A New Way of Learning

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The 2013 Chinese Entry-Exit Law - How it will impact you

The new PRC Entry-Exit Administration Law will go into effect on July 1, 2013. This is the first time the authorities have meaningfully amended this area of law to reflect China's modern day immigration issues.

Listed below are some key questions raised by expatriates and their employers concerning the anticipated rule changes:

1.  Are there any new requirements/restrictions on entries or exits into China?

As with other nations, China follows suit by constricting and retracting its immigration policies based on its current political and economic environment. Until now many expatriates have managed to find refuge and employment in China by entering on business or tourist visas. The new law attempts to crack down on this issue in Article 25 which allows the visa issuing authorities a wide margin of discretion in granting visas - that means if a person, by whatever metrics being used at the time, is considered to fall into a category of persons who "might violate" visa policies, they could be denied entry visas into China. It is said that this law is particularly targeted at those in the Education and Entertainment sectors. On the other hand Article 28 has been drafted to tackle the issue of expatriates who pose a flight risk. This article stipulates that if an employer has unfulfilled payment obligations to PRC employees, they may be subject to a no-departure restraining order until such matters are resolved. Article 42 also provides that the authorities will periodically issue and update an "occupations list" which categorizes the industries and occupations that are encouraged, prohibited, or restricted to foreign participation. Therefore it seems the authorities will be herding expatriates into the direction it believes will promote to China's growth - much like the Foreign Investment Guidance Catalogue. Does this signal bye bye to the English teachers that don't possess the proper qualifications? Maybe..

2.  How is the issue of documenting expatriates addressed?

China will soon start collecting biometric data. Fingerprints are explicitly mentioned in the new law, and the authorities may also collect "other biometric data" which presumably could extend to retinal scans or behavioral biometric data such as handwriting samples. For now I think it is reasonable to presume that if you are applying for any type of long term residence, your fingerprints will be taken. 

3.  Are there any new obligations on employers under the new law?

Yes. Article 19 says you better issue authentic invitation letters and application documents or you will be fined. There are several new articles dedicated to the increase in penalties and fines therefore it is important to continuously be mindful of the legal requirements for employing an expatriate. 

4. How harsh are the authorities going to be when it comes to enforcement/penalization? 

The base fines have increased for violations. If you have only a few employees this may not make a significant difference, but for large scale employers noncompliance may greatly increase the cost of operations. Article 45 for example requires international schools to report foreign student enrollment to the public security bureau. The public security bureau is also authorized to detain persons suspected of violating the entry-exit laws up to 30 days and in serious cases up to 60 days. These increased policing efforts are aimed to deter any violations..and with such unbridled discretion, I am guessing this may in fact work. 

5.  What to do next?

Keep following the updates in this area of law, plan for the upcoming year and following years and look out for interpretive guidance which could help clarify some of the vague sections of the law. 

PE Funds Come Hither To the Juciest of Markets

Some say the grass is greener on the other side. Here in China it very well may be for foreign private equity investors. While the banker wankers on the other side of the world have sent the global economy into chaos, China still remains a liquid and robus market and domestic private equity competition is HOT.


Where does this liquidity come from?

• Huge RMB and foreign capital reserves.




• High Net-Worth Individuals.




• National Social Security Fund.




• Chinese Banks.




• State-Owned Enterprises.




• Insurance Companies.
  
  

How were foreign PE firms operating in China in the past?

Historically Chinese regulators had little expirience with Financial Investors and corporate laws failed to accomodate or even address their needs. Foreign private equity investors have had a long history of PE investment in China. However because the laws were in the nascent stage and Chinese regulators turned a blind eye, these foreign PE investors usually held their China based investments via offshore holding companies in jurisdictions such as Hong Kong, Cayman, BVI - documenting shareholder arrangements at the offshore level.

You see, in China governement approvals are required for transaction related documents. Under the old model of investing in China, foreign investors could still enjoy investor protections such as call and put options, preferred sahres, rights of first refusal, etc. without having to first gain Chinese government approval (Noting that the PRC government still to this day is not entirely comfortable with the concept of preferred shareholder rights).

