Foreign Investors Lose Their Hotel Investment

November 25, 2002

Alleging that a local court stole their business, a group of foreign investors have appealed an order to push them out of a US$4-million joint-venture hotel in Dandong, Liaoning province.
In April, an intermediate court in Liaoning province made two Australians, a Canadian and an American - from Hong Kong-based FAM Engineering - abandon the 220-room Dandong International Hotel and sent 50 police officers to enforce the order by changing the management company to the Dandong city tourism bureau. They also removed the joint venture's imported hotel furniture and sanitary equipment.

Despite the foreign side's protest, the court put the hotel under receivership and appointed a management company to run it and stated that the 50-50 equity joint venture was insolvent. According to the foreign venturers' statement, unknown to them at the time the Chinese partner, the Dandong Tourism, lost money by illegally transferring hotel construction loans. Dandong Tourism claims the foreign side should have known, since everything was done through a reputable bank.

The venture took over the hotel building in 1992 and opened it in 1994.

The dispute illustrates the risks faced by foreign investors operating on the mainland ventures despite advances in laws to protect them. Since the three-star hotel had broken even and begun to show signs of earning money, the city may have used the court to gain control.

"We lost everything". "They kicked us out. No reason. It's a way to rob foreign investors." Beijing-based joint venture lawyers the court should not have put the hotel into receivership or up for liquidation without the foreign partner's consent. If the foreign side thought its local partner did something improper with loan money, they had to file a separate lawsuit for damages.

In October the Liaoning governor's deputy secretary set up two mediation meetings, but at the second one, in Beijing, a representative of the foreign investors was put under house arrest. They claimed their lawyer's telephone lines were also bugged, and did not answer calls.

Kodak Not Worried about New Antitrust Provisions

November 5, 2002

Photography giant Eastman Kodak has rejected market suggestions that the group will be affected by proposed antitrust provisions aimed at foreign firms. Under the draft rules last month by the Ministry of Foreign Trade and Economic Co-operation, foreign firms that accumulate more than a quarter of the domestic market in any industry will face an antitrust hearing.

Kodak, with a market share of more than 60 per cent in camera film, is among the multinationals likely to be affected.


Foreign Ventures Avoiding Taxes?

November 4, 2002

According to China Business Times thousands of foreign-invested ventures in China evade tax by reporting false losses, transfer pricing, inflating their production costs and under-reporting the price of their final products. The China Business Times quoted official figures as showing that, between 1988 and 1993, 35 to 40 per cent of these firms reported losing money, with the figure rising in 1993 and 1994 to between 50 and 60 per cent. From 1996 to 2000 the figure was 60 to 65 per cent.

The most common method, accounting for 60 per cent of all types of tax evasion, was inflating the cost of production equipment, raw materials, components and labor and under-reporting the cost of the final product, to reduce the profit or leave no profit at all. Another method was to create a loss by importing into China less capital than promised and to rely for working capital on high-interest loans from companies abroad that are related to the venture and paying them interest on the money, as a way to direct the profit abroad.

A major factor facilitating evasion is China's lax regulatory and enforcement system for tax collection, which lags far behind such jurisdictions as the United States, Japan and Hong Kong. Regulation is complicated by overlapping and often conflicting departments and local governments who want to retain foreign investors and do not want to move against them. The collectors too are handicapped by poor enforcement procedures and lack of evidence, unless it is volunteered by a member of the public.
Still, whether the Chinese Tax department wants to recognize it, but other evidence indicates that the majority of foreign firms in operating in China are losing money currently.

Beijing Allows Foreign Firms into Ailing Sectors

November 4, 2002

Beijing has issued new rules allowing foreign companies to buy into listed state-owned enterprises in its latest effort to attract foreign capital and expertise to help ailing sectors. However, the new rules, released in a circular approved by the State Council, do not make it clear whether foreign companies would in fact be allowed to take controlling stakes.

China has about 1,200 companies listed on the Shanghai and Shenzhen stock exchanges. Most are state-owned enterprises with the majority of shares being legal-person and state shares. Legal-person shares are held by legal entities including government-controlled enterprises and institutions. State shares are government-held. These account for about two-thirds of China's US$500 billion stock market capitalization, are not tradable.

The circular said foreign companies buying shares of listed state-owned enterprises had to comply with guidelines listed in the "Industrial Catalogue for Foreign Investment" which list which industries are open to foreign investment. Also, now state-owned and legal-person shares can, in principle, be sold through open bidding still the local governments or departments were not allowed to transfer shares without the approval of the central government. The circular does not make it clear whether international companies can take controlling stakes.

Beijing requires transactions involving the restructure of state enterprises or the management of state shares to be examined by either Moftec or the finance ministry and larger transactions need the approval of the State Council.

Survey Indicates Support for Direct Elections and Legal Reform

November 2, 2002

An overwhelming majority of residents in five major mainland cities are in favor of direct elections for officials and an overhaul of the justice system, according to a government survey involving a total of 3,000 respondents in Beijing, Shanghai, Shenyang, Guangzhou and Hangzhou.. The respondents also said the 16th party congress should focus on social welfare, job creation, the legal system, medicine, elderly care and environmental protection.

