China, International Law

A China Business Law Checklist

Six things foreign companies doing business in China need to know to stay out of legal trouble.

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I am often asked what foreign companies doing business in China need to know to stay out of legal trouble. I usually respond as follows:

  • Are You Operating Legally?  Generally speaking, if you are doing business in China for more than a few weeks, you need to form a legal entity there (i.e., a Wholly Foreign Owned Entity (WFOE), a joint venture, or a representative office. Assuming, of course, that your business scope is permissible; some businesses that are perfectly legal in the United States or in Europe are proscribed in China.

There are five more things you need to know in order to stay out of legal trouble in China…

  • Do You Have a Good Contract?  Written contracts are highly advisable and they should be in Chinese. All relevant provisions should be spelled out clearly, as Chinese courts are reluctant to infer terms. If you entertain thoughts of enforcing the contract against your Chinese counter-party, disputes should usually be resolved in China.
  • Are You Protecting Your Intellectual Property? To protect your trademarks, patents, and copyrights in China you should register them in China, notwithstanding ostensibly relevant international conventions. China is relatively good at protecting trade secrets covered by contract.
  • Is Your Company Bribing Anyone? The United States vigorously enforces its Foreign Corrupt Practices Act (FCPA), which penalizes improper payments to foreign officials made by US companies and such companies’ Chinese partners. Canada, the UK, and the EU have similar corrupt practices acts. Meanwhile, China has been vigorously enforcing its own anti-bribery laws against foreign companies. At an absolute minimum, be sure that your company is not dealing with any individuals or companies on applicable sanctions lists.

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  • Are You Complying With Import-Export Laws?  A company recently called me about sales contracts for their technology product. My first question was whether the US would even allow them to export their product. This question had never occurred to them, and it turned out that exporting their product to China was in fact illegal under US law. Some products (particularly high-tech products) can only be exported to China with a validated license. Additionally, many products require special approvals to be imported into China and some cannot be imported at all.
  • Are You Violating Any Antitrust/Tax/Environmental/Labor Laws? I realize that grouping all of these together is a bit of a fudge, but if I analyzed them separately it would take ten posts. The key point is that doing business with China requires both considering these issues and realizing that Chinese laws may be quite different from the comparable laws in your country.

Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at firm@harrismoure.com.

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