Frequently Asked Questions
Which industries are encouraged, restricted or prohibited for foreign investment in China?
What is the basic registration procedure for the incorporation of a FIE?
- Which documentations should be prepared for the incorporation of a FIE?
- What is the minimum registered capital requirement for a FIE?
- What company organ should be established in a FIE?
- How about the accounting and auditing requirement for a FIE?
- How to transfer shares of FIEs?
- What is the foreign exchange control policy regarding the operation of an FIE?
- How to rent offices for FIEs?
- What are the basic tax privileges for FIEs?
- Which law is applicable when a Chinese court hears a foreign-related contractual disputes case?
- How can an arbitration award made by a foreign tribunal be enforced in China and how can an award made in China be enforced in foreign countries?
- As a foreign bank, what kind of presence can I chose when doing business in China?
- Cana foreign bank receive deposit or offer other services in Chinese currency (RMB) in China?
- What are the main characteristics of the new Chinese Labor Contract Law?
- What are the outlines of the Chinese Mergers & Acquisitions regulations?
- How to acquire land use rights in China?
- How to have my trademark protected in China?
- Why and how shall I have my trademark recognized as a “well-known trademark” in China?
- I intend to conclude an agreement concerning technology with a Chinese company or individual. Are there any restriction thereto or any formalities therefor?
- What are the anti-monopoly rules in China?
- What are the Chinese bankruptcy rules?
- How can foreign investors bring up their complaints to the competent governmental agency concerning their foreign investment?
1. Which industries are encouraged, restricted or prohibited for foreign investment in China?
As of 1 December 2007, China put into force its revised Catalogue for the Guidance of Foreign Investment Industries.
For foreign investments, Chinese industries are classified into four categories: (i) encouraged, (ii) restricted, (iii) prohibited and (iv) allowed. The Catalogue covers the encouraged, restricted and prohibited industries, whereas the industries not mentioned by the Catalogue are construed as being allowed and having no particular policies for foreign investment.
Generally speaking, the encouraged industries are mainly high-tech, environmental protection, new energy and those, which China is short of.
Some examples of the prohibited industries are construction and management of nature reserve and international signify marshy; development of resources about wild animals and plants protected by nation; news website, network audiovisual service, online service location, internet art management; construction and operation of golf course; and development and application of human stem cells and gene diagnosis therapy technology.
Besides the investment related regulations, for each industry, the specific regulations, detailed rules and administrative measures issued by the State and/or its competent administrative governmental agencies are important, since such legal documents are the basis for operation of such specific industry.
Therefore, when considering making investment in China, the Catalogue 2007 shall be consulted first and then - for more detailed information - the specific regulations, detailed rules and administrative measures.
2. What are the forms of foreign direct investment in China?
Foreign direct investment in China may take three forms:
1. Foreign Investment Enterprise (“FIE”)
FIEs are divided into four categories: Sino-foreign equity joint ventures (“EJVs”), Sino-foreign co-operative joint ventures (“CJVs”), wholly foreign owned enterprises (“WFOEs”) and foreign invested companies limited by shares (“FICLBSs”).
2. Branch entities established in China by foreign enterprises (“Foreign Branch Entities”)
Currently, Chinese laws and regulations allow foreign companies to establish the following forms of Foreign Branch Entities in China:
- Exploration and exploitation of offshore and onshore oil and other mineral resources;
- Construction and decoration for civil projects and installation of lines, pipes and equipment;
- Management of an FIE through a contract or upon entrustment;
- Branches of foreign banks; and
- Other business activities permitted by the State.
3. Representative Offices established by foreign enterprises (“ROs”)
ROs are established to engage in business liaison, product promotion, market research and other permitted activities in China.
Under Chinese law, ROs are not permitted to directly engage in operational activities. But in practices, some kinds of ROs, such as ROs established by foreign consulting companies, law firms, accounting firms are taxed by Chinese tax authorities for their business income derived from China.
3. What is the basic registration procedure for the incorporation of a FIE?
The incorporation of a FIE mainly includes the following basic steps:
- Name Registration at competent Administration of Industry and Commerce (“AIC”);
- Obtaining the Certificate of Approval from Ministry of Commerce (“MOC”) or its competent branch;
- Obtaining the Business License (“BL”) from AIC. In addition, some FIEs, which are engaging in special activities, need the special approval from the competent administrative authorities before/after the issuance of the Certificate of Approval and/or the BL.
Miscellaneous Registrations. These registrations include but are not limited to registrations at Public Security Bureau, Technology and Quality Supervision Bureau, Local/State Tax Bureau, Foreign Currency Administration, Customs Administration, Statistics Bureau, Labor Bureau.