More than 80 per cent said they wanted to elect their officials, 91 per cent said the justice system was unfair and nearly half wanted the Communist Party to reform the political system at its congress next week.

Observers have noted that it is rare for the government to conduct official surveys focusing on the concerns of ordinary people. They said the exercise was apparently related to the forthcoming party congress.

The survey found that 37 per cent of the respondents strongly supported open elections while 46 per cent expressed some level of support. Around 65 per cent said they wanted an end to the system of lifetime tenure for public officials, while 22 per cent supported it.

On the legal system, around 91 per cent said it was unfair and unjust - 70 per cent blamed this on the poor quality of legal officials, while 23 per cent said it was due to bad legal procedures. Seven out of 10 respondents wanted legal procedures to be simplified.

Beijing's Anti-trust Provisions May Affect Multinationals

October 24, 2002

Leading multinationals may have problems of Beijing's proposed anti-trust provisions aimed at preventing them achieving market dominance in any sector through acquisitions. Although the provisions seem to go against policy of attracting foreign investment especially in ailing State Owned Enterprises

The draft merger and acquisition provisions (MOFTEC) use market share as a key benchmark of judging whether tighter scrutiny will be required Foreign firms with more than one-quarter of domestic market share will trigger a special hearing, as part of the rules.

Market research data indicated multinationals likely to be affected by the provisions included Eastman Kodak, with a near 50 per cent market share in camera film; Nestle (China) with a 38 per cent share of the mainland's ready-to-drink coffee market; and Procter & Gamble Guangzhou with about 30 per cent of the hair-care products sector. Hewlett Packard (China) and Epson (China) respectively have 25 per cent and 30 per cent of the high-end internet based server and computer printers markets.
Companies highly reliant on acquisitions for growth would be most affected. Still the government clearly defined industry boundaries.

Chinese Company Denies Patent Infringement

September 26, 2002

Shenzhen-based BYD, the world's fourth-largest maker of lithium-ion (Li-ion) rechargeable batteries, has denied it infringed on patents Sanyo Electric.

Sanyo Energy (USA) - a unit of Osaka-based Sanyo Electric - has stated it had filed a lawsuit in the Southern District court of California, seeking an injunction prohibiting BYD from selling and importing Li-ion batteries into the US, since BYD had infringed its US patents. Sanyo is also seeking an unspecified amount of compensation.

Sanyo had purchased some BYD Li-ion products and came to its own conclusion early this year that they had infringed two of its patents. He said the company only filed the suit this week because it had unsuccessfully asked BYD to stop exporting the products.

Land Grant System to be Changed

September 25, 2002

Mainland regulations governing the transfer of land-use rights put the issue on a national level. The Ministry of Land and Resources has promulgated Decree No 11 "Regulation Concerning Sale by Tender, Auction and Publicly Listed Offering of State Land-use Rights". Within the next five years the central government will completely reorganize its present system of granting land-use rights, and a mandate that the granting of nearly all land-use rights for development purposes be conducted on an open and competitive basis.

The law requires land rights for commercial use, tourism, entertainment and housing to be transferred through tender, auction or public listing on a municipal land exchange. Now, most transfers of land-use rights are still conducted through private treaty sale, and therefore conducted on a confidential basis shielded from direct competition with no public records readily available.

The new system is intended to enhance the transparency of China's land disposal system at the municipal level and provide an easier channel for smaller local developers or foreign investors to enter China's urban land market, stimulating a higher level of market activity and bring the operation of its domestic real-estate industry more in line with international practices and expectations.

But what is said and done in China are always different. In Shanghai, the type of development sites that have become available for open bidding in the city during the past year are mostly located in urban fringe areas. The most valuable locations in the inner city are still only available for sale by private treaty, basically to Chinese with connections in the government.
Furthermore, of the sites publicly tendered they were not necessarily sold to the highest bidder, but awarded by the Tender Evaluation Committee based on a group of factors, which have not yet been made public. The bureau has stopped publicizing results of subsequent land tenders and is not sure when it will start again to provide tendering information.

Shanghai has also served as an example of how a small group of determined local developers, with good market intelligence concerning the impending regulatory moves, succeeded in circumventing the system. They moved quickly to take a number of the last remaining prime inner-city sites by private treaty before the new regulations came into effect.

China's Foreign Trade Ministry Sued

September 21, 2002

China's foreign trade ministry is being sued for the first time after a Chinese firm challenged a ministry order that stopped its attempt to force a foreign partner out of a property venture. This is just another example why for foreign investors rushing into the potentially vast but often fickle Chinese market should be cautious and should hire the proper outside consultants. This is just one of the many legal actions against the foreign trade ministry.

The legal issues revolve around the control of a joint venture set up to develop a multi-million-dollar hotel, apartment, office and business complex on prime real estate in Beijing. In 1995, Beijing Second Light Industrial Group and Hong Kong Galilee International Holdings agreed to set up a property venture in which Galilee invested US$12 million into the new company for a 60-per cent stake. The Beijing firm took a 32-per cent stake representing its rights to the land. A third mainland company took the remainder.

In 1996, Galilee helped land a deal with South Korea's Daewoo Corp to arrange US$235 million in loans for the project. Daewoo was hit by the Asian financial crisis in 1997. After investing US$35 million into the project it decided to cut off funding. Construction on the project was halted. The Beijing firm asserted to city authorities that the deal was invalid because nearly two-thirds of Galilee's investment was made illegally in RMB rather than in foreign currency.

