Chinese Business Law and Practice - Assignment Example

Heading: Chinese Law Questions Your name: Course name: Professors’ name: Date: Part 1 Question 1 The employee should not be fired before considering the breaches as stated in the employer rules and regulations. Some of the conditions that the employee seems to have violated include; i. The employee has violated rules and regulations promulgated by the employer Art 39(2) of labour contractual law. ii. The employee has committed a grave dereliction of duty performance which has resulted to loss in terms of employer’s interest Art 39(3) of labour contract law (Hunter 2008, p.184). A notice of dismissal of 30 days should also be provided to the employee in accordance with the labour law. It will be advisable to obtain consent from the labour law to avoid potential unlawful dismissal. The non competition clause is valid under Art 39 (2) as it was promulgated by the employer and agreed by the employee. In this situation, the employee is obliged to receive a pay of one month after the notice. In resolving the issue, mediation or arbitration is better than litigation in this case. Question 2 Arbitral awards made in Hong Kong are enforceable in Mainland. This will be possible only if it is not contrary to the mainland’s public or social interest and that the application of the enforcement is within a period of two years from the date of the Hong Kong’s award (Moser 2008, p. 187). Question 3 In china, there are issues which mainly involves a litigation process because of the corruption related cases as a result of political link with the country’s judicial system and also the time that it takes for the judges to successfully complete a litigation process. It will therefore be hard for WFOE a foreign company to obtain a fair trial in China. It is however worth to note that the process can be successful and fair judgement if a higher judicial level of the Chinese judicial system is sought to perform the litigation process. The lower level judicial systems are more prone to corruption and unfair trials as a result of specific interest of the judges and of other Chinese companies that may take advantage to sabotage the entire process (Roose 2010, p 29-5). The record of Chinese justice process especially when dealing with foreign companies is poor and it is therefore a source of litigation interference. The chances of this source of interference occurrence are high depending on the interest of other Chinese companies. The consequences of poor judicial system especially to foreigners can result in unfair judgement and thus increase of the expected cost of compensation or even close of business. The possible cause of unfair judgement is as a result of political interference where a competing company can take advantage. The other possible interference is a long and delayed justice system that will result in time wastage and thus increased attorney fees which are usually hard to recover. The interference here can result to waste of time and hence increased attorney fees which are usually hard to recover (Roose 2010, p.35). Part 11 List of major complaints of foreign companies in 2010 i. Issues related to regulating environment which is usually problematic and hinders fair market access and growth. ii. Problems of acquiring skilled staff to work in various sectors of the foreign companies in China. iii. The ever increasing competition between foreign to foreign companies and local to foreign companies. iv. Inconsistent interpretation of regulations by the Chinese government. Some of which requires a compulsory purchase of locally developed technologies coupled with irregular law enforcement. v. Poor insight on enforcement of Intellectual Property Rights (IPR). vi. Inconsistent observance of trade policy like the U.S. trade policy. vii. Inactive performance of trade promotion programs. viii. Less reforms concerning compliance programs. ix. The introduction of indigenous innovation policy has a direct impact on foreign companies’ entrance and growth in the market. x. Poor revaluation of the renminbi which brings imbalanced exchange rates in trade. Assessment of the foreign investor’s position Foreign investors feel that the regulatory environment is China is problematic and always leads to diminished market access in favour of local companies. Investors believe that these conditions should be rectified through AmCham in order to enhance a sound business environment. The foreign investors also feel that there are inadequate skilled staffs in various fields of the production process and they feel that the Chinese government should work on ways of ensuring that its citizens are resourceful. Most foreign investors feel that the inconsistent interpretation of regulations by the Chinese government like compulsory purchase of local Chinese technologies is working against foreign investors. The poor insight on the importance of Intellectual Property Rights to industrial development is also a key issue that mainly works against the progress of the foreign companies in China. Foreign companies feel that the government ought to be more vigilant on the issue. The introduction of indigenous innovation policy has had a direct impact on market entry especially to foreigners since the local companies are given an upper hand with regard to the market priority. Foreign investors feel that this creates uneven environment for doing business. Government response on complaints of foreign companies The government of the people’s republic of China welcomes complains of foreign companies regarding the challenges of doing business in