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Chinese (Business) Law Enforcement: It's A Good Thing

By Dan Harris and Steve Dickinson

By Simon Malinowksi NOTE: Simon is a 1L at Indiana University School of Law and a Harris & Moure summer associate. Much has been written on this blog and elsewhere on China's gradually decreasing appetite for foreign investment as manifested by its tougher enforcement of its foreign investment rules. Though no one has explicitly said as much, the underlying tone makes it seem like this is an unmitigatedly bad thing for foreign business going forward. But is it really? Companies already in China or trying to get into China are increasingly having to follow rules that have only recently begun to be enforced. These troublesome new rules run from having to run a gamut of requirements to register a company properly to having to follow fairly tough national employment regulations to having to actually pay all sorts of taxes. In other words, the same sorts of "hurdles" legitimate companies regularly have to surmount in developed nations. The way I see it, all this means is that the wild-west style of China investment is disappearing, at least for foreign companies. Companies will no longer be able to just show up in China and thrive merely by virtue of their being foreign. Companies will have to be diligent in their preparations, and make sure that they are line with all of the necessary regulations. So why is this a good thing? Because whether or not America is happy about it (and a high percentage of the media coverage makes it seem like it is not), China is ever so slowly moving on its way to becoming a first-world country. Yes, the foreign companies are feeling this move first, but that is what has always happened in China and elsewhere. With this will come all of the requirements involved in doing business in a developed country: top-flight legal counseling, familiarity with the laws, and a general knowledge of how business is conducted. All this is simply speeding up the end game where the only companies that successfully make the transition to China will be those that can afford to prepare and execute in a China that is no longer "anything goes." The China transition is getting tougher for all foreign companies, But even this has its benefits. Those foreign companies that learn to operate in China will soon be opening up ground between themselves and their foreign competitors who have failed to recognize that China today for foreign companies is not the same place it was five years ago. Of course there will be those companies that thrive and those that fail, but at least to a certain extent, it will all be by choice.

Full post as published by China Law Blog on May 21, 2010 (boomark / email).