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LEGAL CERTAINTY FOR FOREING INVESTMENT IN CHINA

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

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  1. LEGAL CERTAINTY FOR FOREING INVESTMENT IN CHINA Presented by: Wang Chenguang Law School, Tsinghua University

  2. China

  3. 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.

  4. I. Investment in China

  5. 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;

  6. I. Investment in China • Starting a business in China:

  7. I. Investment in China • Efficiency in enforcing a contract:

  8. I. Investment in China

  9. 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.

  10. 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”.

  11. 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;

  12. 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.

  13. 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;

  14. 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).

  15. THANK YOU

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