Galilee lawyers admitted the firm violated China's foreign investment rules by routing those funds through a Guangdong-based company. In August last year, the Beijing Bureau of Industry and Commerce ordered Galilee to honor its contractual pledge to invest US$12 million. The Beijing Economic and Trade Commission went a step further, authorizing the Beijing group to declare Galilee's investment void and wipe out Galilee's shares.

The case caught was notice of the foreign trade ministry, which overturned the commission ruling, stating flaws in Galilee's investment were no grounds to deprive it of its stake.

(Source: REUTERS)

Workers Sent to Hospital after Fume Scare

September 20, 2002

Toxic fumes in a Zhuhai factory sent 90 employees of the Japanese-Chinese joint venture, Matsushita Electric Motor Co, to hospital this month.

Local authorities shut down the factory to investigate the fumes. The incident occurred in one of the factory's workshops that makes miniature electric motors for video-disc players and photocopiers, according to a receptionist at the company.

(Source: ASSOCIATED PRESS)

Beijing Moves to Protect Trademarks

September 16, 2002

Famous foreign trademarks can expect better protection from counterfeiters under guidelines being drafted in Beijing to bring domestic intellectual property rights regulations in line with the mainland's WTO and Trade Related Aspects of Intellectual Property (TRIPS) commitments.
Owners of well-known trademark status allows brand owners to effectively block others from registering identical or similar trademarks for a wide range of goods and services, even those not yet registered by the well-known trademark owner.

Mainland authorities are also required to more vigorously investigate and crack down on infringements of well-known trademarks. Well-known trademark owners are further entitled to stop others from using the brand name as part of their company names.

New guidelines encouraging judicial authorities to pursue criminal investigations into infringement of well-known trademarks. Offenders could be sentenced to up to seven years in prison for counterfeiting. But criminal prosecution is normally reserved for very serious violations or repeat offenders, especially in industries such as pharmaceuticals, liquor and tobacco.

Under new implementation rules to the trademark law, which came into force yesterday, well-known trademark status will be granted on a case by case basis during trademark infringement prosecution and enforcement.

The pending guidelines on well-known trademarks are expected to meet China's commitment to give domestic and foreign firms equal treatment as a precondition to its accession to the WTO last December. China had certified 196 well-known trademarks by the end of 2000, but none were foreign brands, and so far no foreign trademarks have been formally certified by Chinese authorities as "well-known".

In April 1999, just ahead of premier Zhu Rongji's visit to the United States, the State Administration for Industry and Commerce issued a list of "major trademarks" to receive national priority protection. The initial list included 130 foreign and 150 domestic trademarks and was updated in 2000.

Counterfeiting is endemic in China, with few sectors immune to trademark infringements. In 2000, the State Administration for Industry and Commerce alone probed about 22,001 allegations of counterfeiting which is only a small portion of what is occurring.

Foreigners Face Higher Expenses

September 5, 2002

A document on the policy revision was quietly issued early this year that foreign investors would, for the first time, be required to pay land-use tax to the Beijing Tax Bureau by October 20. Preferential tax holiday policies were issued by provincial and municipal authorities over the past 20 years to attract foreign capital and technology. Officials claim the revised policy was based on the principle that China's WTO membership required that foreign and domestic investors be treated equally.

Foreign industrialists in Beijing are about to lose a land-use tax exemption they previously enjoyed claiming that the elimination of the land-use tax holiday would only have a minimal impact on commercial and residential land users, since the tax is calculated on the site area involved and the dollar amount is usually insignificant.

However, for foreign manufacturers, whose factories often occupy large tracts of land, the revised policy may result in higher operating costs. In Beijing, the land-use tax was payable on sites graded one to six, with the highest (grade one) rate set at US$ 1.25 per square meter per year.

Copyright Law to Provide Fine Up to $US 12,000

August 16, 2002

The State Council has approved regulations to back up the national Copyright Law, including a clause that allows a maximum US$12,000 fine for using someone's work without permission. The 38-part Implementation Regulation was designed to improve enforcement of the law and also fulfilled China's copyright obligation under World Trade Organization rules.

The regulation specifies equal legal treatment for foreigners and mainland copyright holders. It states someone who uses copyrighted material must pay the rights holder within two months. It spells out how previously published works can be re-used free of charge for research, study or commentaries.

Last October, the National People's Congress issued a new Copyright Law but without regulations, laws are too vague. Still the major issue will come down to China backing the regulations with enforcement.

Yamaha Wins Trademark Case

August 15, 2002

Yamaha Motor, the world's has won close to US$120,000 (although Yamaha was seeking US$ 4 million) in a judgment against a mainland copycat in a landmark case tried in a Chinese court. The Tianjin Higher People's Court also ordered motorcycle maker Tianjin Gangtian Group and four of its subsidiaries to stop abusing Yamaha's trademarks and issue a public apology.

The ruling is the first time a foreign vehicle-maker has won a major trademark case against a mainland firm. The court asked Yamaha to take into account the financial capacity of the firms accused of violating trademark rights." Also collecting on the judgment is another issue as mainland firms have often refused to honor court judgments, citing lack of assets.

