How is the legal environment, business traditions as well as investment environment in China?
China government has adopted liberal policies to attract foreign investment. While investment in certain industries needs to be approved by central Government authorities, such as the Ministry of Commerce, the authority To approve most foreign-invested enterprises, where total investment Is less than US$300 million, has been delegated to provincial, regional and Municipal governments. Some investment projects, which exceed the US$300 Million threshold, but do not require overall state planning control, can also be Approved at the local level.
In line with WTO commitments to create a level playing field, the China Government has extended equal tax treatment to all enterprises, whether Foreign-Invested or domestic. However, in order to continue encouraging technological Development, certain concessions have been introduced to high technology Industries.
China has introduced a framework of commercial law to encourage foreign Investment. At provincial, regional, and municipal levels, specific regulations also exist to meet this objective. China commercial laws are still evolving. Contracts, including foreign economic contracts, are governed by the Contract Law, which took effect in October 1999.
Foreign investors in China often encounter the mindset that contractual Documentation should be kept to a minimum and that all business matters can Be resolved if both parties adhere to the basic concepts of equality and mutual Benefit. The assumption is that business decisions should be the subject of prior Discussion and agreement by both parties and that all differences should be settled by a process of conciliation without recourse to third party arbitration or to The courts of law. In practice there is a growing recognition among investors of the importance of including an arbitration clause when drafting a contract. Arbitration can Provide a structure for investors and local partners to resolve their differences While continuing to work together, thereby avoiding more expensive litigation Procedures. A popular option is to agree to refer any dispute to the China International Economic and Trade Arbitration Commission (CIETAC). This is the Permanent arbitration body of the China International Chamber of Commerce. Foreign businesses usually find that their counterparts in China are Knowledgeable about the potential investor or trading partner’s company, its Competitive position and the worldwide situation of the industry concerned. Negotiations are likely to be long and detailed, and it is important for foreigners Involved in the negotiation process to demonstrate patience, tact and politeness. Aggressive negotiation tactics are likely to fail, and exerting excessive pressure in a negotiation may result in a “false positive” outcome, where the counterparty Appears to agree, but is doing so just to save face.
