Chinese Business Law and Practice - Case Study Example

The Running Head: Chinese Business Law and Practice   Your name:   Course name:             Professors’ name: Date: Outline Part I Part II Undervalue Yuan Counterfeit products Piracy Brand Names Damage Stimulus Package Trade protectionism Labor Market Rule of Law Corruption Procurement Recommendation Assessment of Chinese market Works cited Part I The system used in employment in China is based on socialist and Northern European models. This system of employment is different from that of U.S; in the United States companies are at will to terminate employees at any time for pretty much any reason. But in Chinas systems is the opposite of that of US system, because Chinese system is based on a contract employment system. In other words, all employees in a company must engage pursuant to a written employment contract and during the term of that contract while still in the company. A company can only terminate its employee contract for cause and cause and that cause must be clearly proven. Any company operating in China must maintain a detailed set of rules and regulations, at same time they must maintain all records of discipline for their employees so that they can be able to establish grounds for any dismissal of its employee. According to Chapter 4, Article 36 in the Chinese Law, employees in China are supposed to work for 40 hours per week and any overtime must be paid for any employees who exceed the 40 hours limit. In Chinese Labor Laws doesn’t have the concept of a salaried worker, every workers is supposed to have a contract. It’s possible to dismiss the worker because he has gone against his contract by working for another company. In case of an Australian company in dispute with a Chinese company; since 1997 when Hong Kong sovereignty returned to mainland China, the award which has been passed in Hong Kong has become domestic awards for the purposes of enforcement within mainland China. Arbitration award in Hong Kong is recognized in China only on limited grounds, only if the award is not contrary to the public policy or interests of mainland China, but if the losing party is a company owned by Chinese government, such a defense may be raised. At the same time the party which has been awarded the arbitrary award should file it with the Intermediate People's Court in the place where the Respondent is domiciled, for the award to be recognized. There are limitations under the Agreement between Mainland China and Hong Kong is that applications is not permitted to be filed in both two regions; Hong Kong and Mainland China at the same time, and the time limit for enforcement of arbitration award in China is less than a year for all those claims made by individuals and less than 6months for companies or legal persons. It is advisable for persons or companies to file application for enforcement of the award given in Hong Kong first in Mainland China before doing the same in Hong Kong. In the case of that foreign company which is concern with unfair trial in the product liability claim. Many cases of corruption in the Chinese judiciary have been reported, according to the Bertelsmann foundation (2010), many judges, prosecutors and lawyers in mainland China have been found to be corrupt and not conversant with Chinese Laws, although Chinese Judiciary is thought to be independent, it is still under the influence of the government which limit lawyers to gather evidence in both criminal or civil right defense cases. According to the US Department of State (2010), it is believed many foreign companies have experienced irregularities in dispute settlement in mainland China. In the same report, in dispute local businessmen are often favored over foreign investors; by the local courts, this view is shared by Transparent International. Any decision made by Chinese court is subject to approval by the courts CCP committee, and since the judges’ salaries are paid by the People’s Congresses and local governments, the state and CCP can interfere in the legal case. In conclusion, I don’t believe your company will get fair trial. Part II Undervalue Yuan The groups of people who are benefiting from an undervalued Yuan are the American consumers, the undervalue Yuan allows the Americans consumers with their dollars to buy more goods for less money than they would be otherwise, and the effect of this has made American consumers to have purchasing power, and variety of goods bought into the market has been increased. On the other hand, business men and women in America have suffered from undervalued Yuan, this is because Chinese businessmen will export cheaply to United State, while their counterpart in America, will import into China expensively than they would be under free market conditions that have been set up by the World Bank. The effect of undervalue of Chinese currency will give Chinese businessmen a competitive edge over the Americans businessmen, in return undervalued Yuan also put a lot of pressure on American exporters and import-competitors and this will contribute to job losses in the United States. Counterfeit products These are imitations products, in 2010 alone, it was estimated the counterfeit products in the United States to stand at 200 billion dollars, and this illegal market was continues to grow. The growth of counterfeit products in the country has an economic impact on the marketplace and on the manufacturers of legitimate goods in the United States. Counterfeit products will lower the value of the original product and it has negative impact on sales of the product. Those higher end merchandise shops which depend exclusively to market their well know brand, but they have lost their core businesses because of the effect of knock off products with its origin from China; U. S consumers will switch to lesser known brands that is imitation of an original one. Businessmen have lost their investments, when they have invested in reputable companies which cannot maximize their profits potential because they are unable to sell their products