Another problem is accounting as the Tianjin court was unable to ascertain how many fake Yamaha motorcycles had been manufactured and sold by Gangtian since Chinese firms' are notoriously for their opaque accounting practices.

The case was tried before new implementation rules for China's trademark law, due to take effect on September 15. Under the new rules, a violator of trademark rights could be fined up to three times its illegal turnover. When accurate financial data is inaccessible, a court has the discretion to award the victim compensation of up to US$12,000.

 

Foreign Firms Under Tax Microscope

July 31, 2002

Foreign companies are becoming the latest target of a drive by mainland authorities to crack down on widespread tax-dodging by high-income earners. The Beijing municipal government tax bureau said staff at some representative offices of foreign companies were found to have delayed payment of personal income tax, mainly due to a "misunderstanding of tax law".

About 3,200 Beijing representative offices of foreign companies have conducted "self-examinations" concerning the payment of tax by their staff. "Thirty-four per cent, or 1,100 offices, found problems of varying degrees in the self-examinations," Xinhua quoted tax bureau sources as saying, and, as a result, US$ 8 million in personal income tax arrears had been paid so far.

The source said that the self-examinations would last until September, after which spot checks would be carried out by the authority. Offenders caught in the spot checks would be prosecuted. The move was the latest evidence that China was determined to fight tax dodging across the country.

The Zhejiang [affluent eastern coastal province] taxation department is planning to co-operate with local business administration, public security, banking and traffic control sectors in a bid to prevent tax dodging by the wealthy by closely scrutinizing their personal assets.

While Guangdong province is setting up a tax monitoring system based on computer networks with investment of US$ 60 million.
There were at least 200,000 enterprises in Beijing whose employees paid no individual income tax last year, an official from the municipal taxation department of Beijing disclosed. In the first half, Beijing city government conducted spot checks on more than 7,166 taxpayers, retrieving individual income tax worth US$ 115 million.

Stephen Lee, partner of international accounting firm Ernst & Young, said mainland authorities would keep an eye on highly paid individuals, including foreigners and celebrities such as film stars and football players. The country's personal income tax revenue hit US$ 6.62 billion in the first seven months of this year - 67.5 per cent of the annual target, Reuters reported.
Personal income tax collected by the central government rose 32 per cent year on year to US$ 4.64 billion, while that collected by local governments surged a year on year 132.2 per cent to US$ 2 billion.

Protesters Demand Web Self-Censorship

July 30, 2002

A group of 18 Chinese dissidents and intellectuals published a ''declaration of Internet users' rights'' yesterday in protest at new Web site self-censorship rules.
The protesters demand the freedom to put together Internet pages, with the only restrictions placed on ''evident and real'' defamation, pornography or certain ''violent attacks or behavior''. The document also calls for full freedom for mainlanders to surf the Net.

According to a list by the Internet Society of China, a self-regulatory body for mainland firms, more than 300 companies have signed the Public Pledge on Self-Discipline for the China Internet Industry, announced by the government two weeks ago.

（Source: AGENCE FRANCE-PRESS)

Piracy an Issue with Disney's Shanghai Park

July 30, 2002

In Shanghai’s upscale department store one can buy a genuine Mickey Mouse stuffed toy for about US$16. While across town at Yuyuan Garden, a well-known tourist attraction once can buy a fake Mickey Mouse selling for about US$ 4.5. With the average weekly wage in Shanghai, China's richest city, only US$ 43 , many people would rather buy cheap. Merchants said some of the fake toys were made at factories in nearby Jiangsu province with genuine-looking tags and constantly changing products depending on market demand, indicating the high degree of sophistication of the counterfeiters.

Rampant piracy of everything from clothing to movies is one of the obstacles the Walt Disney Company will face if it brings a theme park and its merchandising machine to Shanghai. The United States entertainment giant and the Shanghai government have reached a preliminary agreement on a park but further negotiations are needed, according to sources close to the deal.

Almost anything can be bought counterfeit in China from automotive parts to cloths. China is one of the worst environments in the world for trade marks. China pledged to abide by international standards on protecting intellectual property rights after its entry to the World Trade Organization last year, but diplomats say Beijing is lagging on enforcement.

In some cases, fake clothing and toys are produced by the same Chinese factories making the real thing under contract for foreign firms, though quality standards might be lower. Foreign firms seeking to protect their brands should spell out restrictions on the use of contractors, require rights of inspection and review the background of manufacturing partners, experts say.

Landmark Patent Row in China

July 26, 2002

China opened the doors of a Beijing court to showcase a potentially landmark patent dispute being monitored by foreign firms in a country awash with fake goods and copies of global brands on almost every street corner. Foreign reporters who usually barred from Chinese courtrooms were invited to watch Japan's Honda Motor sue the government's Intellectual Property Bureau over motorcycle design patents.

The case could set a precedent for a rapidly growing number of foreign firms seeking to protect patent rights and fight rampant piracy. Experts said the government was trying to fight piracy now China was a member of the World Trade Organisation but was overwhelmed by the size of the problem.
Foreign firms often complain getting patents only to have domestic firms apply for them to be invalidated.