China. The government has noted with great concern the need to foster free and fair market access to all foreign and local companies in order to cultivate stronger international relations with other countries. Regarding the issue of regulatory environment which seems to hinder increased foreign investment, the Chinese government is working on ways of streamlining the judicial system in order to enhance smooth and consistent litigation process and enforcement of arbitration process in Mainland China and Hong Kong. The government will also re-evaluate market conditions that mainly affect foreign investment in China in order to mitigate barriers of smooth trade. The government is also working with industry stakeholders about better ways of increasing the number of skilled labour in the market in the next five years in order to promote the affordable labour cost that has been the major target of foreign companies. The government is also re-structuring its litigation process in both the higher level and the lower level of the judicial system in order to stimulate a consistent interpretation of the law. The regulations on compulsory purchase of technology related products by the foreign companies will be reviewed with the interest of the public and the foreign companies in mind in order to have a balanced judgement. The government has also noted with concern the need to establish a more insightful watchdog of issues related to Intellectual Property Rights in order to promote innovation within the local market and the international market. The government will also be obliged to respect the Intellectual Property Rights of foreign companies operating in China. By implementing this framework, the government will be protecting the interest of both the local and international companies operating in China. Concerning the recently implemented indigenous innovation policy which foreign companies have objected and perceive it as a market control tool which locks them out. The government is continually gauging the impact of this procurement and will do necessary modifications in order to create a balanced business environment. Name Signature People’s Republic of China Assessment of the government position The government has clearly shown the willingness of carrying out reforms that will see the harsh business environment to foreign investors mitigated. The government has stated that it will improve its litigation process in order to ease the justice process especially for the foreign companies. The government has also stated clearly that it will work on the literacy of its public in order to ensure that its people have opportunities and also avail labour to the foreign companies that have already invested in China or are willing to invest in China. In the issue of interpretation of the law by the China judicial system concerning business disputes, the government has shown willingness to streamline its judicial system in order to rectify the system inefficiencies and therefore facilitate smooth justice process. China has been known for violating Intellectual Property Rights, this has been a major source of concern to the foreign companies that operate in China. Google issue a couple of years ago is a good example of Intellectual Property Rights violation. In order to stop this, the Chinese government is working on ways of curbing the continuity of this violation by allowing foreign companies to register their patenting elsewhere. Since the government has shown the willingness of working to ensure that there are minimal cases of Intellectual Rights violation, the working condition for foreign investors is therefore bound to grow in scope and compete well in an environment that encourages innovation. Since the introduction of indigenous policy in China, there has been a considerable concern by foreign companies about their progress in the Chinese market. This has been a major problem given the restrictions on market share that the policy is providing. Chinese companies are clearly given more opportunities in the market as compared to the foreign companies and thus making the market penetration hard to foreigner. The position of the government concerning this issue is not clear since there is no framework created to ensure that other foreign companies are not affected by this new implementation. Policy recommendation to address the problem Issue 1 Issues related to regulating environment which is usually problematic and hinders fair market access and growth. Recommendation The Chinese government should work on ways of ensuring that there is a fair and efficient judicial system that is free from political interference. The government can accomplish this by appointing judges of the high courts without being politically influenced a factor which has been the main source of concern by foreign companies. The government should also probe cases related to personal interests of powerful individuals who intentionally delay or derail the justice process especially when a foreign company is involved. These delays usually frustrate the companies and they are more often than not forced to move out of the Chinese market. Issue 2 Problems of acquiring skilled staff to work in various sectors of the foreign companies in China Recommendation The government should work on better ways of motivating the public to acquire new skills that are relevant in the market place in order to meet the demand of the market. This can be accomplished by sensitizing the public on the need to encourage their children to take professional skills that enables them to work in various sectors of the companies