4. Which documentations should be prepared for the incorporation of a FIE?
In order to incorporate a FIE, the foreign investor needs to prepare several documentations and submit them to different governmental authorities for approval.
We basically list the mainly required documentations as follows:
(1) The Application Letter;
(2) The Feasibility Study Report (“FSR”);
(3) The Joint Venture Contract (“JV Contract”, not applied to WFOE);
(4) The Articles of Association (“AoA”);
(5) The Appointment Letters of the directors;
(6) The Appointment Letter and ID document of the Legal Representative;
(7) The notarized Business License or other identity certificate of the investors;
(8) The Address Certificate, such as the Rental Agreement; and
(9) Other documentations required by the government authorities.
5. What is the minimum registered capital requirement for a FIE?
The law does not specify minimum registered capital requirements for EJV, CJV or WFOE. On the other hand, the PRC Company Law requires the following minimum registered capital:
(1) For limited liability companies, the minimum registered capital is RMB 30,000, unless any law or administrative regulation prescribes a higher minimum amount;
(2) For one-person limited liability companies, the minimum registered capital shall be RMB 100,000;
(3) For a joint stock limited company, the minimum registered capital shall be RMB 5 million, unless any law or administrative regulation provides a relatively higher minimum amount.
Hence, the minimum capital requirements have to be determined in each individual case, depending on the vehicle, industry and location of business.
6. What company organ should be established in a FIE?
(1) Board of Directors (“BoD”)
The BoD is the highest authority for EJV and CJV.
(2) Shareholders’ Meeting/Shareholders’ General Meeting
The Shareholders’ Meeting is the highest authority for WFOEs. For FICLBS, the highest authority is the Shareholders’ General Meeting.
(3) Board of Supervisors (“BoS”)
The establishment of a BoS is required for FIE as follows: For EJV, CJ and WFOE, the BoS shall be composed of at least 3 persons. For those FIEs in which there is a relatively small number of shareholders or which is relatively small in scale, it may have 1 or 2 supervisors and does not have to establish the BoS, wherea for FICLBS, the BoS must be composed of at least 3 persons.
(4) Management Team
The structure of the management team which generally includes the General Manger (“GM”), Deputy GM and high-level managers is regulated by the AoA of the company.
7. How about the accounting and auditing requirement for a FIE?
FIE should produce a finance and accounting report, examined by a recognized auditor, at the end of each fiscal year. Financial and accounting statement include: balance sheets; profit and loss statement, statement of the company’s financial situation, and statement of profit distribution.
FICLBS must comply with even more stringent regulations.
The fiscal year shall be in accordance with the calendar year, i.e. from January 1 to December 31 of each year.
Regarding the auditing requirement, each year, the company should submit an auditor’s report, signed by a certified public accountant registered in China, together with its financial and accounting statement.
Regardless of whether it made a profit in the relevant fiscal year, the FIE should file its income tax returns and final accounting statements with the tax authorities within four months after the end of each calendar year.
8. How to transfer shares of FIEs?
The share transfer of EJV, CJV or WFOE in form of a limited liability company is generally stipulated by the AoA of the company. If the AoA do not contain provisions regarding the transfer of share, the Company Law provides that the shareholders may freely transfer shares among shareholders. Where a shareholder intends to transfer his shares to any third party, the transfer is subject to the consent of the other shareholders. Meanwhile the other shareholders have a preemptive right to purchase the shares to be transferred.
With regard to FICLBS, a significant restriction is that a promoter cannot sell its shares until one year after the establishment of the company. If the company is established through a share offer, the promoters’ share acquired prior to public listing cannot be transferred until one year after the public listing takes place.
9. What is the foreign exchange control policy regarding the operation of an FIE?
In China, the foreign exchange is strictly controlled especially in the areas of the daily operation of an FIE.
All FIEs must obtain the approval from competent Administration of Foreign Exchange for the foreign currency account opening and conduct the foreign currency registration formalities. Such foreign currency registration should be examined annually together with the annual AIC examination. The opening bank has the right to supervise the FIE’s operational remittance in foreign currency.
During the operation, FIEs may borrow foreign currency from foreign banks in accordance with PRC laws and regulations, subject to the registration with competent Administration of Foreign Exchange.
The expatriate staff could change their salary and other lawful income derived from China into foreign exchange and remit out of China after paying relevant tax.
