Harris on May 4th, 2014
Posted in China Business, Legal News
Every year for a long time, I would write up a list of China business law predictions for the upcoming year. Initially, I would actually survey a number of China lawyers for input, but eventually, I no longer believed that necessary because the trends became so obvious and so repetitive. And then, this year, for the first time, I did not make any end of year/beginning of year predictions, simply because I was tired of saying the same thing.

At the end of 2012, in a post entitled, China’s Business Law Trends for 2013. Booorrring. I talked of how these predictions had become boring because they are just a “re-hash of what I have been saying for years.”

I then noted that “the business law trends I see for China in 2013 are pretty much the same as what we have been seeing for years” and the big “overarching trend” for 2013 would be China “continuing to more strictly enforce its laws, particularly those that apply to business, and even more so those that apply to foreigners.”

I then listed 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.

To the extent anything has changed in the above, it has accelerated.

Why then this post?

Because I want to add the following two items for this year:

5.  China’s crackdown on corruption, particularly as against foreigners, is real and is not going to go away. We wrote about this in Doing Business In China Without An Anti-Corruption Compliance Program? Are You Crazy? So long as Xi Jinping is President, there is no reason to think that he will cease imploring the government to “sweat out” corruption. On top of this, many Chinese lawyers have become aware of the rewards offered to whistleblowers by the U.S. Department of and the SEC and they are hustling for clients. Are you confident that none of your employees will turn you in for a multi-million dollar reward?

6.  The number of scams against foreign companies will increase and continue to get more sophisticated. In China’s Changing Economy And You, we wrote about how China’s declining economic fortunes will lead to increasing fraud problems. The good news on this score is that our China attorneys have seen a massive uptick in our clients realizing the importance of conducting due diligence before doing their China deals.