Tuesday, 12 Feb 2013
Businessman in China
Overseas Business Risk - China
UKTI's is an essential read to help you avoid some of the common pitfalls businesses can face in China. The Getting Started and Business Issues and Considerations pages of the Guide offer a wide range of initial advice on issues such as: finding a customer or partner, due diligence, employing staff, language, marketing and branding, daily communications, interpreters, protecting your intellectual property rights, certification and standards, Getting paid and financial issues, Insurance, Management, control and quality assurance, Bribery and corruption and how to avoid some common scams.
Political and Economic
The General Secretary of the Communist Party and President of China is Hu Jintao who was appointed to a second five-year term in 2007. Party policy is set by the twenty-five member Politburo and its Standing Committee of nine. The rest of the Politburo are also appointed for five-year terms, which are due to expire in autumn 2012, when there will be a transition of power to a new generation of leaders. Front runners to replace Hu Jintao and Premier Wen Jiabao (3rd most senior in the Politburo) are, respectively, existing Politburo Standing Committee members Xi Jinping (Vice-President) and Li Keqiang (Vice-Premier).
The United Kingdom recognises that Tibet is a part of the People's Republic of China, and has called on the Government to enter into talks with representatives of the Dalai Lama in order to find a solution to ethnic tensions there on the basis of meaningful autonomy. Companies planning to do business there may wish to seek advice on any political risks involved.
The People's Republic of China claims Taiwan as a province. The United Kingdom recognises the Government of the People's Republic of China as the Government of China, and acknowledges its claim to Taiwan.
China – Business and Human Rights
Child labour: China is a member of the ILO and has ratified the two core conventions on child labour. The government condemns child labour and has committed to take stronger measures to tackle it. China’s Labour Law prohibits the employment of minors under 16. But reports suggest child labour remains a problem, particularly in the manufacturing and service industries.
Ethnic minorities: The Chinese government officially recognises 55 ethnic minority groups in China, in addition to the majority Han Chinese ethnic group. Despite anti-discrimination provisions in Chinese employment law, discriminatory employment practices against ethnic Uighurs in the Xinjiang Uighur Autonomous Region are reportedly widespread.
LGBT persons: Chinese Labour Law specifically protects Chinese workers against discrimination on the basis of ethnicity, gender or religion. There are no applicable provisions against discrimination on the basis of sexuality or gender identity.
Gender: China is committed to preventing gender discrimination in the workplace under the International Covenant on Economic, Social and Cultural Rights, and the Convention of the Elimination of Discrimination Against Women. Domestic laws are in place to promote gender equality and prevent gender discrimination and sexual harassment. But many women in China report significant challenges to securing employment, gender-based wage disparities and unequal treatment in the workplace.
Migrant workers: China has an estimated 242 million migrant workers. Most are employed in low-skilled, low-paid jobs in the secondary and tertiary sectors. Minimum wage guarantees are undermined by Illegal employment practices. Migrant workers may be employed without a contract, or sign unfair contracts that stipulate a very low basic wage with long overtime needed to earn a living wage.
Working conditions and occupational safety: The 2002 Law on Safe Production lays down guidelines and protection for workers in China, but allegations of unsafe working environments and workplace abuses in a range of industries remain widespread. These include excessive forced overtime; exposure to hazardous chemicals and military-style management of workers. Despite new regulations for filing workplace injury compensation claims, procedures remain complicated and time-consuming.
Rights of association (trade unions): Trade union activity in China must be carried out under the auspices of the All-China Federation of Trade Unions (ACFTU), a quasi-governmental body under the direction of the Communist Party. In recent years Chinese workers have become more assertive at the grassroots level about using collective action to secure their rights: illegal protests and strikes are relatively common.
Bribery and Corruption
China’s Supreme People’s Procuratorate (SPP), the main investigatory and prosecutorial arm of the Chinese government, announced in February 2012 a database listing individuals and companies found guilty of certain bribery offences. UK companies are advised to make use of the SPP’s service as part of their due diligence and compliance processes, particularly when selecting new business partners.