10. How to rent offices for FIEs?
FIEs can rent office in China for their daily operation. According to PRC Urban Real Estate Administration Law, all rental agreement should be recorded at the competent real estate administrative authority. Although no specific penalty is stipulated in the PRC Urban Real Estate Administration Law for those parties that did not record the rental agreement properly, more and more cities have published or are going to publish the rules to regulate the rental record in detail. FIEs need offices to conduct daily business operation. A valid address is required for FIE’s incorporation application, AIC and tax registration.
11. What are the basic tax privileges for FIEs?
In order to encourage foreign investors to make more investments in China, the government provides many incentives including tax privileges to FIEs. We brief the basic tax privileges for FIEs as follows:
(1) Only designated industries are eligible for tax incentives, e.g. production-oriented, advanced technology-oriented or export-oriented, etc.
(2) The location in which the FIE is established (or going to be established) is relevant. There are different special zones where reduced tax rates may apply.
(3) The operating period of the FIE must be considered (e.g. more than 10 years for production-oriented enterprises to enjoy tax holidays).
(4) Local governments may require the investment to reach a certain amount.
Tax incentives are available for corporate income tax (two-year tax holiday followed by three years of 50% deduction starting from the first profit-making year), import duty and VAT (imported equipments of qualified FIEs within the range of their total investment may be exempted) and business tax (which might be exempted for high-technology-related services).
Prior to 1 January 2008, Foreign Invested Enterprises (FIE) and domestic enterprises were taxed under two different regimes. FIEs and foreign enterprises were subject to the foreign enterprise income tax, the rate of which is lower than the respective rates for domestic enterprises. However, the new Chinese Enterprise Income Law unified the two different regimes, and the Income Tax Law of the People’s Republic of China on Enterprises with Foreign Investment and Foreign Enterprises was abolished as of 1 January 2008.
The newly unified tax rate of enterprise income is generally 25%. Small enterprises with less profit enjoy a rate of 20%, whereas high-tech enterprises encouraged by the State enjoy a preferential rate of 15%.
FIEs, which are enjoying current tax privileges, still have the chance to continue the advantages they had obtained before 1 January 2008. However, according to the State interim policy all enterprises including FIEs will be treated totally equal under Chinese tax laws and regulations by 2012.
12. Which law is applicable when a Chinese court hears a foreign-related contractual dis-putes case?
Parties to a foreign-related contract may generally choose the applicable law.
However, any elusion to any compulsory provision of the law or administrative regulation of the People's Republic of China by a party shall give no effect to the application of a foreign law, and the contractual dispute shall be subject to the law of the People's Republic of China. In case the application of a foreign law violates any public interests of the People's Republic of China, the foreign law may not apply, and the law of the People's Republic of China shall apply.
The following contracts, which are performed within the territory of the People's Republic of China, must be subject to the laws of the People's Republic of China:
(1) Contract on a Chinese-foreign equity joint ventures;
(2) Contract on a Chinese-foreign contractual joint ventures;
(3) Contract on Chinese-foreign cooperation in the exploration or exploitation of natural resources;
(4) Contract on the transfer of shares in a Chinese-foreign equity joint venture, Chinese-foreign contractual joint venture or wholly foreign-funded enterprise;
(5) Contract on the operation by a foreign natural person, foreign legal person or any other foreign organization of a Chinese-foreign equity joint venture or a Chinese-foreign contractual joint venture established within the territory of the People's Republic of China;
(6) Contract on the purchase by a foreign natural person, foreign legal person or any other foreign organization of share equity held by a shareholder in a non-foreign-funded enterprise within the territory of the People's Republic of China;
(7) Contract on the subscription by a foreign natural person, foreign legal person or any other foreign organization to the increased registered capital of a non-foreign-funded limited liability or company limited by shares within the territory of the People's Republic of China;
(8) Contract on the purchase by a foreign natural person, foreign legal person or any other foreign organization of assets of a non-foreign-funded enterprise within the territory of the People's Republic of China; and
(9) Other contracts subject to the law of the People's Republic of China as prescribed by a law or administrative regulation of the People's Republic of China.
13. How can an arbitration award made by a foreign tribunal be enforced in China and how can an award made in China be enforced in foreign countries?
China is a member state to the Convention on the recognition and enforcement of foreign arbitral awards concluded at New York in 1958 (New York Convention). Therefore, it is generally possible to enforce an arbitral award rendered in a foreign country, which is a member to the New York Convention. The party, who seeks enforcement of a foreign arbitral award shall file the application at the intermediate people’s court (city level but lower than the provincial level) directly, and such court shall make a decision within 2 months.
If the court decides to reject the enforcement of such award, it shall submit such case to the supreme people’s court for internal examination prior to make a final rejection decision. However, if such intermediate people’s court finds to enforce the award, it can enforce it without the involvement of the supreme people’s court.