The case, at Beijing's No 1 Intermediate People's Court, highlights the perils of securing patents in China only to face complaints from domestic firms eager to fend off foreign rivals. Honda's lawyers argued the bureau had no reason to strip the firm of a patent granted in June 1994 just because two Chinese firms claimed similar models were sold in the domestic market before Honda applied for it.

The law states the essential parts of the motorcycles would have had to have been the same to have a patent rescinded and they [parts] were not.

(Source:REUTERS)

Poisoned Benzene Workers Get Compensation

July 22, 2002

Several employees who were employed at the Anjia Shoe Factory which is ”Taiwan-owned” (selective enforcement of regulations on-foreign companies) in Dongguan are suffering from benzene poisoning. The story made national headlines last week after the company tracked down the ill migrant workers and sent them to Guangdong Occupational Disease Treatment Centre in Guangzhou.
The case has raised awareness of the mainland's poor record on occupational health and the lack of government supervision of workplaces.

Workers clam that they were exposed to the glue containing benzene every day. The factory claims that the workers were poisoned because they refused to wear protective gloves and masks that the factory provided while the workers claim they were never given gloves or masks, or informed of the health risks of being exposed to benzene. An inspection of the factory premises revealed there was no ventilation system or any windows in the workshop nor any signs warning workers of the potential health hazards.

Beijing's introduced its new law on the prevention and treatment of work-related illnesses under which employers are held accountable for workplace safety and are legally bound to provide financial support and treatment to those who suffer from work-related illnesses and injuries. Still employers and employees still seem to know little about the new Occupational Disease Law.

This is not the first time that large-scale benzene poisoning has made the headlines. Six women died from exposure to benzene at a shoe factory in Hebei province in February and 76 workers were affected in a factory in Shenzhen as early as 1996. According to statistics in the state media, more than 10 million people have been exposed to occupational disease hazards nationwide since 1989. Before the 1990s, 70 per cent of work-related illnesses recorded were those of poisoning from heavy metals. But last year, the rate of poisoning from chemical substances had risen from 2.5 per cent in the 1980s to 80 per cent.

The factory has paid for the transport and costs for the treatment of its workers and has pledged to put aside US$120,500 in a special fund for the treatment of the sick workers and has also promised a US25, 000 donation to the Guangdong Women's Federation to help publicise the new law.

Who Really Owns the Company in China?

July 20, 2002

Brilliance China Automotive's former chairman Yang Rong said he was ousted from his position in the company because of a dispute with the Shenyang city government and the Liaoning provincial authority over a plan to invest in the construction of a bridge across Hangzhou Bay in Zhejiang province that would link Shanghai and Ningbo.

Apparently, Mr Yang wanted Brilliance China subsidiary Shenyang Brilliance Automotive to invest in the project, but the governments of Shenyang and Liaoning, where Brilliance China is based, were opposed to the idea of the company's assets leaving the area.

The report pointed to a lack of clarity in the ownership of Brilliance China, and stated if Mr. Yang had been “confirmed” as the owner of a large stake in the company, he would have been able to get Shenyang Brilliance to invest in the bridge project. Consequently, the local authorities this year took action to ensure that this stake in the company was confirmed as belonging to the state, enabling the government to prevent the investment in the bridge project, it said, adding Mr Yang was subsequently dismissed from his position at Brilliance China.

Will the US Place Tougher Sanctions on China?

July 11, 2002

A US congressional commission, concerned China is thwarting America's efforts to curb the spread of weapons of mass destruction, is expected to propose tougher sanctions to force Beijing to act, include limiting Chinese access to US capital markets and prohibiting transfer of certain US science and technology resources to China.

Many commission members maintain a highly skeptical view of China, and their report is expected to be extremely controversial, especially among US businesses that are heavily invested in propelling China's economic growth.
The former Clinton administration and many experts have argued Beijing has come a long way in that regard, including signing the Nuclear Non-proliferation Treaty in 1992 and the Comprehensive Test Ban Treaty in 1996. Still, the CIA and key US officials have continued to identify China as one of the world's main suppliers of missile-related technologies and nuclear materials.

President George W. Bush and his administration have pressed US proliferation concerns with Chinese leaders and have imposed sanctions on Chinese companies for transferring prohibited technology -- including refusing to license satellite launches -- instead of waiving sanctions as the Clinton administration often did.

(Source: REUTERS)

Unqualified Judges Facing Dismissal
July 8, 2002

The president of the Supreme People's Court, Xiao Yang, has stated unqualified judges will be dismissed unless they can prove their worth. The central government has been struggling to improve the professional standards of the judiciary.

Although China insists its judiciary is independent, mainland courts - especially those in the provinces - are prone to interference by officials because the judiciary relies on the local government for jobs and wages. Provincial judges are often demobilized soldiers who have been recruited into the judiciary but lack legal training.

Starting this year all recruits must prove their professional abilities by taking an exam. Judges who lack professional qualifications must take legal courses and face dismissal if they fail the exams within a prescribed period. Still it is not uncommon for persons in China to buy profession certificates/licenses and good test scores.

But the most important statement by Judge Zhu was that judges cannot be sacked unless their dismissal has been approved by the judiciary which may be an assurance that local governments that pay the judges' wages cannot fire them even if the judges rule against local officials. Judges' wages also would be increased to reflect the dignity of the profession.

