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Nordic Centre, Fudan University, 25 June 2012

Professionalization of foreign businesses in China

Managing Partner, Wikborg, Rein & Co., China Chairman, Norwegian Business Association, Shanghai

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Two Images from old China

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Two Images from old China

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Wikborg Rein in Asia

In Asia since 1965 The largest Scandinavian lawfirm in Asia About 40 lawyers (Norwegian, Singaporean, British, American and Australian) working from offices in Singapore, Shanghai & Japan Wikborg Rein clients in Asia include: The majority of the Norwegian business community in several Asian countries National governments, hereunder Norway, Finland, Cambodia and Guam A number of state-owned and Fortune 500 companies within the maritime & energy markets, hereunder the Chinese Oil Giants 12

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Wikborg Rein Credentials in Asia

Ranked by Asian Legal Business (ALB) among the 30 fastest growing lawfirms in Asia in 2010 Recommended by Chambers and Legal 500, as the only Scandinavian lawfirm, in several Asian countries Lloyds List Maritime Lawfirm of the Year in Asia 2011 Shortlisted finalist for Maritime Law Award, Seatrade, 2012 A Wikborg Rein partner listed by ALB among the 100 most influential lawyers in Asia and as a Leader in the Asian legal community in 2011.

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The World Banks ease of doing business Global Rankings

Ease of doing business index ranks economies from 1 to 183, with first place being the best. A high ranking means that the regulatory environment is conducive to business operation. Singapore number 1 USA number 4 Norway number 6 China number 91 Still, China is the worlds second largest trading nation, the largest exporter and the second largest recipient of FDI

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A few current trends in China

Slowdown? Slow but steady RMB appreciation The wave of outbound investments is just starting Go west Successful Party influence in all important parts of society

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A few current trends in the Scandinavian Community

Considerable professionalization and complexity Development: cheap production - market proximity - outbound opportunities More focus on hiring high qualified Chinese employees, but foreign companies are becoming less popular as employers A different and more diverse community of businesses Private Equity and Venture Capital will rise

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Sino-foreign commercial interaction takes many forms

A short- or long term contract is entered into between a foreign and a Chinese company A foreign company acquires a Chinese company or the other way around A Chinese and foreign company enters into a Joint Venture cooperation in China or abroad A Chinese company establishes a wholly owned presence in Scandinavia or the other way around The above examples of interaction necessitate various degrees of contact with individuals, authorities and legal institutions in each others countries

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Sino-foreign interaction a few basics to keep in mind

Cultural differences: just as much of an opportunity as a challenge Scandinavia is homogeneous; China is a developing country with extreme diversities Scandinavia is a Christian, guilt avoiding culture. China is a shame avoiding culture, in which shame/loss of face, not guilt or bad conscience, is to be eluded Difference between ideals of guanxi vs. charity (nestekjrlighet) Communication barriers due to different verbal approaches, even where the parties share a common language (English, etc.) BUT: our differences are what makes us attractive to the Chinese, and the window of opportunity is now!

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Sino-Norwegian contractual relationships - Norwegian awareness with regard to Chinese contract law and mentality
The traditional lack of focus on written contracts Chop equals signature The importance of business scope Choice of law and dispute resolution mechanism a key clause in every contract; lack of which may render the contract meaningless

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Negotiating with Chinese Take a deep Breath

Negotiations are likely to be perceived as chaotic and unsystematic with A lot of people involved It being hard to spot who the decision-maker is, if he is even there Skipping back and forth between the clauses and activity often perceived by Westerners as back-trading on points you considered as closed and settled The Chinese will also be patient. Be prepared for a lot of sightseeing and meals before ever getting down to business Do not get frustrated or angry; that is the intended purpose! Special notes on co-operation with Chinese state-owned companies: Complicated approval processes What is the personal motivation on the other side of the table? Face issues on the companys even Chinas behalf The importance of involving high level people on your side

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Doing business in China without establishing - How to structure agent relationships?

Chinese culture; relations and guanxi Guanxi involves having a relationship in which one may expect favors and reciprocities from each other While we are suspicious of doing business with relatives and friends, the Chinese are suspicious of doing business with someone they do not know Scandinavian companies may be prosecuted under both Scandinavian, Chinese, British and American law for actions committed in China by company employees or agents/middlemen

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Establishing a Scandinavian owned presence in China

Investment restrictions - The Investment Catalogue and Guidelines Encouraged Permitted Restricted Forbidden Investment incentives (corporate income tax, VAT and import duties) Investment structure, ownership and capitalisation issues Approval requirements The tax reform from 1 January 2008 less incentives but still available

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Typical foreign business vehicles in China

Representative Office Wholly foreign-owned enterprise (WFOE) Joint Venture (Equity Joint Venture or Co-operative Joint Venture) Limited liability partnerships (new regulations in force 1 March 2010) Heavy restrictions on foreigners ability to invest in listed companies

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Acquisition of an already existing Chinese entity

Significant authority involvement Need for structural changes if the company acquired is a domestic company (need for transformation from domestic to FDI company) All rules portrayed above still apply The Catalogue needs to allow your business involvement in that particular type of business You need to go through the same approval processes Capital requirements Etc.

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Investing in China Special attention

In addition to the normal Western style due diligence, pay special attention to Irregularities in the target company (tax issues, accounts for different purposes, etc.) The people involved (background check important) Labor disputes (exploded after new labor law in 2008) Review of local authorities and the relationship to these Land use rights and various licenses/approvals

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Protection of intellectual property in China

A few practical examples 80% of the worlds fake goods are produced in China Registration of all intellectual property rights is the first step of protection Contractual techniques to minimize exposure

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Conclusions
There are risks and challenges related to investments in China These risks are, however, increasingly manageable due to i.a. maturing of the Chinese business climate and professionalization of the Norwegian infrastructure in China A majority of multinationals established in China are more profitable there than anywhere else There are windows of opportunity now that are likely to be narrowed or even closed within just a few years

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Contact us
Contact persons:
Geir Sviggum Yafeng Sun Steffen Pedersen Tormod Ludvik Nilsen gsv@wrco.com.cn yfs@wrco.com.cn ssp@wr.com.sg tln@wrco.com.cn

Tlf. (+86) 21 6339 0101 Fax (+86) 21 6339 0606 Visiting address: Suite 1902, No. 300 Middle Huaihai Road, 200021 Shanghai, China

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