ASIA NEWS - Beiten Burkhardt
Transcription
ASIA NEWS - Beiten Burkhardt
May 2015 ASIA NEWS Newsletter Contents I. New Foreign Investment Guidance Catalogue Page 1 II. Alert on Increase of Fraud Cases Page 3 III. Foreign Direct Investment Forex Policy Updates Page 4 IV. SAIC Prohibits Anticompetitive Use of IPR Page 4 I. New Foreign Investment Guidance Catalogue The new Foreign Investment Guidance Catalogue jointly promulgated by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) came into force on 10 April 2015. Since first enacted in 1995, it has been renewed every four years, and the new version replaces the catalogue of 2011. The catalogue assigns industries to different foreign investment categories: “encouraged” (349 items), “restricted” (38 items) and “prohibited” (36 items). All investments in industry sectors not listed in the catalogue are considered “permitted”. Encouraged projects are treated favourably in the approval process. For example, import duty exemptions are available for some equipment. Restricted projects, in contrast, require the approval of a higher government authority. The catalogue also stipulates certain shareholding conditions, such as the mandatory participation of a Chinese shareholder, sometimes in a controlling position. For example, the operation of hospitals and the production of automobiles require a Chinese joint venture partner. The new catalogue reduced the overall number of such shareholding restrictions. In the encouraged category, only 16 out of 349 items now require the participation of a Chinese shareholder (in the 2011 version of the catalogue, this was the case for 34 of 330 items). This requirement in the restricted category now exists for 26 out of 38 items (previously 29 out of 81 items). This means that many areas are still off-limits to wholly foreignowned enterprises (“WFOEs”). In some cases, a joint venture requirement was replaced with other conditions. For example, although an accounting and audit firm does not need to be a joint venture, the managing partner must be a Chinese citizen. Such personnel requirements were also added for institutions of higher education, where a principal or “[a] major person in charge of administrative matters” must be a Chinese citizen. Also, half of the members of the council, board of directors or joint management committee of an educational institution run through Sino-foreign cooperation must be Chinese citizens. The list of encouraged projects can be considered a macroeconomic wish list of the Chinese government and contains only a few new entries. Newly added projects are, for example, elder care institutions, technologies related to the “internet of things” (in pursuit of the strategy to connect objects digitally, in particular in economic processes), industrial design and architecture, certain areas of aircraft technology as well as firefighting and rescue equipment for high-rise buildings. The list of restricted projects was cut in half from 81 to 38 items, those projects formerly in the restricted list not falling under the encouraged or prohibited categories are now considered permitted. The restricted category has seen the removal of the development of tracts of land, the construction and operation of high-class hotels and high-class office buildings, real estate secondary market transactions, real estate intermediary or brokerage companies as well the construction and operation of power grids. These changes come almost ten years after MOFCOM, NDRC, the State Administration of Industry and Commerce, the Ministry of Construction, the People’s Bank of China and the State Administration of Foreign Exchange jointly stipulated tighter restrictions on foreign investors in the real estate market. At that time, in 2006, the real estate market was considered overheated and foreign investment was seen as part of the problem. This change may be seen in the broader context of attempts to spur the Chinese economy. However, necessary changes to foreign investment legislation in the property market have not been made, and restrictions will remain in place for the time being despite the greater freedom provided by the new catalogue. In the infrastructure arena, the authorities have removed the Chinese shareholding requirement for investments in the construction and operation of intercity railways, urban and suburban rail- Newsletter Page 2 May 2015 ASIA NEWS ways, railways for resource development and branch railway lines as well as related bridges, tunnels, ferries and station facilities from the restricted list. Also, there is no Chinese shareholding requirement for the comprehensive maintenance of infrastructure relating to high-speed railway lines, passenger railway lines and intercity railways. Again, these changes will only become effective when specific legislation is enacted. Regarding manufacturing, the new catalogue continues to favour foreign investment that can upgrade the sector through new technologies, processes, materials and equipment. In areas where the requirement for Chinese shareholding has been lifted, the govern ment may have determined that Chinese industry has already reached a competitive level. For example, the manufacture of certain construction equipment (both for general and special purposes) has been entirely removed from the restricted category. And the Chinese shareholding ratio requirement has been removed from the following: lumber processing, papermaking and paper products; cabin machinery of vessels; yacht design and construction; power transmission and transformation equipment; complete