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CHINA (PRC FIRMS): An Introduction

An Overview of China’s Legal Trends 

China has undergone substantial changes in the legal sphere due to the economic and geopolitical challenges and following the enactment of new domestic legislations and amendments. It features trends in a couple of contentious and non-contentious facets, including international trade, dispute resolution and corporate/M&A.  

Trade Remedy Investigations against China 

World trade statistics show that in recent years China has become a major target of trade remedy investigations, initiated by the USA and the EU as well as some developing countries.

Anti-dumping investigation, among all trade remedy investigations, is the most frequently used instrument against Chinese exporters. In some anti-dumping investigations initiated by certain countries or regions, arguably unfair rules are adopted when determining the normal value of products originated from China. Moreover, there is a lack of transparency in trade cases initiated by some developing countries, which isn’t fair to Chinese exporters who now face an ever-challenging situation concerning anti-dumping actions.

Subsidy investigations involving Chinese products are popular with the US and the EU. To determine whether subsidy can be countervailed, both the US and the EU factor in China’s economic system, legal structure, and administrative setup, which may put products originated from China in a disadvantageous position. Besides, external benchmarks for calculating subsidy margins concerning Chinese exporters in those US and EU cases have been randomly applied without properly respecting the WTO rules and are therefore controversial. Safeguard investigation is another instrument that has been used by most of the developing countries. Safeguard investigation is also abused because rules, procedures, and evidence, on which basis findings are made, do not entirely comply with the WTO laws.

Safeguard measures are another instrument that has been mostly applied by developing countries in trade disputes with China. Safeguard investigation is also abused because rules, procedures, and evidence, on which findings are based, do not entirely comply with the WTO laws.

Given the abovementioned unfair rules applied to the Chinese exporters, coupled with opaque procedural rules, it goes without saying that Chinese exporters are treated differently by some markets, if not discriminatorily, in trade remedy investigations.

Despite of the challenges, China shall still stick to multilateral rules-based trading system, support globalisation, and actively participate in the establishment of new rules through negotiation and cooperation. When it comes to specific trade remedy investigations, it is still necessary and important for the respondents to fully cooperate in the investigations to defend themselves.

Dispute Resolution in China 

The World Bank’s Doing Business 2020 report shows that China's environment for doing business has improved significantly. China takes the lead in the “quality of judicial administration”, scoring 17 out of 18 on this index, outperforming the other economies. In the area of dispute resolution, China's new developments in the following areas deserve attention.

Since 1 January 2021, the Civil Code has come into force. Compiling the Civil Code was a comprehensive and systematic revision of China's civil laws and regulations formulated in different periods. Meanwhile, the Supreme People's Court has compiled and clarified relevant judicial interpretations based on the Civil Code. Additionally, the Supreme People's Court has successively released judicial interpretations on the Company Law and the Bankruptcy Law, and the Minutes of the National Courts' Civil and Commercial Trial Work Conference, aiming to align law application and judgment criteria, and enhance judicial transparency and predictability.

China protects the legitimate rights and interests of Chinese and foreign parties equally and is trying to create a fairer, more transparent and predictable business environment under the rule of law. The Supreme People's Court has formulated judicial interpretations on the Foreign Investment Law, established the China International Commercial Court, and issued Opinions on Serving the Belt and Road Initiative.

China has continued to strengthen the rule of law and cooperation in the field of international rule of law, actively promoted the conclusion of a Multi-party Interim Appeal Arbitration Arrangement of the World Trade Organization (WTO), and actively promoted the reform of the international investment dispute settlement mechanism, and the signing and entry into force of the Singapore Convention on Mediation. China has gradually formed an institutional system linked with international advanced rules.

Corporate/M&A in China 

As China continues to open up its market, it has adopted the foreign investment law and related supporting measures, streamlined processes, provided equal treatment guarantees, expanded the scope of business activities that foreign investment can carry out, and enriched foreign investment capital market channels.

The new legislations, rules and agreements that are worth noting are the Catalogue of Industries Encouraging Foreign Investment (2020 Edition), which came into effect on January 27, 2021. There are 1,235 entries in the new version of the catalogue. Compared with the 2019 version, 127 entries have been added and 88 entries have been revised. The focus of the new catalogue is on adding entries for manufacturing, producer services, and central and western regions, to guide foreign investment, boost confidence in foreign investment, and stabilise the overall performance of foreign trade & foreign investment and industrial chains & supply chains. It’s interpreted that there are four-fold purposes here: The first is to further increase the encouragement of foreign investment and expand the scope of it. The second is to further encourage foreign investment in advanced manufacturing to enhance the resilience of important industrial chains and supply chains. The third is to further encourage foreign investment in modern service industries and improve the quality of service industry development. The fourth is to further encourage foreign investment in advantageous industries in the central and western regions to promote coordinated regional development.

Another legal event that is worth highlighting is the signing of the EU-China Comprehensive Agreement on Investment; the core content of this agreement is to ensure that mutual investment is protected, respect intellectual property rights, improve market access conditions for both parties, and ensure fair regulatory procedures for the investment environment. The EU-China Comprehensive Agreement on Investment demonstrates China's determination and confidence in promoting high-level opening up and will provide China-EU mutual investment with greater market access, a higher level of business environment, stronger institutional guarantees and brighter prospects for cooperation.

With China offering a more transparent and equal legal environment for foreign enterprises entering the market, an increasing number of mergers and acquisitions involving foreign capital and investment is anticipated.