in the country. Creating an enabling environment through provision of facilities is the key to meeting this target. Issue 3 Inconsistent interpretation of regulations by the Chinese government, some of which requires a compulsory purchase of locally developed technologies coupled with irregular law enforcement. Recommendation The government should improve its regulation laws in order to avoid the biasness that the compulsory purchase of local products fosters. The judicial system should interpret regulations properly through consultations in order to avoid biasness of the regulation laws. Issue 4 Poor insight on enforcement of Intellectual Property Rights (IPR) Recommendation Infringement of Intellectual Property Rights should be addressed by the government in order to foster innovation and respect of other people’s innovation in the country. This should be done by levying hefty fine on individuals and entities that violate the rule of law regarding Intellectual Property Rights. The policy that required one to register IPR in China should be eradicated in order to foster development of IPR. Issue 5 The introduction of indigenous innovation policy has a direct impact on foreign companies’ entrance and growth in the market. Recommendation The consequences of indigenous innovation policy has had a direct impact on foreign companies because of they are sidelined in the market in favour of the local Chinese companies that they operate together in the market. The government should eliminate this policy and promulgate another process that creates a balanced trading environment in order to improve the market conditions. Business environment improvement 2005, 2007 and 2010 The business environment in China has considerably declined over the tow years, since 2009 and 2010. The rationale for the decline in business environment is the introduction of tighter regulations that tend to limit market access by foreigner. The bureaucratic procedures through regulatory changes have appeared to disadvantage foreign companies’ entrance to China market. The policy set in 2009 called indigenous innovation policy which mainly targets technology related products has narrowed market penetration by foreigner because of the policy that requires one to register their Intellectual Property Rights (IPR) in China before getting market access. This process was mainly felt in 2010 as AmCham added their voice to these policies. In summary, in the recent past, the regulatory procedures for market entrance in China have continually changed and thus locking out a number of foreign companies seeking to penetrate the Chinese market. As compared to the situation in 2005 to 2007, the conditions were much favourable and many foreign companies targeted Hong Kong for their business. In 2005, the Ministry of Commerce in China eased the regulation process for import of goods and thus providing a better option compared to the previous Wholly Foreign-Owned Enterprise (WOFE).The introduction of Foreign Invested Commercial Enterprise (FICE) in 2006 encouraged retailing, wholesaling and franchising of products in China unlike WOFE. In 2005, the government amended regulations of WOFE in order to include distribution of products in China. FICE on the other hand had no such restrictions making it more popular options to foreign companies. As evident through the 2005 to 2007 period, the FICE option required less capital contributions as a wholesale and as a retailer as compared to WOFE in the previous years. In essence a wholesaler required US$60,000 and a retailer required US$36,000 (Earnshaw 2006). The Chinese government implemented a series of phases in the Closer Economic Partnership Arrangement (CEPA) that considered the World Trade Organization (WTO) policies in order to encourage easier Chinese market penetration. This implied that U.S. companies were favoured because they were able to ship their products to China without paying for their duties. During this period, technology related products like electronics were imported to China duty free and thus encouraged more companies from the U.S. who had not penetrated China market to penetrate the market during that period. As discussed above, it is clear that the period of 2005 to 2007 was conducive for foreign companies to invest in China through their imports. The CEPA and the FICE options were the genesis of the easy market access. This is however not the case between the 2009 and 2010. China has established a number of environment related regulations that has hampered market penetration by foreign investors. Indigenous Innovation Policy and Intellectual Property Rights have made technology related products hard to penetrate the Chinese market. These set of new regulations have undoubtedly hamstrung foreign penetration into Chinese market and thus their voiced grievances to the Chinese government are not unfounded. Despite the intensified hardness of market access, most American companies still have the urge to invest in China if these conditions are regulated through AmCham as it has already voiced their concern to the Chinese Ministry of Commerce (Earnshaw 2006). References Earnshaw, G 2006, China Business Guide 2006, China Economic Review Publishing, Shanghai. PP. 281- 291. Hunter, C & Lam, L 2008, Employment law in China, CCH Hong Kong Limited, London. PP. 180-186. Moser, MJ & Cheng, TY 2008, Hong Kong arbitration: A user's guide, CCH Hong Kong Limited, Thausand Oaks.PP. 187-8. Roose, M 2010, Chinese Commercial Law: A Practical Guide. Wolters Kluwer Law & Business, Boston. PP.23-38. 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