Saturday, June 23, 2012
Just in case anyone was naive enough to believe that the Chinese government's tax case against Ai Weiwei was really about tax and not just a flimsy cover for harassment on political grounds, the Chinese government itself has once again helpfully made its real motivations clear. Readers may recall that Ai Weiwei was originally taken away with no notice being given to his family of his whereabouts, held incommunicado for three months, accompanied 24/7 by uniformed police who were never more than 30 inches away, and subjected to intensive interrogation about his blog and other matters, but never about tax issues. Not typical treatment for someone suspected of evading taxes. (See NYT article here.)
Ai subsequently brought a lawsuit against the Beijing tax authorities, which was surprisingly accepted by the court. But on Wednesday (June 20) he was blocked from attending a hearing in his own case.
Apologist-du-jour Eric Li seems not to have gotten the memo: he still says that Ai Weiwei got into trouble (and properly so) for speech offenses.
Just in case there are any people doing business in China who read this blog but do not read Dan Harris's China Law Blog (which I highly recommend), be sure to check out the latest post on how not to become a hostage for your company's debt (or your own). Adds Dan at the end: "And just to scare you a little bit more, I have a friend who works for a high end China risk consultancy and he tells me that they started seeing a massive increase in these cases this year."
Thursday, June 21, 2012
A recent post on WFOE-formation over at the China Law Blog confirmed my view of some remarks that struck me as asinine when they were first reported last year: Coca-Cola CEO Muhtar Kent's statement that China had a more business-friendly environment than the United States. OK, if you're the CEO of a major multinational being wined and dined as you hobnob with senior leaders, maybe China looks pretty good. But is the Chinese economy really going to achieve sustainable development by catering just to the needs of major multinationals? How about the smaller enterprises that create employment and innovation? The difficulties faced by small and private companies in getting financing in China are well known; I won't go further into that issue here. But look at what's required (among other things) just to set up a wholly foreign-owned enterprise in China:
5. Lease on office space for the WFOE. The lease must be valid for at least one year beyond the eventual approval date for the WFOE. Since approval may take some time, it is best to have the initial term of the lease be at least one-and-a-half to two years. The lease must be in proper format and must be registered with the local real estate authority. We will also need proof that the landlord owns the property in question and has the authority to enter into the lease. This is usually proved by provision of a land rights certificate and proof of existence of the landlord (National ID for an individual, business license for a company). We will work with you during the leasing phase to ensure the lease is properly executed and that the landlord has proper authority. Prior to your entering into the lease, we will determine whether the proposed use is permitted for the premises and whether the proposed address is acceptable for a WFOE. Leases are often the biggest obstacle for WFOEs, so this is a matter to address right away. Note also that the specific details of the documentation requirements for a WFOE depend on the district where the WFOE will be formed. We therefore need to know the proposed address for the WFOE or at least the proposed district before we can make a final determination of the exact procedures that will be required for WFOE formation. Note also that we cannot even begin the registration process in China until we know the address of the proposed registered office for the WFOE, as well as the proposed use. This highlights the importance of the lease in the registration process.
6. We must specify the scope of business of the WFOE. Please provide a statement of what services the WFOE will perform on a daily basis. We need reasonable detail for this, but no more than one page. The scope of business should address the following questions, among others:
- How many employees will be working there? Are they full-time or part-time? Will they be working in the leased space or off-site?
- Will the number of employees vary over time?
- What is the nationality of these employees?
- What will each of these employees be doing in this rented space – will they be programming? consulting? buying? selling? manufacturing? providing customer support? managing other employees? something else?
- Who are the customers of the business? That is, who will be paying for the services provided by the WFOE?
- What is the projected cash flow of the business? Where will income go (i.e., to the WFOE, to the parent, to an affiliated entity)? How will expenses be paid (i.e., directly by the WFOE, by the parent, by an affiliated entity, etc.)? Where will the WFOE get its money to operate?
The scope of business will also be used in the company name as noted in Question 4. above.
No doubt some reasonable justification could be found for any particular one of these hoops to be jumped through, but when you put them all together (and remember, I'm just citing a few of them) one cannot avoid the feeling that the authorities view businesses as basically operations that are Up To No Good and that need to be carefully monitored and controlled. The idea that the future is unpredictable and that businesses should be able to adjust quickly to changing circumstances seems utterly alien to this regulatory model.
Note that the model also assumes that the bureaucrats reviewing information about, say, the number and duties of employees or the projected cash flow will have the expertise to use that information to make decisions that serve whatever government policy they are supposed to be implementing in their decision-making. Color me doubtful.
A colleague has brought the following opportunity to my attention: The USTR has advertised two attorney vacancies in the General Counsel’s office, at the GS-13 to GS-15 level. The key element appears to be the ability to read and analyze business and legal documents in Chinese. US citizenship is required, as is completion of a JD from an ABA-accredited law school and membership in a US bar.
Closing date: June 26, 2012
Incumbent provides legal support for USTR personnel in connection with sectoral, bilateral, regional, and multinational trade negotiations. Incumbent also provides legal advice and represents the United States in dispute settlement proceedings convened under the World Trade Organization (WTO) and U.S. free trade agreements (FTAs), and other trade agreements. In addition, incumbent provides legal advice to USTR personnel on U.S. trade law and policy, U.S. international trade obligations, foreign government compliance with trade agreement obligations, and the application and implementation of international trade agreements under U.S. law. The position requires the ability to read and analyze business and legal documents in Chinese. Experience researching Chinese laws and measures and litigation experience are preferred. The position requires familiarity with U.S. trade laws and U.S. rights and obligations under international trade agreements, particularly WTO agreements and U.S. FTAs. In addition, the position requires familiarity with the operation of dispute settlement procedures under U.S. trade agreements and the reports of WTO and FTA dispute settlement bodies. The position requires a high level of motivation, strong interpersonal skills, and management of a demanding workload.
Wednesday, June 20, 2012
Well-known attorney Li Fangping (李方平) has brought a lawsuit against a Beijing company for discrimination against people without a Beijing hukou (official domicile) in a bicycle rental program. The program seems to be designed to work like a lot of bike rental programs in other cities: bicycles are placed in various locations around the city, and you can pick one up from any location and return it to any other location for little or no charge (thus, "rental" isn't quite accurate). In the Beijing case, brief usage is free, and more extended usage costs a bit. The program is open to people who hold second-generation Beijing identity cards. (The 2G cards have a chip in them, unlike the first-generation cards, which just have information printed on them.)
The Beijing government has responded to criticism of the limitation by saying that the program relies on the technology in the 2G cards, and anyway it's just a pilot program that will later be extended to non-domiciliaries. (Note that Beijing has many people who are in fact residents but aren't officially domiciled there.) Li points out that other cities seem to manage similar programs using 2G cards without limiting them to residents. I'm not competent (and don't have time) to assess the merits of these arguments based on the single report I saw of this.
One interesting feature of this case is that as with many governmental programs, it's apparently carried out not directly by a governmental agency but by a company that no doubt has strong governmental ties and support. (If it were operating solely on a profit-making basis, it probably would not offer free use of the bicycles.) According to the report, Li's complaint charges it with "discrimination". But of course to discriminate is just to make distinctions, and not all forms of distinction-making are invidious or illegal, and different rules typically apply to government agencies on the one hand and private actors on the other. It will be interesting to see how this case, assuming it's accepted by the court, is argued and decided.