There was also another advantage of this model. Foreign investors could enter industries that were otherwise restricted to foreign investment through contractual arrangements with a domestic Chinese entity. Because the Chinese entity would be owned by a Chinese national, it would be able to secure business licenses for sectors in which foreign investment is prohibited. The 10% capital gains tax in China was also avoided. This was all fun and games until the Chinese economy became healthy and the government no longer needed all this foreign hot money comming in.

Round-Trip Investments Prohibited.

In the mid 2000s is when the tables turned. The M&A rules and SAFE Circular 75 made approval of round-trip investments extremely difficult to achieve.

In China the flow of currency is strictly regulated by the State Administration of Foreign Exchange "SAFE". SAFE Circular 142 for example places restriction on the inflow of foreign capital. Unless the word "investment" is in the business scope of an operating entity - Circular 142 pprohibits entities from converting foreign currency into RMB for the purpose of onshore equity investment. The issue is that getting the word "investment" approved is quite difficult.

Never Fear New Laws are Here!
In the next post I will give you a sneak peak into the FIVCIE Model, FILP Model and EIF Model, which are the newest ONSHORE investment models available to foreign equity investors in China. And a taste of the latest local laws and incentives.

China's Impending Health Issues - How Can Smartphones Help?

What are Chinese citizens most concerned about?

Medical issues generally fall under the number one category of concern among Chinese citizens according to government surveys - trailing much higher than concerns over social morals, security, education and unemployment. Much of this anxiety comes from the fact that routine healthcare is still extremely expensive even for the average Chinese middle class - not to mention that hospitals revenues and pharmaceutical sales are in a market oriented system which further increases medical expenses.

[See my previous post on drug pricing http://chinainhousemonster.blogspot.com/search/label/drug%20pricing]

How have eating habits changed in China?

Historically, Chinese diets have had a symbolic relationship between the food eaten and aspects of health. "He that takes medicine and neglects diet, wastes the skills of the physician."(Chinese proverb)" It is important to point out cultural values here. One one side Chinese people are very concerned about balance and harmony, the "yin and the yang", or the "five elements theory" that was traditionally applied to almost every aspect of day to day life, including food. However, today with rising disposable incomes and most of the nuclear family in the workforce, regular eating out has become mainstream culture in China. This is why fast food chains such as McDonald's and KFC have been some of the fastest growing franchieses in this region.

Beacause of this change in eating habits and lessened physical activity, Chinese people are increasingly starting to witness diet and obesity related health disorders. According to a Chinese health ministry statement in China there are more than 60 million obese people and another 200 million who are overweight. The New England Journal of Medicine calls diabetes and pre-diabetes a silent epedemic in China - with 1 in 10 people already suffering from the disease and millions who are undiagnosed.

How smartphone apps work toward promotion of health in other countries?

There currently exist about 700 healthcare and fitness smartphone apps ranging from the useful to the gimmicky. These include custom diaries, calorie counters (tracking what you eat, including those from popular foods or restaurants), pedometers (tracking your every footstep) etc. Users pay about 99 cents for these applications or sometimes even get them for free. Although you can't click yourself to a healthier body, many users have claimed that by using things such as a calory counter, they think twice before consuming certain foods. Also since the price of these apps are so low, there is more of a "why not try" attitude and very little required commitment of the consumer with respect to expense and time.

Smartphone applications for food in China

China with 800+ million cellphone subscribers is easily the worlds largest growing market for smartphones and smartphone apps. The major service providers such as China Mobile, China Unicom, and China Telecom have already outfitted third generation devices. Given the discussion above, there are really endless ways smartphone apps in Chinese can be used for improving/maintaining the health of Chinese citizens, by educating the consumers and providing instant information on food choices. There are hundreds if not thousands of franchisee food stores in China - wouldn't it be great if when you walked in you could see the calorie and nutrition count of everything on the menu. What about all the snack foods and drinks in the convenient stores which are on every corner and every block... With the relatively low cost of the application, consumers can benefit with little expenditure by taking proactive rather than reactive measures on health. Because medical issues are most important to Chinese people, apps tailored to these concerns will surely fare well.