Improving the independence of the judiciary is one of the commitments China made when it joined the World Trade Organization in December. But skeptics feel Beijing is fighting an uphill battle because of the poor quality of some of its judges and a lack of political will among the leadership.

China’s Arbitration Un-bias?

July 1, 2002

China's top arbitration body has defended its record, denying it is biased against foreign companies. But he admits that enforcement is difficult and judges are subject to interference by local governments. Figures provided by the body showed that the number of cases handled by the commission was falling, from a peak of 902 in 1995 to 731 last year and about 700 this year.

Both foreign firms and lawyers have criticized it for using too many Chinese arbitrators, a bias in favor of Chinese companies and an inability to implement its decisions because of local protectionism. In a dispute, each party chooses its own arbitrator and the commission the third. In most cases, a majority of the three are Chinese.

In 2000, of the 186 cases brought by foreign firms against Chinese ones, the foreign party won 101, the Chinese party 28, with 25 settled by mediation, 25 withdrawn and three in which both sides lost. In 2000, of the 145 cases brought by Chinese firms against foreign ones, the Chinese party won 100, the foreign party 9, with six settled by mediation and 26 withdrawn.
Should the judgment be found in favor of the foreign party a major problem with enforcement is that judges are paid by the local and not the central Government. In some cases, there is administrative interference by local governments.

 

China’s New Technology Transfer Contract Law

As of Jan. 1, 2002 China’s new “Technology Import and Export Administrative Regulations” went into effect which divide technology imports and exports into three categories: free, restricted and prohibited. The definition of "technology" was not specifically addressed, would appear to be same as under the old regulations, which defined "import of technology" as including transfer or licensing of patent, industrial property rights, know-how; and technical services contracts.

Imports that fall in the free category, the contract is effective as soon as it is legally entered into, though registration is still required. While under the old regulations, the contract had to approved by the Ministry of Foreign Trade and Economic Co-operation (Moftec) before its was considered a legally binding contract. The contract is also essential for obtaining foreign exchange at Chinese banks to pay royalties to the licensor.

Registration can be done online with the China International Electronic Commerce Network or with Moftec by submitting a copy of the contract and other documents indicating the legal status of the parties and within three business days a registration certification will be issued.

While under the new, Technology Import and Export Contract Registration Management Rules, Moftec handles registration of technology contracts for "major projects" involving state financing, foreign loans, or State Council approval. Registration of non-major projects is done at the provincial level. This regulation also provides a list of items to be included in a technology contract.

As for items in the restricted category, a license is required from Moftec. Approvals are necessary for technology imports [components] that are a part of technology import projects. Moftec then considers the application together with other relevant departments and responds within thirty days and if approved issues a technology import (or export) license letter of intent. The contract is then signed and sent with other relevant documents to Moftec, which decides within 10 days (15 days for export) whether to issue a license. This process can be combined into one step by submitting a signed contract with the application for license. Moftec will then decide within 40 days whether to approve and issue a license.

Although the regulations overall appear to be more liberal than the old regulations by eliminating provision that allowed the Chinese party's use of the technology after the contract expired, and another one, that set the maximum term of a technology contract to ten years . There are other provisions have been diluted down to prohibit only "unreasonable" restrictions on the Chinese party, therefore, "reasonable" restrictions are now allowed.

One beneficial clause, in the old regulations, which allowed a waiver of the list's prohibited clauses, by means of "special approval”, is no longer included in the new regulations. It still is unclear whether Moftec will enforce this prohibited clauses list for technologies covered under the “free” list, since these contracts are governed by foreign law, and should be automatically approved with no major review of the contract. These restrictions from a legal standpoint should not apply to contracts governed by foreign law. Under Chinese law, in most contracts, having a choice of law provision is permitted. Still, one never knows in China, how it will be interpreted by the courts, should enforcement of the contract be sought in China.

China Legal System Still No Confidence

June 10, 2002

A leading Beijing defence lawyer has been detained on charges related to "false testimony", which has raised concern among mainland lawyers that the detention is an intimidation ploy by police and prosecutors.
Zhang Jianzhong, a criminal and commercial lawyer, has been held since May 3rd. He has not been allowed to consult a lawyer or see relatives. As chief of the members' rights committee of the Beijing Lawyers' Association, he has spoken out against coercion of defense lawyers by police and prosecutors. Chinese lawyers can be intimidated in many ways, but usually the Public Security Bureau only detains them for a few days and then releases them.

While lawyers in Beijing say they do not know precisely why Zhang has been detained, two legal experts said that the allegations involved promotion of "false testimony" by a client in a criminal case. Such charges are based on a vague legal provision under which defense lawyers can be prosecuted when their client changes testimony or recants a prior confession, even if they say it was made during torture.
An official at the Beijing Public Security Bureau refused to confirm that an arrest warrant had been issued.

