Deep into the PRC Contract Law (Part 1)

This is an important area of law to understand for all parties doing business in the PRC.


I. Legislative Overview

(i) Background

• As a trading nation which functioned under a strictly planned economy, China had no need to have an established system of law for centuries. However, with the opening of the PRC and the altering of trade culture, the legislature quickly realized a need for laws on contracts to provide structure and guidance to the mounting complications arising in trade related transactions.

• Prompted by such circumstances, the National People’s Congress, passed the following three laws on contracts in the early 1980’s:

1 Economic Contracts Law of the PRC (1981);
2 Law of the PRC on Economic Contracts Involving Foreign Interests; and
3 Law of the PRC on Technology Contracts.

These three-piece laws on contract were largely inconsistent and overlapped in many areas while offering little guidance for complex contractual cases. The purpose of the second law on the list was to promote foreign trade and investment, and for the first time in PRC history incorporated Western notions of freedom to contract and party autonomy.

(ii) Promulgation of one uniform contract law in 1999

Initiated by further globalization in the 90's, the State Council undertook a major overhaul to further reform this area of law – which resulted in the promulgation of the ‘PRC Contract Law’ (1999) (the “Contract Law”) - which repealed the former three laws – and was an overt effort by the government toward "protecting the legitimate rights and interests of parties to contracts, maintaining socio-economic order and promoting socialist modernization”.

 The Contract Law is a hybrid of key concepts from Common Law and Civil law jurisdictions.

 The Contract Law is not comprehensive in itself, and other laws which must be referenced include:

a. PRC Civil Code;
b. PRC Supreme Court interpretations and administrative regulations;
c. District level, city level, provincial level and national level rules, ordinances, guidelines, etc.; and
d. Specific laws such as, PRC Law on Chinese-Foreign Equity Joint Ventures (2001).


(iii) Legislative developments of the PRC Contract Law

 PRC Contract Law (effective October 1, 1999)

 Interpretation of Issues relating to the PRC Contract Law (Supreme Court, effective December 29, 1999)

 Interpretation of Issues relating to Construction Contracts (Supreme Court, 2005)

 Interpretation on Several Issues Concerning the Application of the PRC Contract Law (Supreme Court, April 24, 2009)

 Direction on Dealing with Several Issues in Civil and Commercial Contract Disputes (July 7th, 2009)

Come back next week for a closer look!

Complying with the FCPA in China

What is the FCPA and why should you be concerned?

The US Foreign Corrupt Practices Act – governs the offering of bribes to foreign government officials to further business interests. China, which shouldn't come as a surprise, falls under the catagory of high risk jurisdictions. Even though the act of gift giving is customary in Chinese culture and business transactions, the giving of certain gifts will run afoul of the FCPA. The US Department of Justice and the Securities Exchange Commission have been stepping up their investigation and punishment of FCPA violations. "If we call them before they call us, it's not where they want to be." (DOJ spokesperson).

Who does it apply to?

(a) Issuers of public securities or those required to regularly report to the SEC, even PRC companies listed in the US.

(b) US citizens, US permanent residents (i.e., green card holders)

(c) Business entitites established in the US or those with a principal place of business in the US (and their senior officers, directors, shareholders or employees)

(d) Foreign businesses or nationals (that cause an indirect or direct corrupt payment in a US territory)

(e)Foreign Subsidiaries of US companies (US companies will be held liable if they authorize, direct or approve of noncompliant activity by their subsidiaries, this also includes situations where they were not actually aware but should have known)

Elements

(1) Giving or Offering
• includes an offer, a promise to pay or payment of anything of value

(2) Anything of Value
• the giving of anything of value includes particularly creative means beyond the obvious exchange of money such as: low interest loans, assistance to get jobs or into educational institutions, credit cards, gym memberships, payment for weddings, holidays etc., and even nonmonetary gifts such as sexual favors, etc. Just use your imagination.

(3) To a “Foreign Official”
• in China this includes: a member/candidate/official of a political party, any officer or employee of the PRC government, a public international organization, or any department, agency thereof, or any person that acts in an official capacity, and also includes employees of State-owned enterprises.

(4) Directly or Indirectly

Means also giving something of value to any person - while knowing that such thing of value will be Given or Offered to a Foreign Official. Knowing includes not only actual awareness or a firm belief, but also a high probabilty that such circumstance will occur or that it exists. Concious disregard is not a defence.

(5) With a Corrupt Intent
• i.e., for the purpose of influencing the Foreign Official in the furtherance of an act or decision in their official capacity or inducing a Foreign Official to use their influence over a foreign government or instrumentality in order to affect its acts or decisions.

