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Discover the challenges and opportunities of investing in China. Explore the legal system, uncertainties, and strategies for success. Presented by Wang Chenguang, Tsinghua University.
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LEGAL CERTAINTY FOR FOREING INVESTMENT IN CHINA Presented by: Wang Chenguang Law School, Tsinghua University
I. Investment in China, an enticing, exiting, but difficult question for foreign investors: • On the positive side, big market, good opportunities,profits brought by rapid economic boom, governmental encouragement and policy for obtaining foreign investment, and basic favorable legal structure for foreign investment; • On the other side, lack of language skills, unknown social environment, a fear of nationalization, governmental control and intervention, particularly uncertainty by local protectionism, (such as Jia-Li-Lai case, etc.) socialist doctrine or public interest, (such as Oriental Plaza), bias to foreign investors and weak law enforcement, etc.
I. Investment in China • According to the resent data released by the MOFCOM in Jan. of 2007, in the year of 2006: • the total export and import value is 1,760,700 million USD (Export 969100million and Import 7,916 million, balance 177,500 million); • Foreign currency reserve is 1066300 million USD with an increase of 2,473 million USD from the last year. • paid up foreign investment is 63,000 million USD; • Over-seas Direct Investment (ODI) by Chinese parties is 161 million USD, with an 32% increase from the last year; is ranked 13th in the world;
I. Investment in China • Starting a business in China:
I. Investment in China • Efficiency in enforcing a contract:
I. Investment in China • On the other hand, • lack of language skills, • unknown social environment, • a fear of nationalization, • governmental control and intervention, particularly uncertainty by local protectionism, (such as Jia-Li-Lai case, etc.) • socialist doctrine or public interest, (such as Oriental Plaza) • bias to foreign investors and • weak law enforcement, etc.
I. Investment in China In summary: Doing business in a foreign country or environment, certain factors must be trusted. What can be trusted? A vibrant and robust market is the basic material guarantee for successful business operation. But in a long run, such a market may not be an ideal market for sustainable business operation. A good market is a market with sound legal ground, namely a sound legal system and the Rule of Law. This brings in the issue of “Legal certainty”.
II. What does legal certainty mean? • Clear rules, • Transparency in legal operation; • Even and fair implementation of legal rules; • Government and its officials follow and respect legal rules; • By the legal rules, one can predict what are the results of business operation; • Popular legal culture;
III. Current legal system in China for protecting foreign investors: • Basic framework of legal rules since the reform and open-door policy; • The legal construction is constructed around the emphasis on foreign investment from early 80s; • Revising legal rules by WTO requirements and international practice; • Local governments and their officials’ eagerness in attracting more foreign investment; • The acceptance of and legal requirements for the concept of government of law; • Favorable legal treatment to foreign investors and constitutional guaranty for private ownership; • A rapidly developed judiciary; • Better legal service than before.
IV. What are legal uncertainties in China? • Rapid social changes find legal vacancy in certain aspects or stability of certain rules, (market goes faster than legal rules); • Nationalization? Public ownership v. private business; • Governmental habitual practice of intervention; • Local protectionism; • Relational society v. strangers’ society (impact of Chinese culture); • Insufficient legal rules; • Problems in law enforcement; • Problems with the judicial system; • Distrust in dispute resolution mechanics and procedure;
V. How to Avoid the Legal Uncertainties? • Right project, Right place, Right partner, and Right pattern of business (four Ps); • Knowing and observing legal rules and procedures, such as: following the legal or contractual obligation of capital contribution, governmental review of merger and acquisition project (review of possible abuse of market control, concentration of shareholders, threat to national security); • Legal evaluation of the business performance, such as the legal or policy grounds for an investment project; • Right choice of law, means of dispute resolution and forum; • Familiarity with and assistance from the government (administrative organs as well as legal).