CHINA LUNCH ROOM Doing Business in China Wadley Business Consulting/Shanghai/Co. Ltd. Preventing IP, Financial and Other Legal Pitfalls When Trading with

CHINA LUNCH ROOMDoing Business in China

Wadley Business Consulting/Shanghai/Co. Ltd.

Preventing IP, Financial and Other Legal Pitfalls When Trading with Ch

ina

Business Enterprise CentreAustrade TradeStart Sutherland, St George &

Sutherland Shires

Sydney09 May 2008

Michael Wadley, Wadley Business Consulting (Shanghai)

Who we are


- 14 people- 5 Australian lawyers - 3 Chinese lawyers- 1 Canadian lawyer- 3 Consultants in Beijing/Syd./Melb.- In operation for 4 years, China 6 years

Michael Wadley- Australian, 18 years

corp./com. Practice in Australia

- Long China fascination, grew Asian client inward investment base

- Corporate experience, Australian listed and unlisted boards, M&A

Paul Cooper- Canadian, 15 years

lawyer- 4 years as Investment

Broker with Schroders in HK/China

- 2 years study of law in Nanjing in Chinese, fluent

in Chinese


Wadley Business Consulting/Shanghai/Co. Ltd

Our Key Areas of Expertise

Finance, Banking, Insurance

Litigation/Arbitration

Establishment & Operational

IssuesBusiness

Planning/ StrategyFormation

Restructuring/M&A

Tax

Compliance/Risk Management

Property

LogisticsTransport

ProactiveHands On

Value adding

World region



It’s in the numbers

3,815 companies exporting to China (2005-06) +4,984 exporting to Hong Kong

Austrade’s China network: 2,700 companies assisted (last 12 months) 900 have made export sales

6,000 Australian invested projects in China



Operating Environment Sobering Statistics (Austrade)

- 50% of 4 billion contracts signed in China are in some respect fraudulent - 40% all China products counterfeit or substandard - 66% SOE accounts defective - Underground economy 20% or more GDP

- 15 – 20% infrastructure spending – fraud/low quality work - US$75 – 90 billion to re-capitalise 3 of 4 major bank’s prelisting


Historical Context

1910-30: Republic formed and civil law system1930’s: Civil war and Japanese invasion1930’s/1940’s” WW II and Civil war1949: Communist victory1960’s/ 1970’s: Cultural Revolution1979: “Open Door” – but no legal system1980’s: Most key laws enactedDecember 11, 2001: China joins WTO

History of the Legal System• Confucius, 'li' – Guided by correct behavior• Legalist, 'Fa' – Governed by positive laws, rewards and

punishment• 1840 – 1949, semi feudal and semi colonial• 1911 – Civil Code• 1949 – Repeal of Prior Laws• 1949 – 1979, 'Anti – Rightist' Movement, Cultural

Revolution• 1979 – Open Door, New Civil and Economic Laws


Legal Culture

• Pre 1979, lawyers ordinary government workers• 1979 – establishment of state run law offices• 1992 – semi-private law firms: ‘No 1 Law Firm’• 1993 – law permitting foreign law firms, - No

China law• 1996 – law permitting private law firms, - No

‘cooperation’ with foreign law firms


Law Firms Today

• Approx. 118,000 PRC lawyers (2007)• Approx. 24,000 in Beijing and Shanghai• 12,000 PRC law firms – 2000 in Beijing

and Shanghai• Annual bar exam 14% - 36,000• 220 foreign law firms including 60 from

HK/Macau



More Differences

“So far, a basic legal system framework has been formed and we are still developing the system. China’s goal is to construct a modernlegal system.” -- Chief Justice Xiao Yang, People’s Supreme Court –

World Jurists Conference, Oct., 2005, Beijing

The evidence ( Since 1978 ) - a new constitution

- 400 laws - 800 administrative rules


Presentation to

Jo Fisher Executive – Boardroom Luncheon

Michael Wadley, Wadley Business Consulting (Shanghai)

Big country - big differences

One country = 30 different markets!


Main Intellectual Property Laws in the PRC Trademarks & service Marks Patents Copyright Unfair Competition, Passing-off Trade Secrets Domain Names Product Quality,

Advertising & Consumer Laws

Criminal Law Enterprise Names Anti- Counterfeiting Technology Transfer Customs Others: Industry and Place

Specific Laws & Regulations (e.g.. Pharmaceutical, Tobacco)

Supreme People’s Court Interpretations- Civil Cases


State Intellectual Property Office (“SIPO”) Operates Patent Office

Local IPO Deals with patent infringements

National Copyright Administration (“NCA”) and Copyright Bureau

Copyright enforcement and policy-making

State General Administration for Industry and Commerce (“SAIC”) and local Administrations for Industry and Commerce (“AICS”)

Trademark registration, license recordal, and trademark enforcement, including anti-counterfeiting, unfair competition, advertising, company registration, etc.

State General Administration for Quality Supervision, Inspection and Quarantine (“AQSIQ”) and local Technology Supervision Bureau (“TSBs”)

Product quality and anti-counterfeiting

General Administration of Customs IP enforcement at borders

Ministry of Public Security and local Public Security Bureau (“PSBs”)

China’s main police force

Ministry of Commerce (“MOC”)/ local offices Technology licensing

China International Economic and Trade Arbitration Commission (“CIETAC”)

Arbitration of domain names, internet keywords, etc.

Other Ministries- industry- specific Tobacco, pharma, chemical, etc.


Development of Legal System

Traditional reliance on administrative enforcementBut increasing reliance on civil courts:•1990: 2.4 million civil cases; 300 IP cases•2001: 4.7 million civil cases; 5,265 IP cases•2003: 4.8 million civil cases; 6,300 + IP cases•National growth 20%, dev. areas 40%


IP

- It’s not just an IP jungle; it’s a battlefield

- Forget your Australia experience You are in China

- The system in there: Use it or lose it

- Do it before you talk let alone visit


Financial

- Due diligence and reference checking

- Above again

- Litigation is more expensive and difficult than Australia; costs and logistics plus lost opportunity

- Resource the due diligence but be aware of costs

- Possession is 9/10ths of the law

- use experienced advisors


Legal

- It’s another world – the law, customs, systems of enforcement, attitudes to contract and contractual litigation

- due diligence and reference check up

- have a contract – before you start

- use a China specialist


Due Diligence

- More expensive with limits, less transparent

- More details and less restrictions on privacy

- On the ground – different districts

- Multipronged approach

- Do it before you buy or pay

- Know your counterpart and what drives/influences them

- Site visits


Thank You for Your Attention. Wadley Business Consulting Shanghai

Address: Suite 5B, Crystal Century Tower

567 Wei Hai Rd, Shanghai , 200041

Tel: +86 21 6288 7299

Fax: +86 21 6288 7399

Mob: +86 13816804743

Email:[email protected]

Documents

CHINA LUNCH ROOM Doing Business in China Wadley Business Consulting/Shanghai/Co. Ltd. Preventing IP, Financial and Other Legal Pitfalls When Trading with