for what it is worth; because it is difficult to compete with counterfeits products which does not have initial cost of bringing a product from raw material to market, counterfeit usually devalue the work and creativity of the innovator of the product being imitated. Piracy The United States Commerce Department has estimated the companies in U.S are losing over one billion dollars each year due to piracy. It has been observed United States digital media which ranges from movies to software to music, these products from U.S is readily pirated in China due to availability of cheap duplication cost relative to their retail street prices. Also in China the level of software piracy is higher. Statistics taken in 2004 noted that China was the sixth largest market for computers, yet only 26 largest for software sales. It estimated companies which deals with software had a loss of 1.47 billion dollars in China, and this was as a result of piracy. If personal entertainments software that has it origin in the United States were added to this calculation, this number would go higher. Brand Names Damage According to U.S Commerce Department, it is estimated 20 per cent of all the products that originate from the Chinese market have been found to be counterfeit. When counterfeit consumer products fail, it will have a negative effect on the reputation of the real brands as well. In China, Chinese medicines have injured and killed hundreds of thousands of American people, ranging from toothpaste and cold medicine to diet pills in America. It has been found that many Americans were killed due to counterfeit medicines which have it origin from China. In recent raid on a printing company in the southern China, the authorities in charge confiscated bogus packaging and labels for brands which have it companies in the United States, such as Coca cola bottles, Wrigley’s gums, General Mills cereals, Pepsi soda and Nestlé’s. in addition, brand name damage caused loss of sales because low grade counterfeiting will damage the company image, at same time, if a consumer buys a counterfeit product on retail market and finds that product does not meet his/her quality expectations; the brand name will be jeopardized. If a counterfeit product breaks down or causes injuries to its consumer, a product liability case will be filed against genuine company of that product. This will make the company lose money as a result of compensation, if the company cannot prove the product in question is not an original one but a counterfeit. Stimulus Package The biggest winners for economic stimulus packages so far it has been domestic companies which operate in mainland China. Particular that company owned by the government, who’s combined investment, has increased by 40.6 per cent in the last one year. This is because of the regulation from the government of China that all products and services that will be used in government investment projects must be sourced domestically, unless they needed goods or services which are not manufactured in the country-“buy Chinese” order. Most of US companies doing business in mainland China have been negatively affected by the slowdown in the Chinese economy and the stimulant package is not helping these companies. However, unlike the United State stimulus package which aimed at rescuing financial institutions, Chinese stimulus package is spent in infrastructure sectors, such as roads and technology. Most US companies have reported not feeling a direct impact of the Chinese stimulus package; over 70 per cent of those companies have reported that they have not felt any increase in sales or contracts related to the Chinese stimulus package. Trade protectionism This is an economic policy which restrains trade between countries through various measures such as restrictive quotas, tariffs on imported goods and other restrictive regulations that is designed to discourage imports, and to prevent companies from foreign countries taking over local markets and companies. The government of China has put in place a number of policies which develop the economy of that country at the expense of international companies operating in mainland China. In 2007, U.S government slew a safety concerns surrounding some products from China, such as toys, toothpaste and pet food. The Chinese government retaliated by rebuffing American meat products. Another example of trade protectionism is when mainland China imposed chicken tariffs of all the chickens imported from the U.S. the new tariffs import of chicken will be required to pay deposit to the custom office according to the level of subsidy the companies in United States are given. Labour Market US companies operating in China are facing difficulties due to threats at its factories, the Chinese government counted that this request by factory workers were justified. The government of China pledged to eradicate the widening gap that exist between the rich and poor, and this will be realized when better conditions for factory workers. Many provinces which are found in China have reacted to the government protests by announcing an increase in minimum wages, for example Qinghai province, increased its minimum wage from 580 Yuan ($85) to 770 Yuan ($113) per month. A study was carried out by USCBC indicate that 81 per cent of the respondent said wages in their companies in China were higher when you compare it to the average Chinese enterprises in the same field. On the other hand, the Federation of Trade Union (ACFTU) in China in July 2008, started unionizing 80 per cent of all foreign companies operation in China, this was as a result of the 2 per cent of payroll the companies have to remit to local and national union coffers. Rule of Law In China its appears the rule of Law is not respected, for example, in intellectual property, the procedure used in licensing and harmonizing of local and national regulations and antimonopoly proceedings in that country is not followed. Many foreign companies have entered China, particularly US enterprises and make repatriate profits. The profit