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
The problem of corruption is deep rooted in China and remains a serious threat to business. Nevertheless, the Chinese authorities take a strict approach to dealing with corrupt practices such as bribery, paying commissions and tax evasion and are increasingly likely to investigate and seek prosecution. The most severe financial crimes carry the death penalty.
In April 2010 China’s State-Owned Assets Supervision and Administration Commission (SASAC) published new regulations defining the scope of commercial secrets. This followed criticism of the vague definitions used in the trial in March of four Rio Tinto employees who were convicted of stealing commercial secrets and taking bribes. Under the regulations, "commercial secrets" are defined as technological information or business information, which is unknown to the public, can bring about economic benefits to the holder, is of practical use and to which the holder has adopted measures to maintain their confidentiality. This includes (but is not confined to) information relating to strategic planning, mergers and acquisitions, joint venture investments, stock market listings, financial information, investment decisions, production methods, client information, sales strategies. The definition is wide enough to encompass anything that could hold economic value to a company.
State-owned enterprises (SOE’s) are now required internally to classify commercial secrets as either “core commercial secret” or “standard commercial secret”, according to their importance. SOEs will need to set a time limit on these classifications. Some of the preventative measures that these SOEs are required to implement include:-
Requiring their counter-parties to enter into confidentiality agreements during certain negotiations and consultations involving technology transfer, equity joint venture establishment, due diligence etc; and
The need to establish procedures to protect the disclosure of information relating to listings and issue of stock.
Depending on the perceived value of the commercial secrets, these could also be regarded as “state secrets” and treated as such according to the PRC's state secrets laws. The Chinese Government has also taken steps to require by law that telecoms and internet providers co-operate with investigations into the electronic transmission of state secrets.
The Olympic Games in Beijing in August 2008 saw a spike in terrorist activity in China, associated with the Islamist extremist separatist East Turkestan Islamic Movement (ETIM). The EITM’s aim is to establish an independent and self-governing Uyghur province of East Turkistan (Xinjiang region). The majority of attacks have been confined to Xinjiang province, although the EITM has claimed responsibility for an attack in Shanghai in May 2008. Since the end of the Olympics, there have been no high-profile attacks, and there is no reason to suggest that Western interests are deliberately targeted in their campaign.
Protective Security Advice
China’s intelligence and security regime seeks to gain access to information and assets which will help to deliver on its commercial and other aims. Monitoring of business executives and foreign visitors is common. This will include remote attack on IT- mobile phones, blackberries, laptops and other computer equipment, and potentially efforts to compromise personal security (for example by honey-trapping aimed at blackmail or with the intent to coerce). Internet Service Providers (ISPs) co-operate with the Chinese Government to monitor emails and browsing. It is also possible that your staff, suppliers and contacts may be placed under some pressure to provide information or co-operate in some way. The promise to them of money may also be used to promote acts against you. They may have developed sloppy password control, or use the Internet in a way that increases the risk of remote attack. You should take care to ensure that your local employees understand what is expected of them in terms of both computer use and sharing company information, and monitor these carefully.
Business people are advised to be cautious about what information they bring with them to China, and how they use information whilst they are in China- either using IT or speaking in public places, which includes hotel rooms and public offices. UK officials and business people should be vigilant at all times about their personal security in terms of relationships and the risk of compromise and the potential exploitation of information and assets, which could harm the UK’s commercial interests or British interests in general.
There is a small but growing incidence of "non-official detentions" of foreigners. This type of intimidation can occur as part of a business dispute, usually between Chinese and foreign joint venture partners. In some cases the Chinese partner may send employees or other casually hired support to surround a facility and refuse to allow the foreign partner to leave until payment has been made. Threats of violence are common in such cases, and stand-offs can last hours or a couple of days. The police maybe unwilling to intervene and usually will not do so unless the situation turns violent.
UK businesses entering into Joint Venture arrangements sometimes underestimate the importance of sufficiently safeguarding company official Stamps/Seals (known locally as “chops”). A small but steady number of cases have come to the attention of the British Embassy and British Consulates of “chops” being stolen by partners. This then enables the local partner to act unilaterally (including moving funds). It also severely limits what the overseas partner can do without this crucial instrument.