An arbitration award made in China is also enforceable in foreign countries, which are member to the New York Convention.
China International Economic and Trade Arbitration Committee (“CIETAC”) and Beijing Arbitration Commission (the “BJAC”) are considered to be among the most reputable arbitration tribunal in China.
14. As a foreign bank, what kind of presence can I chose when doing business in China?
The following choices are available for a foreign bank: 1) representative offices; 2) branch banks; 3) wholly foreign owned subsidiary banks; and 4) joint ventures with Chinese banks.
The establishment of any of the aforesaid business presences has to be first approved by China Banking Regulatory Commission (“CBRC”), the supervisory authority over the banking sector in China. The minimum registered capital shall be RMB 1 billion or equivalent to exchangeable currencies.
A representative office, though limited mainly to liaison purpose, is important for any foreign banks, which newly enter in China’ market, because 2 years’ presence of such a representative office is the prerequisite for any foreign bank to apply for the opening of any operational branches/subsidiaries in China.
Branch banks and subsidiary banks are both allowed to offer banking services in China under National Treatment as of 11th December, 2006. They have the access to the full range of services like local banks. However, subsidiary banks (incorporated entities) are more encouraged than branch banks (unincorporated) insofar, as branch banks cannot offer RMB services to Chinese natural person customers - except receiving deposits each with a value of no less than RMB 1 million (roughly USD 145’000). A subsidiary bank is required to be capitalized with no less than RMB 1 billion, like any other Chinese banks.
A two-stage process is imposed by CBRC on any application for opening branch banks and subsidiary banks in China. The Establishment Application shall be first filed. CBRC will decide whether it approves or not within 6 months. Upon physical establishment, the bank should file its Operation Application and CBRC will decide whether to give operation license or not within 2 months.
The fourth alternative is a joint venture with local banks, which now are usually implemented by acquiring shares in some Chinese bank and is preferable in that the existing networks can be utilized. However, such acquisition by foreign banks is subject to the ceiling of 20% shares in one single Chinese bank.
15. Can a foreign bank receive deposit or offer other services in Chinese currency (RMB) in China?
Chinese branches and subsidiaries of foreign banks are in general allowed to receive deposits or make loans to Chinese customers with RMB. They can also offer services in RMB in other areas including letter of credit, bank guarantee, domestic settlement, honouring commercial papers, trading on governmental bonds, financial bonds, shares or other securities, insurance agency, foreign exchange trading agency, safe box, creditability investigation and consultation, etc.
However, to be qualified for such RMB businesses, the following conditions have to be met by such branch banks or subsidiary banks: 1) having operated in China for no less than 3 years; 2) having a profiting history of 2 years prior to the application; and 3) other prudential criteria explicitly required by CBRC.
Foreign banks shall determine the interest rates for deposits and loans and commission fees in accordance with PRC provisions. In handling deposits, foreign banks shall lodge deposit reserve funds in accordance with the provisions as regulated by the People's Bank of China.
Foreign banks may not only meet the prudent conditions as described by the CBRC in order to engage in RMB businesses aiming at citizens within China, but also have business networks which accord with its business features and development needs.
16. What are the main characteristics of the new Chinese Labor Contract Law?
The Chinese Labor Contract Law came into force as of 1 January 2008. This new law governs the establishment of employment relationship between enterprises, individual economic organizations, non-enterprise private entities and other entities and the workers thereof, as well as the conclusion, performance, alteration, discharge or termination of labor contracts.
Form of contract: the Law provides that a written labor contract shall be entered into between the employer and the employee within 1 month after the employee starts to work, except for the situation that the employee only works not more than 4 hours per day and not more and 24 hours per week for the employer, where an oral agreement shall also be acceptable. Failure to enter into the written contract by employer shall entitle the employee double salary for the period when such contract is absent.
Probation: for contracts with a 3 to 12 months term, the probation shall not be longer than 1 month; for contracts with a 1 to 3 years term, the probation shall not be longer than 2 months; for contracts over 3 years or without a fixed term, the probation shall not be longer than 6 months. The probation cannot be applied more than once to the same employee or to employees employed solely for certain tasks.
Non-competition: the employer may enter into a non-competition agreement with its senior staff, senior technical personnel and other employees assuming a confidentiality obligation, subject to a monthly compensation to be paid to the employee during the restriction period. The restriction period shall not exceed 2 years after the employment has been terminated.