they make does not mean Chinese government has erected a system that is transparent or predictable to do business in mainland Chinese market. In fact, they are daily challenges most businesses are undergoing in China, such as: opening and operating business, getting approval for authority for a new product lines, expand the business scope and advertisement of business, is daunting in China. Corruption Many U.S companies have run into problems with authorities due to corrupt behaviors by their agents or business intermediaries. It has been found that construction sectors in China are the most corrupt, because most of the contracts are given to domestic firms. In the same report, in dispute local businessmen are often favored over foreign investors; by the local courts, this view is shared by Transparent International. Procurement Chinese government procurement market is broad when you compare it to other markets, procurement in any government is supposed to cover all of the goods and services that are needed at any level of that government uses. It has been noted about government procurement policies, which have been designed to limit foreign companies operating in mainland China from accessing this procurement market. At same time, there is favoritism for Chinese companies in getting this procurement deals when you compare them to foreign companies. Recommendation If the U.S companies are facing stiff competitions from domestic companies in China, they need to be proactive and start evaluating how they can outsource their services to China; this will help them remain competitive. On the issue of Yuan being undervalued, the U.S government should convince Chinese government to adopt a more “flexible currency regime”, in other words, they should stop keeping their currency artificially weak. With deepening of economic ties between the U.S and China, trade between these two countries has inevitably seen frictions and disputes. Both governments should look at the trade objectively and resort to negotiations and arbitrations to prevent unnecessary protectionism. On the issue of piracy and counterfeiting of product produced in China, the U.S government should tighten its borders on the counterfeit goods, and severe penalties should be imposed on any person or companies found to be dealing with counterfeit goods. Assessment of Chinese market To some extent doing business in China has improved, this is because over the years , the Chinese government has embarked on improving infrastructure in that country; the infrastructure in transportation, communication, electricity and natural gas have been put in place. The Chinese market transition process from planned economy which was experienced in the past to market economy, has not only led to unprecedented economic growth rates in Chinese market, it has also created opportunities for government official to enrich themselves illegally, according to study conducted by World Bank, It is estimated that at least 3 per cent of annual GDP is lost through corruption in that country. The government of China has realized that corruption is endangering stability and economic growth in the country, and therefore, the Chinese government has been pursuing an anti-corruption campaign which target both the government owned companies and private sector to try to curb the persistent problem which has become a cancer in the economy. The ongoing anti-corruption campaign in China has led to exposure of many corrupt dealings and this has helped to deter potential corruption offenders in that country, at same time, not forgetting Chinese legal framework for cubing corruption which is well-defined, and when you combine it with the strengthening of international anti-corruption cooperation, as well as Chinese anti-corruption policies, improvement in successful prosecutions and arrest of high profile official in the government has been made. Recently the Chinese government has initiated a process of transparency in governance, but what still remain is to allow the Chinese people to be able to access information that touches on government policies and policy making in general. The Chinese government has taken steps in preventing piracy and counterfeiting, but more still remain to be done by the official in Chinese government in action vs. issuing statements in the country. The recent made State Intellectual Property Offices to combat some of the vices that is associated with piracy and intellectual property is one small step. Since joining World Trade Organization (WTO) in 2001, until recently Chinese market was in a discretionary period which they have gotten out of, thanks to regulation and rules of WTO. This period gave the Chinese government some leeway in terms of which of the World Trade Organization (WTO) rules the country had to stick to. The window period has ended for the Chinese government in the WTO; the government is trying to demonstrate an effort towards complying to the rules and regulations of World Trade Organization (WTO). Lately, the Chinese government has allow foreign companies to manufacture and sell a wide range of goods for both international and domestic market, they have also cut down on time restrictions that is needed to establish joint ventures, and they have also provided assurance against nationalization which was there in the past. Nowadays, foreign investors in China are allowed to become chairs of joint venture boards, and at same time the Chinese government has authorized the establishment of wholly foreign-owned companies or enterprises, now the preferred form of FDI. Also, since 1991, the Chinese government is granting more preferential tax treatment to foreigner owned companies and contractual ventures for companies which invest in selected economic zones that have been designated by the government. In conclusion, doing business in China has improved, but more need to be done by the Chinese government to fully operationalise their economy. Works Cited Wang, Kui Hua. Chinese commercial law. London: Oxford University Press, 2009.Print. Read More