Each company in the China must have a "Legal Representative" (法定代表人; fading daibiao ren) - an individual with broad powers and potentially unlimited liability. An individual appointed as a Legal Representative may be held personally liable in Chinese law for their company's debts.
British Nationals doing business in China should be aware that if they do become involved in a business and/or civil dispute, and the case actually goes to court, the Chinese government might prohibit them from leaving China until the matter is resolved or even detain them. There have been instances of British citizens being prevented from leaving China for months while their civil cases are resolved. Civil cases may sometimes be regarded as criminal cases and the defendant may be placed in custody, under a charge such as 'contract fraud'.
China does not recognise dual nationality. This applies to children and adults. Any person born in China to a Chinese national parent is likely to be considered by the Chinese authorities to have Chinese nationality. Travellers holding British passports who also hold Chinese citizenship are also likely to be regarded by the Chinese authorities as a Chinese citizen, even if you travel to China on your British passport. If you have formally renounced Chinese citizenship, we advise you to carry clear evidence that you have done so. Further information and advice on nationality issues for British national children born in China can be found on the .
If you are subject to a travel ban, or detained in any way, please contact the Embassy or relevant Consulate-General as soon as possible. If you are detained, you have the right to speak to someone from your Embassy or Consulate-General. If you need legal advice for example, we can provide you with a list of local lawyers who speak English. You can also check our guidance on travel bans and detention in our consular assistance guidance "Support for British Nationals Abroad".
In May 2012 we received reports from other embassies in Beijing of a scam targeting international companies in China. A number of these reports relate to a particular company, Xi’an Guiying Trading Co. Ltd, but the same fraud is also being committed by others. The victims are predominantly architectural firms. The ‘modus operandi’ is as follows:
The Chinese company (eg. Xi’an Guiying Trading Co. Ltd.) approaches a foreign company with a project proposal in China.
After protracted negotiations over several weeks the foreign company is invited to China to meet and sign contracts.
The foreign company is presented with a large bill for all entertainment, excursions, and other costs incurred over the course of the trip.
We have also received reports from other embassies that e-mail conversations between Chinese sellers and foreign buyers have been hacked into. The hacker then purports to be the Chinese company and asks for the funds to be redirected to another bank account.
We would advise companies to be vigilant.
Meeting in the British Embassy
IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, they you should consider registering your IP rights in your export markets. If you are a UK company selling to China, sourcing from China, or even attending the same trade fairs as Chinese companies, your IP is already exposed.
Depending on the circumstances of the case, The British Embassy or British Consulates in China may be able to provide support to companies experiencing problems securing or defending their IP through UKTI’s chargeable service (OMIS).
There is currently no agreement in place for UK musicians to obtain royalties for recorded performances of their works played on Chinese radio or TV.
The has been appointed and started work in China in December 2011. The position is an important part of the Government’s plans to strengthen trade relations and unlock the growth potential of UK businesses abroad.
A number of British companies have been attracted by potentially lucrative business offers in China, which have turned out to be scams. We therefore always recommend you research the market as best you can to understand any differences to the business environment in the UK and conduct some basic due diligence before making any financial commitments (eg. checking that your Chinese counterpart is a properly registered and licensed business). For examples of some typical scams visit the website.
It is worth bearing in mind the following when considering doing business with Chinese counterparts unfamiliar to you:
An offer 'too good to be true' may be, in fact, just that.
Any request to pay a fee to have a contract notarised is liable to be a scam.
Verify the data of your business partner, make due diligence checks.
Increase your vigilance when making deals via e-commerce.
When making purchases use secure payment instruments. When selling, secure the payment before delivery of the products.
Contrary to what a customer says, it is not always necessary to visit China to finalise a contract. Be wary of a customer who insists otherwise.
If you have any suspicions about a company you are working with, UK Trade & Investment Beijing can help to check the validity of the company's "Business Licence" (issued in Chinese only) by the Chinese State Administration of Industry and Commerce. Please forward the licence and the details of the company including full name, address and contact details to or fax to +86 10 5192 4218.