Key Legal Considerations for Doing Business in China
Foreign companies doing business in or even with China face a complex legal landscape. Navigating these regulations can be challenging, but it is crucial for ensuring compliance and avoiding legal trouble. This blog post provides an overview of key legal considerations for foreign companies operating in or with China, including contract formation, intellectual property rights, data privacy, and anti-bribery laws.
Add the below to your New Year’s Resolutions.
Are You Operating Legally?
China has all sorts of requirements for doing business in China. The basic (non-technical) rule is that If you are going to be doing business in China for anything more than a few weeks at a time, you probably need to form a legal entity to do so. This entity can be a WFOE, a Joint Venture, or a representative office. It is important to note that some businesses that are perfectly legal in the United States or in Europe are illegal in China.
Do You Have a Good Contract?
It almost always pays to have a written contract and it is almost always best to have this contract be in Chinese. Generally speaking, if something is not spelled out clearly in your contract, there is a good chance a Chinese court will find it does not exist. If you want your Chinese counterparty to abide by your contract, you will likely want to have your contractual disputes resolved in China. See Drafting China Contracts That Work.
Are You Protecting Your Intellectual Property?
Your intellectual property (IP) registrations in your own country do not generally extend to China. To secure protection of your trademarks and patents in China you must register them in China. China is actually pretty good at protecting trade secrets covered by a contract (such as a China NNN Agreement) calling for their protection.
Is Your Company Bribing Anyone?
The United States vigorously enforces its Foreign Corrupt Practices Act (FCPA) by penalizing improper payments to foreign officials by US companies. In certain situations, US companies can be liable under the FCPA for payments made by their Chinese partner. Canada and most European countries have their own somewhat similar corrupt practices acts, as does China.
Are You Complying With Customs Laws?
A company recently called me about my law firm drafting sales contracts for their technology product. My first question to them was whether the US would even allow them to export their product to China. This question had never even occurred to them, but it turned out that exporting their product to China was illegal under US law. Many years ago, I was approached by a client ready to ship a fishing product to North Korea that would have violated US prohibitions on doing business with that country. The client was simply unaware of the law. Some products (certain types of software are a good example of this) can be sent to China only with a validated license. On the flip side, many products require special approvals to be imported into China and some cannot be imported at all.
Are You Violating Any Antitrust/Tax/Environmental/Employment Laws?
Sorry to group all these together, but if I analyzed them separately it would take twenty blog posts. Just make sure you recognize that doing business internationally and with China means that you must always be thinking of these things and that Chinese laws on these can be very different from those to which you are accustomed.
Are You Complying with China’s Data Privacy Laws?
In recent years, the Chinese government has enacted several laws and regulations aimed at protecting personal data, including the Personal Information Protection Law (PIPL), which came into effect in November 2021. The PIPL grants individuals various rights regarding their personal data, including the right to access, correct, and delete such data. It also imposes obligations on companies that collect and process personal data, requiring them to obtain consent from individuals, implement data security measures, and conduct data transfers in accordance with the law.
For foreign companies operating in China, compliance with the PIPL is crucial to avoid legal ramifications and reputational damage. Here are some key points to consider:
- Data localization: Companies are generally required to store personal data of Chinese citizens within China.
- Consent: Obtaining clear and unambiguous consent from individuals before collecting and processing their personal data is essential.
- Data minimization: Companies should collect and process only the minimum amount of personal data necessary for a specific purpose.
- Data security: Implementing robust data security measures to protect personal data from unauthorized access, use, disclosure, modification, or deletion is critical.
- Data subject rights: Companies must respect individual rights regarding their personal data, such as the right to access, correct, and delete such data.
Failure to comply with the PIPL can result in significant fines, penalties, and even criminal charges. To ensure compliance, companies should consult with legal professionals and implement appropriate data governance policies and procedures.
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