While the trade war between the US and China continues at pace, the conventional wisdom is that this is generally harmful to businesses on a global level. However, as American companies pull back from doing business in China it has generated an economic vacuum that creates a competitive advantage for non-US companies over their American peers.
Business Landscape in China
Competitive advantages aside, corporate boards and entrepreneurs are concerned about the difficulties of doing business in China and the risks to their intellectual property. Mitigating such concern would remove a potentially significant obstacle in the way of companies expanding operations in China. The good news is that substantial change is already underway in how IP is being dealt with and a law that prevents discrimination of foreign companies in China. The horror stories of old regarding cars, accessories and even fashion being replicated, with perceived impunity, may now be a thing of the past.
Recent data presented by Bloomberg suggesting that IP receipts in China increased, may be a pleasant surprise. At the same time, while the US has historically been the target market for companies looking to export, the rise of patent trolls and litigation costing, by one estimate, $80 billion per annum for small and medium enterprises, has made some companies think carefully where their initial venture abroad should be.
The Bloomberg article shows that for domestic Chinese actors, protecting their IP is becoming a priority. The shift to recognising the importance of having recognised rights to IP, and ones which may be enforced, can only be a good thing in the long run for both Chinese and foreign companies. Such a change coupled with other key events may increase foreign corporates’ confidence of fair dealing in their current/prospective Chinese ventures.
Foreign Investment Law (FIL)
As we wrote in our article ‘International Investors: China Wants You!’ back in April 2019, a recent key event is the Foreign Investment Law (FIL), which comes into force in January 2020. This piece of legislation enshrines the state ambition of an open and fair market policy for all actors (foreign and domestic) and sets out some provisions which are intended to assist with the delivery of said ambition.
Some key FIL provisions include (i) safeguarding the ‘legitimate rights and interests of foreign investors’ (here, “investors”, means traditional investors and product/service providers), (ii) the ‘same treatment [of foreign companies] as domestic’ actors, and (iii) that IP will be ‘protected’, infringements ‘strictly enforced’ and no forced transfer of technology by administrative means. A translated version of the FIL can be found here.
A more recent innovation is the move by Shanghai to provide ‘bolt-on’ provisions which expand on the core provisions of the FIL. In short, the provisions expand on key areas like opening up the market for foreign market entry. A translatable version of the Shanghai Municipal Government’s statement can be found here.
The landscape is still complex, and companies may find the process made easier by having advisers with who understand and can speak the industry and domestic language, and who have the capacity and experience to protect intellectual, corporate and commercial assets.
While the trade war may be unwelcome, it may be the right time to take advantage of the changing landscape in China and consider entering one of the World’s largest markets.
Rooney Nimmo has affiliations in Hong Kong, Beijing and Shenzhen, and offices in New York, London, Edinburgh, and San Francisco. If your business interests include China and you have questions on the coming regulatory changes there, please contact us here.
