Dan Harris: Chinese Business Law trends for 2010

Today Dan Harris of the China Law Blog wrote an interesting guest post for Shanghaiist in which he describes the top 5 trends he sees in China business law for next year. The trends he focuses on are ones that mainly involve foreigners or foreign businesses. A short version of his top 5:

1. Visa rules will be further tightened

2. Continued trend to shut down illegal and unregistered foreign businesses

3. Tax collection efforts will increase, with more focus on transfer pricing

4. Increased monitoring of M&A transactions

5. Employee law suits will increase and more will be resolved in the employees favor

It’s increasingly more difficult for foreign companies to set up a business in China. Not only because the number of regulations keeps going up, but more important because the existing rules are enforced more strictly. In his post Dan Harris describes why he thinks the government is making it more difficult for foreigners to become active here:

The Chinese government wants to satisfy its own citizens so as to maintain its own legitimacy and one of the best ways to do that is to show a desire to protect the citizenry against foreigners. China’s current economic strength is leading many in its government to believe China has little to no need for foreign investment and so I see law enforcement against foreigners continuing to increase.

I think China realizes that its role in the world’s political arena has changed. More and more China can set the rules, instead of the US. Look at what happened in Copenhagen two weeks ago for example. I read lots of comments online of people blaming China for the failure of the Copenhagen summit, and criticizing the country for not being green enough. But then look at the news from last weekend: China announced a law that forces its energy companies to buy up all green electricity in China. Totally unexpected China shows it is interested in the environment, but that it wants to improve the situation on its own.

I am sure there will be more protectionist measures next year to help China’s domestic industries. But that doesn’t mean foreign companies can’t do business here, they just have to make sure that they know which rules to play by (and follow these rules!). In my experience it’s important to have a good legal counsel and focus more on government relations, especially if you want to be active in a sector like games and game development. In that way you can anticipate changes and make sure you don’t miss any announcements.

For existing companies in China it may be even beneficial, because the (real or perceived) barrier of entry is higher for new foreign entrants, meaning less future foreign competition. China is still a country full of business opportunities, but it’s certainly not easy to run a business here. You need a commitment in both time and money, but if you persist I think most companies will eventually reap the benefits. China is not a place for short-term profits, but it’s a country where a long term investment can pay off big time. And that’s a trend that won’t change in 2010!