(5) To Further Business Objectives

What is allowed under the FCPA?
The FCPA does allow payments to Foriegn Officials for the purpose of performance or expediting a routine government action, examples of which include: obtaining permits, licenses, police protection, utilities supply, etc. The focus here is ROUTINE - and means actions that are commonly or ordinarly performed by such Foreign Official. And small nominal gifts are ok too (ask your lawyer what is ok)

Penalties
The penalties for FCPA violations are very very high. And include criminal fines of ($2 million for corporations, and $100k for individuals with a possibility of 5 years prison sentences) and civil fines of $10k for corporations or individuals, not to mention companies run the risk of loosing important licenses, permits or qualifications for continuing their business operations.
See WSJ Article - http://tinyurl.com/r2urug


Final words - do your due dilligence - the DOJ, SEC or your coroporate board will never critisize you for doing tooo much DD.

Check out FCPA BLOG - for all the naughty news - http://fcpablog.blogspot.com/
**this is not legal advice

Can I Map or Can't I Map in China? That is the Question

Chinese law places quite stringent restrictions on the production and distribution of maps in the PRC.

Surveying and Mapping is defined as, “activities conducted to determine, collect and formulate the key elements of physical geography or the shapes, sizes, space positions, attributes, etc. of man-made surface installations, as well as to process and provide the data, information and results gained therefrom” . And such restrictions apply to any land, air, or water controlled by the People’s Republic of China (including Hong Kong, Macau and Taiwan).

If foreign companies wish to engage in Surveying and Mapping, they must:

(1) be a Sino-foreign joint venture – with no more than 49% foreign investment;

(2) obtain a qualification certificate from the State Bureau of Surveying and Mapping; and

(3) only engage in the following permitted activities:
 Photogrammetry and remote sensing;
 Engineering surveying;
 Cadastral surveying and mapping;
 Estate surveying and mapping;
 Geographic information system engineering; and
 Internet map services.

(4) refrain from these Prohibited activities:
 Geodesic surveying;
 Aerial photography for surveying and mapping;
 Administrative boundary surveying and mapping;
 Marine surveying and mapping;
 Compilation of topographic maps or general maps; and
 Compilation of electronic maps for navigation (such as for GPS systems in cars).

***Only maps that have been reviewed approved by the State Bureau of Surveying and Mapping may then be distributed or otherwise be displayed publicly in the PRC.

***publication of other types of maps such as those on the internet may also be subject to other permit requirements.

[this is not legal advice]


http://en.sbsm.gov.cn/article//LawsandRules/Laws/200710/20071000003241.shtml
http://en.sbsm.gov.cn/
Interim Measures for the Administration of the Surveying and Mapping Conducted by Foreign Organizations or Individuals in China (2007).

When I Was in Nam

Fisherman village - a never ending pier - Phu Quoc




The constant buzz in Siagon



Floating past a typical house in the Mekong Delta region of Vietnam - near Ben Tre



Mekong river



Sao Beach - Phu Quoc



Relaxing in Siagon



War Remnants Museum - Siagon



Ben Tre - Mekong Delta



Some tips for Southern Vietnam:

Getting There: Shanghai Airlines - night flight to Siagon (Vinah Sun Taxi is very reliable - should cost about 100k - 130k dong into the city)

Must See:
- Phu Quoc Island (Vietnam Airlines - very cheap RMB 500RT - can book online)

We stayed at Beach Club (http://www.beachclubvietnam.com/) - Has mouth watering food (try their coconut shrimp curry and coconut milkshakes) and great staff. You can rent moto-bikes ($7 a day) and explore the island. Be careful on the paved roads on the east side which are quite narrow, I almost got hit by a car. But most roads (such as the dirt road south of Beach Club) are fine! There is a night fish market where you can enjoy delicious bbq seafood. Phu Quoc is a very relaxed and chill place, the people of the island go out of their way to help you. Check out Sao Beach - my favorite on the island. And the waterfalls. The fishing village near the Phu Quoc airport is nice too. The other fishing villages are smelly and not too interesting. And don't forget to take home some Phu Quoc pepper/salt/garlic mix. The beautiful island dog you will see them everywhere.

We spent 2 days in Siagon at Hotel Elois which has a very nice buffet breakfast - it is located in the back packer area - try and haggle for the room price - I am sure we overpaid - but it was very clean and safe. From Siagnon you can do a Mekong Tour (with Sinh Cafe $7). I opted for the 1 day tour of Ben Tre and it was an overall pleasant experience, with visits to coconut plantations and a plethora of boat rides. The longer tours sounded a bit boring and I heard from a friend that the hotels are very very basic and not that clean.

In Siagon definatly go to the Rex Hotel in the evening for a very overpriced coctail. The atmosphere is right out of an old film and there is a great band. And spend the day at the Botanical Gardens.

Eating in Siagon: Pho 24. Ngo Restaurant - Its very famous... i forget the full name of it, and my favorite "Wrap and Roll" it was amazing!

Shanghai Summo

Check out this funny video done by a friend of mine.