Our Statement of Purpose

Welcome to our new weekly blog on the legal complexities of doing business in China (and the legal issues faced by Chinese businesses wishing to enter the US market as well).  Think of us as your “legal interpreter”, guiding you thru the intricacies and obstacles of these two entirely different legal systems.

Not long ago, this sort of discussion might have seemed far-fetched and foolish.  With dramatically different political and cultural systems, the odds of creating joint US-Chinese business ventures would have been both improbable and unimaginable.  Even today, substantial trade barriers, tariffs and currency issues still remain to be resolved before free and open trade truly begins.  But as these barriers continue to fall (particularly after China’s admission into the World Trade Organization in December of 2001), one thing is certain:  the world’s two largest economies are destined to become increasingly interlinked and forever interconnected.

Just look at the amount of our national debt which the Chinese now hold.  According to Wikipedia,” foreign exchange reserves were $819 billion at the end of 2005, $1.066 trillion at the end of 2006 and $1.9 trillion by June 2008. In addition, by the end of September 2008 China replaced Japan for the first time as the largest foreign holder of US treasury securities with a total of $585 billion, vs Japan’s $573 billion. China’s foreign exchange reserves have become the  largest in the world.”

So what will they do will all that money?  Invest in new infrastructure and new industries (for one thing) and (increasingly) participate in direct foreign investments.  Again, as the sources who contribute to Wikipedia state, “Outward foreign direct investment is a new feature of Chinese globalization, where local Chinese firms seek to make investments in both developing and developed countries.”

The point is clear.  China can no longer be ignored by anyone in business today.  With the fastest-growing major economy for the past 30 years with an average annual GDP growth rate above 10%,  the economy of the People’s Republic of China has exploded to become the third largest in the world after the United States and Japan with a nominal GDP of US$4.6 trillion (2008) when measured in exchange-rate terms. It is the second largest in the world after that of the U.S. with a GDP of $7.8 trillion (2008) when measured on a purchasing power parity (PPP) basis.  Anyone who fails to grasp the power of this formerly “sleeping giant” does so at their risk.

China may well turn out to be THE emerging market in the decade ahead and one of the principle engines for global growth well into the 21st.  So the immediate question arises, “how do you capitalize on this opportunity” and “how do US and Chinese partners do business together?”  Specifically, what are the legal hurdles each face when dealing with the other and the latest strategies to overcome these obstacles and succeed. 

There is no one answer to this complex question, as the laws and legal guidelines in both systems are quickly evolving and changing.  As part of its WTO accession, for example, China undertook to eliminate certain trade-related investment measures and to open up specified sectors that had previously been closed to foreign investment. New laws, regulations, and administrative measures to implement these commitments are being issued as we speak.  But major barriers still remain to foreign investment including an opaque and inconsistently enforced set of laws and regulations and the lack of a truly rules-based legal infrastructure. Warner Bros., for instance, withdrew its cinema business in China as a result of one single regulation that required Chinese investors to own at least a 51 percent stake or play a leading role in any foreign joint venture. Others, such as British Petroleum, have follwed suit in frustration over other Chinese regulations and requirements.

Most recently, Google has threatened to pull out over continuing censorship and cyber attack issues.

Conversely, many Chinese companies, flush with foreign cash, have sought to make investments in foreign countries (like the US) with equal confusion and concern.  For in a society that prizes “connections” and “trusted middlemen” more than anything else, whom do they turn to for advice, introductions and legal advice in a complex system such as ours?  

America can be an equally daunting place to do business for those unfamiliar with our powerful legal system (and all its myriad of rules and regulations).  It’s almost like America (with its supreme rule of law built around our fundamental principle of protecting private property) is the anti-thesis of everything the state controlled, Communist Chinese legal system both understands and stands for.  You couldn’t find two more unlikely legal partners.

It’s that confusion and contrast that we will attempt to understand and explore each week as we bring to light the legal challenges and changes in these two systems that dramatically affect and shape our dual destiny.  We invite you to “join the conversation” as we continue to explore the legal issues which complicate our inevitable US-Chinese trade and investments, and bring to light the latest in ideas and information on this fascinating and confusing subject.

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