High-profile corruption cases that Zhang has been involved with include the corruption trial defense of the former vice-chairman of the National People's Congress, Cheng Kejie, and the former vice-minister of public security, Li Jizhou. Both were sentenced to death

Contracts with Local Authorities Not Always Legal

June 13, 2002

It is not uncommon in the past for foreign retailers to be illegally signing contracts with local government entities to set up joint ventures since entering the mainland in 1995, bypassing the trade commission.
Carrefour like some other foreign companies has been forced by Beijing to sell stakes to domestic companies in nearby Liaoning province. Carrefour was reported to have been forced to sell at least 35 per cent of its stakes in a supermarket in Shenyang and another in Dalian - both major cities in Liaoning province - to conform to regulations.

The new joint-venture shareholding structure conforms with Beijing's regulation that foreign investment in a venture be limited to 65 per cent or less. Beijing issued new investment rules early last year that banned foreigners from holding majority stakes in retail joint ventures with more than three outlets, unless approved by the State Economic and Trade Commission. These types of joint venture had been a grey area and Beijing had not enforced the rules rigorously until late last year. Of the 356 foreign-invested retail businesses in China, only 40 have been sanctioned by Beijing.

Carrefour had previously sought the approval of only town or municipal governments. Often local authorities are willing to grant preferential treatment to foreign companies to invest in their district. Foreign companies who don’t use, or do not listen, to their consultants or legal counsel often accept the preferential policies when they are actually illegal as they contradict the central government’s policies.
Carrefour was banned from opening 10 new stores under its expansion plan last year, pending the legal compliance of its existing joint ventures.

Bribery 'Beats Lawyers'

May 16, 2002

According to some it is cheaper and more profitable to pay off local officials in China than the high fees demanded by foreign law and accountancy firms, according to the chief executive of an investment company that has bought 12 state firms in the past three years.
Huang Jianping, previously an official of the Ministry of Foreign Trade and Economic Co-operation and interpreter for one year to former Communist Party chief Zhao Ziyang, is chief executive of the JPI Group of Companies, based in Beijing, with offices in Los Angeles and Paris. He lived in the United States from 1988 to 1993.

He said that when he went to the United States it was a paradise for entrepreneurs like himself. "Now Beijing is the paradise. There is a lot of space and opportunity. The costs of doing business are much lower than in the US," he said. Corruption was efficient because it worked and officials got things done, he said. It was much more expensive to pay lawyers and accountants in the US. The cost structure was different to the US.

Mr Huang's firm has since 1999 taken over 12 state firms in several provinces in telecommunications, chemicals, railroad equipment and agriculture. "Turning them around is not difficult, you cut the costs and reform the supply and sales channels by cutting out the friends of the general manager. He has to be replaced.

High Hopes for Arbitration in China?
May 13, 2002

In one of hundreds of examples, a Japanese firm and a Chinese joint venture, decided to arbitrate their dispute more than two years ago. The arbitrators included a New Zealander and a Swede appointed respectively by the Japanese and the chamber. The Chinese side, as usual picked a judge from its company’s province.

The two Western adjudicators voted two-to-one against the Chinese judge to award US$36 million to the Japanese side. The Chinese judge attached a dissenting opinion which is against the convention. When the award notice was made in the Chinese judge's home court, one of his subordinates declined to enforce it.

Since then the matter been in the hands of the Supreme People's Court in Beijing but since there is no time constraint for the highest court to act on it, the request had been languishing in its docket for almost a year. Foreigners companies finding the Chinese courts systems basically impossible to use had high hopes for arbitration to solve business disputes with Chinese firms. But, this case as others do, indicate that without major changes in the Chinese judicial system arbitration may not be of any use.
Most of China's 180,000 judges are often retired army officers being rewarded for their good services to the party and the country. Just this year did Beijing begin to subject them to the same bar exam as lawyers.

China's main arbitration centre - China International Economic and Trade Arbitration Commission (Cietac) - allegedly retains a star-studded directory of 518 arbitrators for international disputes. About one-third of them are overseas arbitrators, mostly from Hong Kong. But over the years, Cietac's unappealing side has surfaced.
Under Chinese rules, the two disputing parties each chooses an arbitrator from the Cietac list, with the foreign side leaning towards naming an overseas arbitrator and the Chinese side a mainland one.

For obvious reasons, few disputing parties reach an agreement on the identity of the third arbitrator, Cietac normally appoints a Chinese adjudicator. With Chinese arbitrators' protectionist tendencies, the foreign parties are at two-one disadvantage.
In other jusisdictions the claimants are usually not confined to choosing names from an official list of arbitrators. Foreign investors are more likely to get a neutral panel of arbitrators and hence a fair hearing.

However, with arbitration in China and overseas alike, award enforcement often hits a roadblock in Chinese local courts. China does not have a central record for enforcement of arbitral award.

The American Chamber of Commerce polled 57 members in Beijing on arbitration in China in May last year responding that "Arbitration is considered the 'logical next step' in dispute resolution but the decisions are worthless unless they can be easily and expeditiously enforced by the local courts".

Clean Production Legislation

April 27, 2002

China will legislate to encourage clean production and control pollution brought about by its rapid economic expansion. During the second plenum of the ongoing 27th session of the Standing Committee of the Ninth National People's Congress Li Meng, vice-chairman of the NPC Environment and Resources Protection Committee, explained the clean production law aims to control pollution during the whole production process, from design, energy and raw materials selection, and processing technology, to equipment maintenance and service.