sets of large coal chemical equipment; light helicopters (under three tons) and embedded automotive electronic systems. Restrictions were also lifted for the manufacture of certain chemical raw materials and chemical products, including soda; sulfuric acid; nitric acid; potassium carbonate; photosensitive materials; benzidine; precursor chemicals and hydrogen. Restrictions removed from the pharmaceutical and medical area include penicillin; paracetamol; certain vitamins; oral calcium; vaccines incorporated into national immunisation planning; active pharmaceutical ingredients (APIs) for anaesthetics; certain psychotropic drugs and blood products. The development of the manufacturing industry has only been surpassed by the rapid expansion of service industries in China. The new catalogue opened certain service fields that involve logistics, sales and retail. For example, foreign investment is no longer restricted in direct sales and the mail order business. E-commerce is a so-called value-added telecommunications service. Such services have been subject to a Chinese shareholding ratio restriction of 50 per cent. Although the catalogue has now lifted this condition on e-commerce investments, other requirements remain. Foreign investors are, for example, required to have a proven track record in e-commerce. Also, the change in the catalogue awaits amendments to existing restrictions in applicable legislation, such as the Provisions on the Administration of Foreign-Invested Telecom Enterprises. Adding “elder care institutions” to the list of encouraged investments recognises the needs of an aging population that is an increasingly heavy burden for government institutions and families. Already on 24 November 2014, the Ministry of Commerce and Ministry of Civil Affairs jointly issued an announcement, the Establishment of For-profit Elder Care Institutions with Foreign Investment, to encourage foreign investors to establish elder care institutions through WFOEs. Such foreign-invested and for-profit institutions have been encouraged to operate on a large scale and to develop chain brands. Such WFOEs are entitled to the same tax and other preferential policies (e.g., reduction of or exemption from administrative and institutional fees) as for-profit elder care institutions established by Chinese shareholders. The opening of financial industries has fallen short of expectations. However, foreign investors will in the future be allowed to hold 20-25 per cent of the shares of a Chinese commercial bank. Foreign investors are still limited to a 49 per cent holding in a securities company. Trust companies, currency brokerage companies and insurance brokerage companies are no longer listed in the restricted category. The prohibited category saw only marginal changes. For example, investments are no longer prohibited in green tea, bodiless lacquerware, enamel products and certain types of batteries. But the media industry remains tightly controlled: online publication services and online streaming are now prohibited. Newly added into the prohibited list is consulting on Chinese legal affairs (though providing information on the environmental impact of Chinese laws is permitted), thereby failing to meet expectations of foreign law firms for a widening of their operations in the Chinese legal advisory market. Whether the new catalogue may soon be replaced with other legal instruments is difficult to predict. The latest draft of MOFCOM’s Foreign Investment Law (dated 19 January 2015) prescribes equal treatment of Chinese and foreign investments. Although the final form and timing of this law’s enactment remain unclear, the current draft no longer requires foreign investments to be approved. It merely requires registration, just like domestic Chinese investments. This change would render the catalogue obsolete. However, for the time being, the catalogue and approval process still apply to foreign investments. Susanne Rademacher German Attorney-at-law, Partner BEITEN BURKHARDT Rechtsanwaltsgesellschaft mbH, Beijing Tim Wöffen, German Attorney-at-law, BEITEN BURKHARDT Rechtsanwaltsgesellschaft mbH, Beijing Newsletter May 2015 Page 3 ASIA NEWS II. Alert on Increase of Fraud Cases Although we have previously warned about the risk of fraud in relation to trade involving China, a recent spike in these cases and the appearance of new, more complex criminal schemes deserve a reminder. Even companies without a Chinese trading relationship should be aware of the pitfalls. We can illustrate the problem with three different fraud schemes, from very simple ones that we have witnessed for years to new schemes of increasing complexity. A. A container full of scrap One very common scheme targets opportunistic buyers of seemingly cheap products or raw materials. This is almost always a first time transaction with a seller in China who was identified through an online platform. Usually samples of the product are received, tested and identified as good quality. An order is placed on this basis, which is usually paid by L/C upon presentation of shipping documents or even in advance. When the goods arrive it is obvious that the buyer was defrauded because the container holds different or obviously substandard goods. Chemicals often feature in this scheme because the fake nature of the goods escapes detection upon initial entry. Usually in these cases the companies posing as sellers do not exist, and the bank accounts are often in Hong Kong, not mainland China. This makes identifying any counterpart for enforcement of rights almost impossible. Also