Investments in China Innovation Norway - NEEC › wp-content › uploads ›...

OSLO � BERGEN � LONDON � SINGAPORE � SHANGHAI � KOBE1

Investments in China-

Innovation NorwayGeir Sviggum

PartnerWikborg, Rein & Co.


INTRODUCTION

• Wikborg Rein - established 1923

• Norway’s largest and most international law firm

• Wikborg Rein in Asia for more than 40 years: – Kobe, Singapore, Shanghai

• Wikborg Rein in China:– A growing team of Chinese, Norwegian and American lawyers in

Shanghai– Official Legal Advisor to Norway at World EXPO 2010– Legal partner for INTSOK in China– Client base: majority of Norwegian enterprises in China, as well as

a number of state-owned and Fortune 500 companies within the maritime & energy markets


SINO-NORWEGIAN COMMERCIAL INTERACTION TAKES MANY FORMS

• A short- or long term contract is entered into between a Norwegian and aChinese company

• A Norwegian company acquires a Chinese company or the other way around

• A Chinese and Norwegian company enters into a Joint Venture cooperation in Norway, China or in a third country

• A Chinese company establishes a wholly owned presence in Norway or the other way around

• The above examples of interaction necessitate various degrees of contact with individuals, authorities and legal institutions in each other’s countries


SINO-NORWEGIAN INTERACTION – A FEW BASICS TO KEEP IN MIND

• MASSIVE cultural differences• Norway is homogeneous; China is a developing country with extreme

diversities• Norway is a Christian, “guilt” avoiding culture. China is a “shame” avoiding

culture, in which shame/loss of face, not guilt or bad conscience, is to be eluded

• Difference between ideals of guanxi vs. charity (nestekjærlighet)• Vast communication barriers due to different verbal approaches, even

where the parties share a common language (English, etc.) • Even though Norway and China are both civil law countries with many

similarities in theory, the theory/practice gap is substantial in China compared to Norway


SINO-NORWEGIAN CONTRACTUAL RELATIONSHIPS –NORWEGIAN AWARENESS WITH REGARD TO CHINESE CONTRACT LAW & MENTALITY• The traditional lack of focus on written contracts• “Chop” equals signature• The importance of business scope• Choice of law and dispute resolution mechanism – a key clause in every

contract; lack of which may render the contract meaningless


NEGOTIATIONS AND COOPERATION – DIFFERENT MIND SETS?

Westernindividualistegalitarianinformation orientedseeks the truth the argument culturequick meetingsInformalsales pitchersfull authoritydirectproposals firstaggressiveimpatientforging a good deal

Chinesecollectivisthierarchicalrelationship orientedseeks the waythe haggling culturelong courting processformaldraw in intermediarieslimited authorityindirectexplanations firstquestioningenduringforging a long-term relationship


TIPS TO NORWEGIANS NEGOTIATING WITH CHINESE

• Negotiations are likely to be perceived as chaotic and unsystematic with– A lot of people involved– It being hard to spot who the decision-maker is, if he is even there– Skipping back and forth between the clauses and activity often

perceived by Westerners as “back-trading” on points you considered as closed and settled

• The Chinese will also be patient. Be prepared for a lot of sightseeing and meals before ever “getting down to business”

• Do not get frustrated or angry; that is the intended purpose!


DOING BUSINESS IN CHINA WITHOUT ESTABLISHING- HOW TO STRUCTURE AGENT RELATIONSHIPS?

• Chinese culture; relations and guanxi

• Guanxi involves having a relationship in which one may expect favors and reciprocities from each other

• While we are suspicious of doing business with relatives and friends, the Chinese are suspicious of doing business with someone they do not know

• Norwegian companies may be prosecuted under both Norwegian, Chinese and American law for actions committed in China by company employees or agents/middlemen


KEY PREPARATIONS WHEN UTILIZING CHINESE MIDDLEMEN

• Is there a standard price for this particular kind of middleman in this particular city/region?

• Is there a standard role for this particular kind of middleman in this particular city/region?

• Where do you draw the line between common courtesy and corruption in this particular city/region?

• The method of payment is crucial; strive for hourly rates and avoid success fees and bonuses

10


KEY PREPARATIONS WHEN UTILIZING CHINESE MIDDLEMEN, CONT.

• Anti-corruption awareness ought to be at its most critical when employing project specific agents; employed for their particular ability to influence the decision-makers in one defined project

• Due diligence on this particular agent

• Establish a comprehensive system for follow-up of your agent’s/partner’s activities; never accept ”miscellaneous costs” in invoices from agents

11


THE WORLD BANK’S EASE OF DOING BUSINESS –GLOBAL RANKINGS

• ”Ease of doing business index ranks economies from 1 to 181, withfirst place being the best. A high ranking means that the regulatory environment is conducive to business operation.”

