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China 2016: 8 Key Trends That Will Impact Foreign Companies Doing Business In China

China changed a lot more than usual in 2015, and that bodes for a lot of change happening in 2016 as well.

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US china flagsChina changed a lot more than usual in 2015, and that bodes for a lot of change happening in 2016 as well. China’s economy is slowing and President Xi Jinping has consolidated his power, and both of these things will drive big changes in 2016.

The below are the eight key trends my firm’s China lawyers see gaining ground in China in 2016.

1. China will increasingly crack down on foreign companies doing business in China (per China’s definition) without paying China taxes. China will especially step up enforcement against American and European companies that operate in China solely via a Hong Kong entity. See China’s Slowing Economy Means Its Tax Authorities Are Coming After You.

2. The idea that Chinese companies and Chinese employees do not sue was never true and it is becoming less true every year. Chinese companies are getting aggressive in suing their foreign counterparts both within and outside China. If you walk away from your deal with a Chinese company or terminate your Chinese supplier, you should expect to get sued. The same holds true if you fire or lay off a Chinese employee without first getting them to sign a settlement and release agreement that will actually work in a Chinese court. 

3. China’s crackdown on corruption is real and it will not be going away. The same holds true of U.S. and EU enforcement of anti-corruption laws against U.S. and EU companies operating in China. Chinese lawyers are actively looking for whistleblowers and Chinese employees (like employees everywhere) will not hesitate to turn in their employers for multimillion-dollar rewards.

4. Scams against foreign companies will continue to get more sophisticated.  Our personal “favorite” is the fake China law firm scam, which came back with gusto in 2015, but the most prevalent will no doubt continue to be the China bank switch scam.

5. Foreign companies will increasingly choose not to “go into China” via WFOE formations; they instead will choose to sell their products into China via distribution agreements, reseller agreements, and via e-commerce. See How to Form a WFOE in China: Do You Really Even Need One? 

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6. There has been an increase in encouraging signs regarding enforcement of IP rights in China and we expect this will continue in 2016. China’s new Trademark Law not only increased statutory damages, it also makes it easier for an IP rights holder to prove damages against notorious counterfeiters. China design patents will become an increasingly important part of foreign companies’ IP arsenals as they have become relatively cheap to secure and they can provide substantial protections.

7. E-commerce will continue its meteoric rise in China and this means foreign companies seeking to protect IP from China will employ anti-infringement strategies that include registering IP in China (particularly trademarks, copyrights, and design patents), monitoring Chinese websites, and ongoing interaction with Chinese e-commerce sites like Alibaba, JD.com, and DHgate.com.

8. China will step up its One Belt, One Road policy. This policy emphasizes China using overland routes to increase trade with Central Asia and Europe, and it seems designed to be an end run around the United States and the TPP. We see this as part of an overall trend of China encouraging more inbound and outbound trade with non-U.S. companies and we see U.S. companies reacting to this by running more of their China business through non-U.S. subsidiaries.

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 [email protected].

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