The draft law, tabled to the NPC Standing Committee for its first deliberation, announces three types of requirements, namely, directive requirements, compulsory requirements and voluntary requirements. The compulsory requirements include recycling of some specified products and packaging, and for polluters to make regular reports on emissions.
The draft law also advocates some preferential measures for those who adopt the clean production model, such as preferential loans and tax cuts or exemptions.

China's New OSHA Law takes Effect

April 13, 2002

An alarming rise in job-related injuries on the mainland have initiated the passing of China's Vocational Disease Prevention Law will take effect on May 1, International Labour Day. The law requires employers to establish proper occupational health facilities and provide employees with insurance against workplace accidents. It requires employees' contracts to mention potential occupational hazards and forces employers to provide regular medical examinations and pre-work training.

The move comes after a series of major industrial accidents, including the deaths of six teenage girls from exposure to benzene fumes at leather bag factories in Hebei province. After the accidents, central government officials conducted a national inspection of businesses, with emphasis on small workshops where benzene-based glue is used to produce shoes, handbags, toys, and furniture.

There were 13,218 cases of vocational injury or occupational disease reported in China last year, a rise of 13 per cent from the previous year. Nearly 80 per cent of the problems were related to lung disease, according to ministry statistics. And 2,365 people died as a result of on-the-job poisoning or other illnesses. The rate of acute poisoning accidents in work places in Beijing has doubled since 1994.

China to Produce and Regulate Organic Foods

April 2, 2002

Increasingly formidable non-tariff barriers by import countries have put pressure on China's farm produce exports despite the lowering of tariffs after China's entry into the World Trade Organization (WTO) last year.

China's tea exports to the European Union (EU) dropped by 37 per cent last year on an annual basis, due to intensified import criteria. Some developed countries have multiplied import examination items and heightened the requirements set for imports from China.
According to United Nations (UN) statistics, US$7.4 billion of exports from China covering agriculture and other industries have been stifled each year by environmental barriers. Exports have been increasing at an annual rate of 50 per cent to US$300 million last year. China aims to raise the output of its environmentally friendly food to 45 million tons by 2005 from 10 million tons last year.

China has created a nationwide system of providing authentication monitoring, technical services and quality inspection of organic food producers, whose products are specifically regulated by 80 clauses in State requirements.

(Source: China Daily)

Tariff on Environment Products

China will reduce its tariff on environment products from current average rate of 13.4% to 6.9% in 2008. All reduction will be completed by 1 January 2008, with 70% of reduction by 2003 and 98% by 2005.

Medical Waste in China

Under China’s Law on Solid Waste Pollution Prevention (1995) and Control, and The National Catalogue of Hazardous Wastes (1998), medical waste is regulated under category HW01. The health ministry requires all hospitals to destroy discarded syringes to prevent reuse and risk spreading blood-borne diseases. In 1999 SEPA promulgated the Pollution Control Standards for Hazardous Waste Incineration (GWKB2-1999). The regulations set limits on the incinerators operating temperature and the amount of emissions for dioxins, mercury and other compounds. This is the first time dioxin emissions limits have been established in China. The dioxin emissions limits are set at 0.5 ng/m 3.

Pollution Control Standards for Incineration of Hazardous Waste

The State Environmental Protection Agency in 1999 clarified the broadly worded provisions of the 1996 Solid Waste Act which regulates hazardous waste in China. SEPA did this by promulgating the Pollution Control Standards for Hazardous Waste Incineration (GWKB2-1999), which has been in effect since 2000. These were the first national standards controlling the emission from the incineration hazardous wastes in China.
There are two sections of the regulations one covers the emission limits for incinerators and the second covers the operation of the incinerators. Key provisions in the first part are summarized below.

The following air pollutants are regulated: soot, dust, SO2, CO, HF, HCl, NOx, Hg, Cd, As + Ni (total amount), Cr + Sn + Sb + Cu + Mn (total amount)

For each pollutant, there are three categories of limit values according to incinerator capacity, namely: (1) <300kg/hour, (2) >300kg/hour and less than 2500kg/ hr (3) >500kg/hour. The higher the incinerator capacity is, the more stringent the emitting limit. For example: for permissible dust concentration, the limits for each category are (1) 100mg/m 3 , (2) 80 mg/m 3 and (3) 60 mg/m 3

It should also be noted that emissions limits for dioxins are provided under the standards. This is the first time dioxin emissions limits have been established in China. The dioxin emissions limits are set at 0.5 ng/m 3 . However, dioxin sampling and analysis methodologies in China are quite new and regulators and environmental inspection or monitoring staff are unfamiliar with these methodologies, so it is unclear how quickly the new dioxin emissions limits can be implemented.

As for the requirements for the operation of hazardous waste incinerators, the are broken down according to waste categories. For example, for medical waste an average temperature of >850C is stated, for other hazardous waste a temperature of >1100 C and for PCB containing waste >1200 C. In general, the higher the incinerator capacity, the higher the required stack height.

Under the regulations the local environmental protection bureaus (EPBs) are required to perform emissions testing at hazardous waste incineration facilities. Additionally, technical evaluations of various incinerator models/ manufacturers are also conducted to insure the standards are meet.

Overall effect has been the closing and phasing out of older incinerators not capable of meeting the standards. The standards may be helping drive the use of larger modern incinerator technology.