the transaction value is usually relatively low (USD 25,000 - 50,000), making the cost of pursuing a legal remedy uneconomical. A small initial investment before the transaction is finalised can save a trader from wasting significant time and money on a fraudulent transaction. This means conducting basic due diligence on potential counterparties. ■■ ■■ ■■ ■■ ■■ Be wary if the company address is unclear and does not match a bank account location and telephone number. Tell your seller that you will conduct a standard know-yourpartner verification and ask for copies of the company’s business license and the identification certificate (passport or ID card) of the legal representative. Have a third party prepare a basic credit report on the potential partner and match the information you receive against the information provided by your potential partner (such a report takes a week or two to prepare and costs around EUR 200). You or a third party should inspect the goods before they are loaded for shipment at the port. At the very least, use a simple contract that specifies the parties (including address and representative), goods, price, means of shipment and payment as well as quality standard, and require it to be affixed with the company seal. These simple and inexpensive measures will help separate good partners from bad ones. While they cannot offer 100 per cent protection against fraud, demonstrating that you conduct basic due diligence and ask questions will both improve your understanding of your counterparty and alert fraudsters, who are likely to stop negotiations under a pretext and seek easier prey. B. The hacker attack This scheme has also been around for a number of years but is a bit more sophisticated. It involves an existing trade relationship with a known partner in China. Hackers take advantage of the weak IT security of a Chinese seller by gaining access to their online business correspondence. The hacker follows the progress of a genuine transaction, takes over communication disguised as the seller and gives instructions to make a payment to a different bank account, often outside mainland China (e.g., Hong Kong). Once the money is paid (often a large down payment) nothing happens and at some point the buyer asks about the missing goods or shipment confirmation, only to learn that the actual seller never received the money. To protect oneself against such schemes is fairly simple and requires business partners to always use multiple ways of communication in parallel, including some sort of live communication (i.e., phone or video call). Confirming an email by fax is also an effective way to identify the authenticity of a communication. If not a standard practice, such means should at least be used in the event of any change of agreed parameters (such as address, responsible persons, account numbers, payment terms). C. Conned into a wire transfer This very complex scheme has evolved more recently, and we know of at least four cases where it has been tried with some success. The amounts in question are much higher (we know of incidents involving EUR 1.5 - 15 million), maybe justifying the much greater effort on the part of criminals. The fraudsters identify and do research on companies with trade or investment business in China. They identify an employee who is often not a decision maker, but support staff with access to a person with authority over wire transfers. The staff member receives urgent emails, seemingly from the top management of the company, to urgently process a payment to China. These are usually sent when the manager allegedly sending the emails is on a vacation or business trip and thus not physically present. The person posing as manager is insistent, indicating that quick payment is necessary to secure a deal and the staff member is sworn to secrecy due to business confidentiality concerns, or to Newsletter May 2015 Page 4 ASIA NEWS avoid tipping off export control or tax authorities, which also helps to explain the extraordinary nature of communication. In many cases this correspondence includes faked bank remittance orders (with fake signatures of the usual signatories), which the fraudsters ask to process with the house bank. The bank’s suspicion may not be raised because it will be their usual contact who requests that the payment is processed. Very often the person targeted is also put under pressure by an alleged “external adviser” or facilitator introduced through the fake correspondence. starting 1 June 2015. Such banks are legally authorised to perform the examination duties required for forex registrations under SAFE supervision. Notice 1 also reforms other aspects of forex control over FDI. ■■ ■■ Once the money is wired all emails and calls usually cease, though in some cases multiple transfers are attempted. ■■ Only if identified quickly can such wire transfers be stopped. The fraudsters often use bank accounts under the name of a non-existing company or, to create the impression of legitimacy, a company that was recently deregistered. ■■ SMEs that are governed informally and managed through personal relationships are particularly susceptible. Multiple layers of communication as well as strict procedures and risk management measures that are coordinated with a company’s bank can reduce the risk of being duped. Matthias Müller, German Attorney-at-law, Partner BEITEN BURKHARDT Rechtsanwaltsgesellschaft mbH, Shanghai III. Foreign Direct Investment Forex Policy Updates China has over the past three years gradually loosened forex controls on foreign direct investment (“FDI”), and this trend has continued in 2015. In February and March, the State Administration of Foreign Exchange (“SAFE”) promulgated the Notice on Further Simplification and Improvement of Policies on Foreign Exchange Administration for Direct Investment (Hui Fa [2015] No. 13) (“Notice 1”) and the Notice on Reform on Administrative Approach for Settlement of Foreign Exchange Capital Funds of Foreign-Invested Enterprises (Hui Fa [2015] No. 19) (“Notice 2”). Both come into effect on 1 June 2015. Notice 1 abolishes administrative approval of forex registration for FDI, a measure that has been in effect within the Shanghai Pilot Free Trade Zone since the beginning of 2014. This new policy enables a foreign investor or foreign-invested enterprise (“FIE”) to make their forex registrations at a qualified bank instead of SAFE Abolishes a foreign investor’s capital contribution confirmation registration for shares purchased from a Chinese party. Abolishes a foreign investor’s confirmation registration for nonmonetary contributions. Replaces a foreign investor’s confirmation registration for a monetary contribution with a registration handled by the bank upon receipt of the contribution. Replaces the annual forex inspection with a report of existing direct investment equity submitted by the FIE (or an entrusted accounting firm or bank). The Notice 2 introduces a policy that allows an FIE to convert up to 100 per cent of its registered forex capital into Renminbi based on actual business needs. The capital conversion ratio may be adjusted in special cases based on the country’s balance of payments situation. A special account is used to deposit the converted Renminbi and to pay for subsequent transactions. Previously, the amount of registered capital that FIEs could convert into Renminbi was limited to actual transaction amounts. William Xia, LL.B., BEITEN BURKHARDT Rechtsanwaltsgesellschaft mbH, Shanghai IV. SAIC Prohibits Anticompetitive Use of IPR The State Administration for Industry and Commerce recently released the Provisions on the Prohibition of the Abuse of Intellectual Property Rights to Exclude or Restrain Competition (the “Provisions”), which will become effective from 1 August 2015. Chinese antitrust authorities have been looking more closely at the use of intellectual property rights (“IPR”) to suppress competition. On 10 February 2015, the National Development and Reform Commission (“NDRC”), one of the three antitrust enforcement authorities in China, fined Qualcomm CNY 6.08 billion (approx. EUR 870 million) for abusive patent licensing practices and imposed several remedies on the company. The NDRC found that Qualcomm was dominant in the markets for licensing CDMA, WCDMA and LTE wireless communications standards essential patents and baseband chipsets. The NDRC also found that Qualcomm had Newsletter May 2015 Page 5 ASIA NEWS abused its dominance by charging unfairly high royalty fees, bund ling standard essential patents (SEPs) with non-SEPs and impo sing unfair conditions on sales of its baseband chips for managing mobile handset radio functions. This case shows that Chinese antitrust authorities have not limited their enforcement activities to traditional manufacturing and service sectors, but have rapidly turned their attention to electronics and, in particular, the complex IP-antitrust interface. Please note One factor driving the promulgation of the Provisions is that the terms regarding the improper use of IPR under the applicable AntiMonopoly Law (“AML”) and other IP laws are too general to be enforceable in practice. The Provisions clarify the concepts of the “abuse of IPR to exclude or restrain competition” and “relevant market”. When considering the impact of an IPR license, antitrust authorities can make a finding about the relevant commodity market based on either technology or product. © BEITEN BURKHARDT Rechtsanwaltsgesellschaft mbH. All rights reserved 2015. The Provisions prohibit business operators from concluding a monopoly agreement prohibited by the AML by exercising IPR, unless the operators can prove that the AML contains an exemption. In addition, the Provisions clarify that operators may not abuse a dominant market to exclude or restrain competition by exercising IPR and provide specific prohibited actions, such as tying arrangements and attaching unreasonable restrictive conditions. This publication cannot replace consultation with a trained legal professional. If you no longer wish to receive this newsletter, you can unsubscribe at any time by e-mail (please send an e-mail with the heading “Unsubscribe” to [email protected]) or any other declaration made to BEITEN BURKHARDT. Imprint This publication is issued by BEITEN BURKHARDT Rechtsanwaltsgesellschaft mbH Ganghoferstrasse 33, D-80339 Munich Registered under HR B 155350 at the Regional Court Munich / VAT Reg. No.: DE811218811 For more information see: www.beitenburkhardt.com/imprint Editor in charge Matthias Müller, German Attorney-at-law The Provisions penalise a company that misuses IPR to exclude or restrain competition and thereby establishes a monopoly agreement or misuses its market dominance by assessing fines of up to 10 per cent of the last year’s sales revenue. Larry Lian, LL.B., LL.M., BEITEN BURKHARDT Rechtsanwaltsgesellschaft mbH, Shanghai You will find further interesting topics and information about the China Practice on our website. BEITEN BURKHARDT · RECHTSANWALTSGESELLSCHAFT MBH MUNICH · GANGHOFERSTRASSE 33 · 80339 MUNICH · TEL.: +49 89 35065-1250 DR. 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