2020 Doing Business in China 2020 Doing Business in China 2020 Table of Contents 1 Introduction......................................................................................................................................................... 1 2 Foreign Invested Enterprises ..........................................................................................................................2 3 Foreign Invested Partnerships ....................................................................................................................... 6 4 Representative Offices .................................................................................................................................... 8 5 Mergers and Acquisitions.............................................................................................................................. 10 6 Distribution........................................................................................................................................................ 13 7 Imports and Exports in China........................................................................................................................ 15 8 Data Protection and Cybersecurity Compliance ......................................................................................19 9 Antitrust and Competition Laws ................................................................................................................. 24 10 Intellectual Property Protection ..................................................................................................................33 11 Employment Issues......................................................................................................................................... 44 12 Taxation ............................................................................................................................................................. 47 13 Dispute Resolution ......................................................................................................................................... 50 14 Anti-Bribery and Compliance .......................................................................................................................60 15 About the Firm ................................................................................................................................................. 65 Baker McKenzie FenXun i Doing Business in China 2020 1 Introduction This guide provides an introduction to selected aspects relating to investment and business operations in the People’s Republic of China (“PRC” or “China”) under current Chinese laws and policy. China is a vast country, where national laws, local regulations and implementing procedures provide a complex legal framework for doing business. As discussed in further detail in Section 2, the newly enacted Foreign Investment Law generally grants foreign investments national treatment and allows investors to set up business in China in a variety of forms: companies (which include limited liability companies and joint stock companies), partnerships, branches, representative offices, etc. This guide provides a brief outline of the most frequently used forms of foreign investment: companies, partnerships, and representative offices. The guide also includes a summary of important areas of concern to all investors in China: mergers and acquisitions, competition issues, taxation, employment, intellectual property protection, trade and import and export rules, as well as compliance and dispute resolution issues. Baker McKenzie FenXun 1 2 Foreign Invested Enterprises 2.1 Foreign Investment Law In 2019, the National People’s Congress of the PRC passed the Foreign Investment Law (“FIL”), a landmark fundamental legislation to regulate foreign investments in the PRC and provide stronger protection for foreign investors. The FIL took effect from January 1, 2020, repealing at the same time the prior laws governing Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures, and wholly foreign owned enterprises and their respective implementation regulations. From the effectiveness of the FIL, all foreign-invested enterprises (the “FIEs”), be it joint ventures or wholly foreign owned entities, will be governed by the Company Law of the PRC (the “Company Law”) if they are incorporated, or other relevant laws such as the Partnership Law, if they are unincorporated, in the same way as all Chinese domestic entities. This section focuses only on entities in the form of companies under the Company Law including limited liability companies and joint stock companies. As the FIL has fundamentally altered the existing foreign investment laws, it is unsurprising that local regulators need some additional time to respond to the new law and additional regulations and precedents are needed to provide clear guidance in resolving some issues of corporate organization, management and government procedures. Further implementation regulations and rules are expected to be issued, which hopefully can provide practical guidance on these issues. 2.2 National treatment and restrictions The FIL establishes that China continues to maintain its “opening-up” policy and encourages foreign investment in China. Under the current regime, foreign investors are accorded national treatment for investment in most sectors and treated the same as domestic investors. Only a small number of sectors are restricted or prohibited for foreign investment. These restricted or prohibited sectors are specified in a nationwide Negative List as issued and amended from time to time. Generally, foreign investors investing in a restricted sector will have to satisfy certain additional requirements that are inapplicable to domestic investors. These requirements include, for example, caps on foreign shareholding percentages and requirements that Chinese citizens hold certain management positions. In addition to the nationwide Negative List, there is also a less restrictive Negative List applicable to the free trade zones in a few selected cities. In these free trade zones, foreign investors may invest in certain sectors that are restricted for foreign investments outside the zones without any or with lesser restrictions than elsewhere in China. 2.3 Establishment The applicable procedure for establishing an FIE first hinges on whether foreign investment in the sector is restricted. Over the past decade, China has implemented several reforms to simplify the procedures for foreign investments. Currently, the procedures are largely reduced to a so-called “business license first, operating permits later” approach. This approach means, for most sectors, the investor can set up the operating entity and receive the business license - the equivalent of a certificate of incorporation - from the State Administration for Market Regulation (“SAMR”) or its local counterparts without having to apply for various operating permits beforehand. 2 Baker McKenzie FenXun Doing Business in China 2020 In greenfield projects involving fixed asset investments such as building a plant, the project will have to be approved or recorded with the National Development and Reform Commission or its local government counterparts depending on the size and nature of the project. Approvals of the construction plan and construction work are also necessary. There are general trends placing greater importance on environmental protection for projects having potential impact on the environment. These projects will require environment impact assessment (“EIA”), which is usually under the jurisdiction of the competent local environmental protection bureau. Subsequent to or in parallel with the EIA and the land or construction related approvals, additional regulatory approvals or operating permits may be required depending on the nature of the business. For example, a food manufacturer will have to apply for a food production permit before the production line can be put in use. Although the above “business license first, operating permits later” approach applies to most foreign investments, for certain highly regulated businesses, the investor still have to obtain the prerequisite approval of the industrial authority before setting up the entity. For example, to invest in general aviation activities, the investor must first obtain a corresponding general aviation operating license before it can apply for the business license with the SAMR. After or in parallel with the EIA and the land and construction related approvals, and depending on the specific situation of each case, additional approvals may be required. 2.4 Documentation Under the current regime, documents required for setting up an FIE typically include a standard application form, the articles of association, appointment letters and identification documents of the directors and supervisors, office ownership or lease documents, etc. For joint venture companies, the Company Law unlike the prior Sino-foreign joint venture laws requires no joint venture contract (or shareholders’ agreement) to be part of the constitutional documents of a joint venture company. Nevertheless, it is recommended that the joint venture partners negotiate and execute a joint venture contract to govern their relationship and specify arrangements such as right of first offer or refusal, tag-along or drag-along right, change of control trigger, reserved matters, information rights, etc. Due to the change in law, certain