Circumstances in which the employer may not terminate the contract except for the situations where the employer is entitled to terminate the contract with immediate effect:
1) During the time of illness or suffer of a personal injury of the employee;
2) The employee is caused an occupational disease or suffers a work injury and has been confirmed to have completely or partly lost the ability to work;
3) The employee who has been exposed to the risk of occupational diseases has not taken a physical examination, or during the diagnosis or medical observation period of such occupational diseases;
4) During the pregnancy, confinement or lactation of female employees;
5) The employee has consecutively worked for 15 years for the employer.
Compensation: the employer may not impose any liability of compensation on the employee except for the breach of the employee’s obligations regarding service term (related to training received by the employee), confidentiality and non-competition. The employer shall be liable to compensate the employee, if the employee terminates the contract based on his/her right to terminate the contract with immediate effect, or when the employer terminates the contract through agreement with the employee, or where the employer is entitled to terminate the contract with 30 days written notice.
Standard of compensation by the employer: for each full year the employee has worked for the employer, the employer shall compensate an amount equal to the employee’s monthly salary.
The employer’s liabilities for recruiting an employee who has not terminated labor contract with his/her former employer: in such case the employer shall assume a joint and several liability to compensate damages suffered by the former employer.
17. What are the outlines of the Chinese Mergers & Acquisitions regulations?
The Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “Provisions”) have been entered into force as of 8 September 2006. The main outlines are as follows:
1) Two main categories of Acquisition:
- Equity Acquisition: a foreign investor’s purchase by agreement of the equity interests of a shareholder in an enterprise other than a FIE (hereinafter referred to as the “Domestic Company”) or subscription to a Domestic Company’s capital increase, resulting in the conversion of the Domestic Company into a newly established FIE;
- Assets Acquisition: a foreign investor’s establishment of a FIE and purchase by agreement, through such FIE, of the assets of a domestic enterprise and operation of such assets, or a foreign investor’s purchase by agreement of the assets of a domestic enterprise and use of such assets to invest in and establish a FIE to operate such assets.
2) Requirements on M&A
Foreign investors acquiring domestic companies shall:
- comply with Chinese laws, rules and regulations;
- be in line with the principles of fairness, reasonableness, compensation of equal value and good faith;
- not lead to exemption of or limitation on competition;
- not endanger social order and public interests;
- not contribute to the loss of state-owned assets;
- be subject to the requirements on qualification of investors in terms of Chinese laws, rules and regulations;
- be consistent with the policies on land, industry and environment protection; and
- comply with other further requirements according to practical needs.
3) Involved competent authorities
According to the Provisions mainly six competent authorities are involved in M&A transactions:
- The examination and approval authority: Ministry of Commerce (“MOFCOM”) or its provincial level branches;
- The registration authority: State Administration on Industry and Commerce (“SAIC”) or the local administrations on industry and commerce authorized by SAIC;
- The foreign exchange administration authority: State Administration of Foreign Exchange (“SAFE”) or its local branches;
- The administration authority of state-owned assets: State-owned Assets Supervision and Administration Commission of the State Council, or the provincial level supervision and administration authorities on state-owned assets;
- The securities supervision and administration institution of the State Council: China Securities Regulatory Commission (“CSRC”);
- The tax registration authority: State Administration of Taxation and local administration of taxation.
4) Anti-monopoly inspection
The Provisions have anti-monopoly inspection, and where a foreign investor’s acquisition of a domestic enterprise involves any of the circumstances stipulated by the Provisions, the investors shall report the same to MOFCOM and the SAIC.
5) Time limit on capital contribution
The Provisions have strict time limit on capital contribution, if the capital contribution ratio of foreign investors is less than 25% of the registered capital of the enterprise. Such time limit is comparatively loser, if the capital contribution ratio of foreign investors is more than 25%.
18. What are the property rules in China?
Chinese laws know three types of ownership: state ownership, collective ownership and private ownership.
The laws determine which properties belong to the state and the State Council exercises the ownership rights of state-owned properties on behalf of the state.
The properties exclusively owned by the State are mainly urban land, minerals, rivers, maritime areas, radio frequency spectrum resources.
The laws also determine which properties are considered as collectively-owned realties and movables:
(1) Lands, forests, mountains, grasslands, wastelands and tidal flats that shall be in the ownership of collective as provided for by law;
(2) Buildings, production facilities, farmland, and water conservancy facilities that are in the ownership of collective;
(3) Facilities for education, science, culture, sanitation and sports, etc that are in the ownership of collective;
(4) Other realties and movables that are in the ownership of collective.
2) The acquisition of ownership
In general, the creation, alteration, transfer and extinguishment of property rights of movables are subject to and take effect upon the delivery of the property.