Interesting Reading

Food and Eating Anthropology: http://www.sirc.org/publik/food_and_eating_9.html

New England Journal of Medicine: http://content.nejm.org/cgi/content/short/362/12/1090

Five Elements Theory of Chinese Cooking: http://chinesefood.about.com/library/weekly/aa041900a.htm

China Suffering Diabetes Epedemic: http://health.yahoo.com/news/afp/chinahealthdiabetes_20100325104234.html

Smart Solution: Researchers Use Smartphones to Improve Health of Elderly Diabetics in China:

http://www.sciencedaily.com/releases/2009/10/091029162022.htm

Google to Pull out of China?

If you've already read the news this morning, you would have heard that 'Google citing a cyber attack' is threatening to pull out of China.

Read the article on NY Times here:
http://www.nytimes.com/2010/01/13/world/asia/13beijing.html

Read the official Google Blog statement here:http://googleblog.blogspot.com/2010/01/new-approach-to-china.html

PRC Tort Liability Law Comming to Save the Environment

The National People's congress is still working on the draft of the PRC Tort Liability Law - which is an essential law that should be introduced to China's Civil Code. Currently tort related provisions are found in laws such as (1) the PRC Civil Law, (2) the PRC Law on Protection of Consumer Rights and Interests, (3) the Environmental Protection Law, etc., but there is no unified set of rules yet.

The draft law is similar in sense to Western tort legislation in that it outlines rules for fault and non-fault tort liabilities. The draft is quite comprehensive and covers issues regarding medical torts, accidents, product liability, environment, etc.

There is a special section titled "Environmental Tort Liability" which is an especially important piece of legislation at this time.

The draft states that Persons who pollute the environment and cause damage shall bear tort liability. This is a major change from previous environmental tort provisions under PRC law, because under existing legislation persons bear liability if they violate environmental laws/regulations, and if such laws were not violated then the person would be exempt from tort liability. The scope of liability under the draft law has been considerably broadened. That means that even people complying with environmental laws could be held liable if they do pollute and damage the environment! Good news.

Burden of Proof rests on the person suspected of pollution in proving their is no causal link between their actions and the damages. Furthermore if more than one person/party is involved, then comparative fault will be used looking at the type of pollutants and the amount involved.

The draft also creates joint liability between creators of pollution and third parties who actually cause the damage. This is a signal for corporations not only to clean up their acts, but also to better manage and oversea third parties who are in charge of clean up and disposal, or otherwise face serious consequences.

It is nice to see the Chinese legislatures handling the matter of environmental pollution seriously. What remains to be seen is how much of a deterrent effect the actual penalties will have...

The PRC Contract Law - (Part 3) As deep as it gets.

Below are some practical constraints and best practices with respect to the PRC Contract Law. Although quite general, some of the issues below also apply to many other transactions under PRC law.

IIII. Practical Constraints

• China does not follow a system of judicial precedent, and without a case law system it can be difficult to resolve complex contract issues. **(However judicial interpretations by the PRC Supreme Court are binding.)

• There is no formal system of discovery in China, therefore gathering and compelling evidence can sometimes be mission impossible.

• Judgements in PRC courts are often political and protectionist.

• In many cases, the laws that apply to a particular contract case can be found in many different places, often with no translations, and these laws regularly are in conflict.

IIV. Best Practices
• At the drafting stage it is important to gather as much information from the local party as possible.

• Independent legal advice from local Mandarin speaking lawyers is advisable if you do not have relevant expertise in a particular area.

• In the event of a dispute, arguments should be based on the legal framework and the principles of the law, rather than its application through cases.

• When conflicts between PRC laws exist, it is prudent to follow the law or regulation issued by the higher decision making body.