• Singapore number 1

• USA number 4

• Norway number 10

• China number 86

• Still, China is the world’s second largest trading nation, the largest exporter and the second largest recipient of FDI


ESTABLISHING A FOREIGN OWNED PRESENCE IN NORWAY

• Three corporate vehicles normally used: AS, ASA & NUF• AS

– Limited liability co. (need for NOK 100,000 in reg. cap.)– Few restrictions (can be wholly owned by Chinese)

• ASA– Public limited liability co. (need for NOK 1,000,000 in reg. cap.)– May be publicly listed

• NUF– Unlike AS & ASA, no need for reg. cap. or annual audit– Similar to a Chinese rep. office (not separate legal entity)– May be established by any type of Chinese company


ESTABLISHING A NORWEGIAN OWNED PRESENCE IN CHINA

• Investment restrictions - The Investment Catalogue and Guidelines

– Encouraged

– Permitted

– Restricted

– Forbidden

• Investment incentives (corporate income tax, VAT and import duties)

• Investment structure, ownership and capitalisation issues

• Approval requirements

• The tax reform from 1 January 2008 – less incentives but still available


RENEWABLE ENERGY INCENTIVES

• Renewable energy among China’s most preferantial industries

• The Renewable Energy Law of PRC of 2006, amended in 2009

• 100% of produced renewable power guaranteed to be purchased by the state-owned power grid

• VAT on some renewable energy production subject to 50% discount

• Other VAT related incentives

• Some renewable power producers may apply for a 3+3 corporate income tax holiday

• Some renewable energy manufacturers entitled to public cash allowance


TYPICAL FOREIGN BUSINESS VEHICLES IN CHINA

• Representative Office

• Wholly foreign-owned enterprise (“WFOE”)

• Joint Venture (“Equity Joint Venture” or “Co-operative Joint Venture”)

• Heavy restrictions on foreigners’ ability to invest in listed companies


REPRESENTATIVE OFFICE

• Allows you to legally keep office in China

• Not considered a Chinese legal person

• No capital requirement and easy set up

• Research, marketing and liaison on behalf of head office

• No booking of contracts in name of rep office

• Chinese staff hired through agents

• Special tax treatment


WHOLLY FOREIGN-OWNED ENTERPRISES (WFOE)

• 100 % foreign invested enterprise in the PRC

• Chinese legal person, usually with limited liability

• Not permitted in certain strategic sectors (ref. the Catalogue)

• The challenge of going it alone in China versus better control

• Less costly and faster set up compared with Joint Ventures

• Board of Directors/management – decided by approved articles of association

• Articles of association and agreements with GM are important forcorporate governance

• Better for securing Intellectual Property


JOINT VENTURES (EJVS & CJVS)

Separate regulations with similar rules, but with some significant differences:

• Legal person status

• Limitation of liability

• Distribution of directors (highest corporate authority)

• Profit sharing

• Recovery of investment prior to expiry of term

• Typical challenge: difference in management cultures and business objectives of foreign and Chinese partners


CAPITAL REQUIREMENTS

• Equal requirements for WFOE’s and Joint Ventures

• Total Capital and Registered Capital

• The balance between Total Capital and Registered Capital equals total allowed loan capacity from abroad (thus limited options for parent company support)


ACQUISITION OF AN ALREADY EXISTING NORWEGIANENTITY

• Significantly lower authority involvement than in China• No need for structural changes due to the entry of Chinese owners

(domestic and foreign owners are equally treated in Norway)


ACQUISITION OF AN ALREADY EXISTING CHINESEENTITY

• Significant authority involvement• Need for structural changes if the company acquired is a domestic

company (need for transformation from domestic to FDI company)• All rules portrayed above still apply

– The Catalogue needs to allow your business’ involvement in that particular type of business

– You need to go through the same approval processes– Capital requirements – Etc.


INVESTING IN CHINA – SPECIAL ATTENTION

• In addition to the normal Western style due diligence, pay special attention to– Irregularities in the target company (tax issues, accounts for different

purposes, etc.)– The people involved (background check important)– Labor disputes (exploded after new labor law in 2008)– Review of local authorities and the relationship to these– Land use rights and various licenses/approvals


FDI OPPORTUNITIES AS A DIRECT CONSEQUENCE OF THE CRISIS• Approval of FDI delegated from MOC to regional levels for

investments below US$ 100 million

• Reduction of bureaucracy and time needed for approvals

• Numbers of incentives available for multinational headquarter establishment in Shanghai, and recently also in Beijing

• Incentives available for high-tech companies

• But…

• …considerable shift in focus from FDI encouragement as such to stimulus of certain sectors

• Being a foreign company is thus no longer a considerable asset; it is essential to see opportunities in sectors favoured/stimulated by the authorities


OPPORTUNITIES WITHIN THE STIMULUS PLAN

• RMB 4 trillion is being pumped into the Chinese economy. The money is mainly distributed to four main areas:

– Infrastructure– Energy– Water and Environmental protection– Rural initiatives


CONTACT US

• Contact persons:

Geir Sviggum [email protected]

Yafeng Sun [email protected]

Dan Connelly [email protected]

Tlf. (+86) 21 6339 0101Fax (+86) 21 6339 0606

Visiting address:Suite 1302, No. 300 Middle Huaihai Road, 200021 Shanghai, China

mailto:[email protected]



Investments in China Innovation Norway - NEEC › wp-content › uploads ›...

Documents

Transcript of Investments in China Innovation Norway - NEEC › wp-content › uploads ›...