Change of property rights of realties is subject to registration with relevant authorities to be effective, unless otherwise provided by law (the exceptions mainly being: natural resources owned by the state are not subject to registration, property rights determined by court judgments and the acquisition of property rights due to succession and factual conducts take effects from the time of the judgment, succession or conduct).
Usufructuary right means the right to utilize the property. The major types of usufructuary rights are land use rights, water-intaking right, exploration rights, mining rights, fishery rights, contracted land management right, easement.
Although the Law generally permits both movables and immovable properties as being objects of usufructuary rights, all explicitly established usufructuary rights are related to immovable property.
i) Land Use Rights for Construction Purpose (Rights to Use Construction Land)
The Law provides that land use rights may be established on ground surface, beneath ground or above ground separately, and that newly established LUR shall not prejudice previously established usufructuary rights.
The automatic extension of residential LURs is also adopted by the Property Right Law, while the extension of all other LURs is subject to the application to and approval by the land authorities.
As regards the buildings, fixtures and their affiliated facilities built by the holder of the right to use construction land, the holder shall enjoy the ownership thereof, unless it is otherwise proved by any contrary evidence.
Unless it is otherwise prescribed by any law, the right-holder has the right to alienate, exchange, use as equity contributions, endow or mortgage the right to use construction land.
For alienating, exchanging, using as equity contribution, endowing, or mortgaging the right to use construction land, the parties shall enter into a corresponding written contract. The parties concerned may make stipulations on the contractual term. However, this term may not exceed the remnant term as stipulated in the first contract on transfer of the LUR.
Easement is a right derived from a contract between right holders of two immovable properties (dominant tenement & servient tenement), where the holder of the dominant tenement has the right to utilize the servient tenement to facilitate the use of the dominant tenement.
The right usually takes the form of passage through the servient tenement, objecting building on the servient tenement for better ventilation and lighting of the dominant tenement, objecting the owner of the servient tenement to make noises,. The specific Easement Right depends on the particualar agreement between the contracting parties.
The easement becomes effective upon entering into the Easement Contract. However, the right holder of an Easement Right cannot oppose the Easement Right to third parties, unless the right has been properly registered.
4) Property Right for Security
There are three types of Property Rights for Security: mortgage, pledge and lien. The object of mortgage can be either movables or immovables and the creation of a mortgage does not require the delivery of the property; the object of pledge can be either movables or certain types of rights (such as bills, bonds, equity interests, intellectual properties, receivables), and the creation of a pledge is subject to the delivery of the object or the corresponding pledge registration; the object of lien can only be movables, and the possession of the property by the lienor is indispensable for the right.
19. How to acquire land use rights in China?
In China, the ownership of land belongs to either the state or collectives (of farmers). The ownership of any land cannot be transacted, except that the state according to the respective rules and procedures expropriates (subject to adequate compensation to farmers) collective-owned land.
However, the rights to use land (LURs) can be applied for or transferred. Investors may acquire LURs either by applying for such right directly from the government (LUR Assignment) upon payment of assignment price, or purchase the right from a non-governmental entity (LUR Transfer). Both Assignment and Transfer are on a paid basis, which are the main and most usual way to acquire LURs. Free LURs are granted (LUR Allocation) in some exceptional cases, such as building of government offices, hospitals, military facilities and other infrastructure and public welfare facilities.
The assignment of all industrial purpose land must be subject to public sales such as bidding, auction or listing on a LUR market. And the assignment price must not be below the Bottom Price of that certain area which is fixed according to certain formulation.
The term of Assignment LUR lasts from 30-70 years. Most industrial land has a validity of 50 years.
20. How to have my trademark protected in China?
With very few exceptions, your trademark may not be protected by trademark laws in China unless it is registered in China.
1) National registration and international registration
There are two ways to have your trademark registered in China if you are a national of, or have domicile or real and effective industrial or commercial establishments in, a country party to the Madrid Union (both China and Switzerland are parties to the Madrid Union, for more information about parties to the Madrid Union please refer to www.wipo.int/members/en/).
One way is filing for registration directly to the Trademark Office of P.R.C ("national registration"), whereas the other way is filing for registration to the International Bureau of WIPO (IBOW) through the intellectual property authorities of your country, while at the same time especially requesting such registration to be extended to China ("international registration"). IBOW is an organization which administers the Madrid System, a system established by the Madrid Agreement and the Madrid Protocol for facilitating international registration of trademarks.
If neither you are a national of, nor you have real and effective industrial or commercial establishment in, a country party to the Madrid Agreement, you may only chose the national registration.
Compared to the national registration, the advantage of the international registration is that the time needed to acquire the registration is shorter. However the disadvantage is that your international registration certificate usually is required to be endorsed by the trademark authorities, if you want to rely on your trademark registration to activate Chinese legal enforcement authorities in certain circumstances, for example, taking raid action against fake products.
2) Procedures for national registration
For more details about the procedures for international registration, you are advised to contact the intellectual property authorities of your country.
For filing a national registration in China, a foreign applicant is required to entrust a certified Chinese trademark agent. Usually though not necessarily a law firm is entrusted, not only to facilitate the communications, but also to ensure that a certified and qualified trademark agent is entrusted and that a fair fee is charged. In some cases, a trademark agent will grant a firm in cooperation with it a considerable discount, which usually covers all or a substantial part of the expense you spent on retaining a law firm for this matter.
For filing a national registration in China, the documents you shall prepare include (a) Power of Attorney for the trademark agent you entrusted; (b) your valid business license or business registration certificate; (c) the specimen of the trademark in compliance with certain specifications in form. You should designate the classes of goods or services which you want to register your trademark on. If you want to claim priority, i.e. subject to certain conditions taking an earlier date as your filing date, a statement to this effect and the corresponding documents shall be additionally submitted.
With regard to the time frame for acquiring the registration, around one and a half to two years are needed, if the examination of the Trademark Office can be passed and no dispute is raised during the time period for public announcement.
21. Why and how shall I have my trademark recognized as a “well-known trademark” in China?
As defined by Chinese law, a "well-known trademark" is a trademark which is widely known to the relevant people, and which has a higher reputation.
The "well-known" status of your trademark promises a much bigger market shares for your products or services. Besides and from a legal point of view, a “well-know trademark” in China may enjoy certain “privileges” over a non-well-known trademark, including that (a) a "well-known trademark" can prevent same or similar trademark from being registered and used on the same or similar goods or services, or even on different or dissimilar goods or services, depending on whether the "well-known trademark" has been registered in China or not; (b) the five years’ time constraint imposed on a trademark holder’s right to request the cancellation of an improperly registered trademark does not apply to a "well-known trademark" holder; and that (c) if someone registered a "well-know trademark" as his company name, the holder of such trademark may request competent authorities to cancel such registration. These legislative privileges are more than significant to the holder of a renowned trademark, especially in light of that enforcement of intellectual property in China is not very satisfying at present.
With regard to the procedures for recognition of a “well-known trademark”, it shall be noted that there is no special and independent system for that. Rather a “well-know trademark” can only be recognized upon your special request in a specific case, being a dispute you raised against a same or similar trademark to be registered or already registered, or an action you initiate with legal enforcement authorities against the use of a same or similar trademark, or a lawsuit in which your trademark is claimed to be protected, or any other occasion where you want your interests attached to your trademark to be legally protected.
Depending on what the specific case is, one of three authorities upon your special request has the right to recognize your trademark as “well-known”. They are the Trademark Office, Trademark Review and Adjudication Board, and law court.
No matter who of the above three is in the position of determining whether a trademark is "well-known" or not in China, the factors that shall be taken into consideration for such determination are the same: (a) how well is that trademark known by the relevant public; (b) the period during which that trademark has been in use; (c) the period, extent and geographic scope of any publicity of that trademark; (d) the record of protection of that trademark as a "well-known trademark"; and (e) other factors for which that trademark is "well-known". While not all of the five factors are required to be satisfied, you must provide sufficient evidences to establish the fact that your trademark is really known well in China.
Although the recognition of a "well-known" trademark is supposed to be relevant only in the specific case where the recognition is triggered, the practices are substantially different, due not only to the fact that the record of being protected as a "well-known trademark" will spare further recognitions in subsequently same or similar cases, and presumably will be relied on in subsequently different or dissimilar cases, but also the fact that State Trademark Office will regularly issue a list of trademarks which during the past period of time are recognized as "well-known trademarks". The implication is that the recognition of a trademark as "well-known" has an impact beyond a specific case. In addition, there is no restriction in terms of time period for a trademark holder to promote his brand as “well-known trademark” once his trademark is recognized as a “well-known” one in a specific case.
22. I intend to conclude an agreement concerning technology with a Chinese company or individual. Are there any restriction thereto or any formalities therefor?
Basically, Chinese laws and regulations concerning technology import and export divide the technologies to be imported or exported into three classes based mainly upon their impact to the national security and people’s health: (a) the technologies that are forbidden to be imported or exported, (b) the technologies of which the import or export is restricted; and (c) the technology that may be imported and exported freely.
With regard to the scope of the first two kinds of technology, the Chinese government issues and periodically updates lists, which specify what technologies are not forbidden or restricted to be imported or exported. The technologies listed on these lists are of a very limited scope.
The second kind of technology is regulated by permit. That means, if you want to import or export any technology of the second kind, the import permit or export permit shall be acquired beforehand.
While you don’t have to acquire a permit to import or export any technology of the third kind, you shall still have to register your technology agreement with the Ministry of Commerce within due time after the agreement is concluded. If the subject technology is a patent registered in China, the agreement shall be additionally registered with the Patent Office and an assignment agreement concerning a patent which is registered in China will not be effective until the registration with the Patent Office is completed.
23. What are the anti-monopoly rules in China?
The Anti-monopoly Law, which entered into force as of 1 August 2008, applies to monopolistic behaviors in economic activities within the territory of. China.
However, it may also apply to monopolistic behaviors, which take place outside the territory of P. R. China, if such monopolistic behaviors have the effect of restricting or excluding competition on China’s domestic market. For instance, it is subject to the review under the anti-monopoly law, if an association of foreign suppliers instructs its members to only sell products to a specific Chinese company and to reject any transaction with other Chinese buyers.
The following three forms of behaviors are defined as monopolistic behaviors:
1. Monopolistic agreement concluded between undertakings;
2. Abuse of dominant position;
3. Concentration among undertakings that has or may have the effect of restricting or excluding competition
For instance, as regards the conclusion of agreements between competing undertakings an agreement with any of the following content is prohibited:
1. Price fixing or manipulation;
2. Restriction over the quantities of the production or sale of products;
3. Split of the market for the sale of products or supply of raw materials;
4. Restriction over the purchase of new technologies or new equipments, or restriction over the development of new technologies or new equipments;
5. Collaboration in obstructing transactions;
6. Other forms of “trust agreement” identified by the anti trust authority of the State Council from time to time.
The Ministry of Commerce will be the main administrative agency in charge of the anti-monopoly law enforcement.
24. What are the Chinese bankruptcy rules?
As of 1 June 2007 the Enterprise Bankruptcy Law entered into force. The law only applies to enterprise legal persons and aims to protect both creditors and workers of insolvent enterprises. The law embodies the notion of putting people first, as it fully considers worker's interests. At the same time it is in accordance with standard international practice in order to protect lender’s interests.
If an enterprise legal person can not pay off its debts due, the creditor may make an application to the people’s court for the debtor’s reorganization or bankruptcy liquidation. The enterprise legal person, who can not pay off its debts, may also make an application to the people’s court for reorganization of the company or bankruptcy liquidation. Additionally, it may file an application for a compromise with its creditors. The application has to be filed at the people's court where the debtor is domiciled.
When accepting an application for bankruptcy, the court assigns an administrator, which takes over the property of the debtor, takes management decisions, disposes the property and acts for the debtor in legal proceedings.
The bankruptcy procedure shall embrace the debtor’s assets in- and outside of the territory of the People’s Republic of China.
After the debtor’s assets have been liquidated, the costs for bankruptcy liquidation and community liabilities shall be paid first. The remaining amount shall be distributed to the creditors in the following order: 1. employees’ salary and social securities, 2. taxes, 3. the common claims.
Where the bankruptcy assets are not sufficient to satisfy the demands for repayment that are arranged in the same group, it shall be distributed on a pro rata basis.
A director, supervisor or senior manager who violates his obligations of being honest and diligent and thus causes enterprise bankruptcy shall be subject to relevant civil liabilities according to law. Any legal entity that violates the provisions of the Enterprise Bankruptcy Law and thus constitutes a crime shall be investigated for criminal liabilities according to law.
25. How can foreign investors bring up their complaints to the competent governmental agency concerning their foreign investment?
FIEs and their investors can file their complaints (including claims, suggestions, opinions) at the State Center for Complaints made by FIE and the competent departments of local governments, if they believe that their lawful benefits have been infringed by Chinese administrative organs. The MOFCOM Coordination Office for Complaints made by FIE shall be responsible for coordinating, instructing and supervising the acceptance and hearing of such complaints, formulating policy principles for resolutions of disputes.
When filing a complaint, all documents must to be in Chinese, and the particulars on basic information, relevant evidence, contacting and so on shall be included thereof.
The complaints will be rejected, if i) the complainant has started or already finished litigation, administrative reconsideration or arbitration procedures in the same matter, ii) the compliant has been accepted and heard by discipline examination or supervisory authorities or iii) the compliant is made in an anonymous manner.