Here are five useful facts to put you in the know when expanding your business into China.
1.The Chinese government provides a guideline for foreign investors through the Industrial Catalogue for Foreign Investment, which is updated around every four years. Investors can confirm whether a specific industrial sector is allowed for foreign investment, as well as the maximum shareholding percentage in a company engaging in a restricted industrial sector permitted for a foreign investor by checking the negative list.
2. Principle of fairness and good faith – a contract can be found to be void by the courts or an award of damage can be awarded to the party being prejudiced, if it was clearly unconscionable at the time it was entered into, such as deliberate concealing of key material facts or provision of false information by one party to another during negotiation. The party must act in good faith when negotiating a contract and during performance of the contract.
3. A Chinese company is required by law to act within its business scope, otherwise it will be subject to administrative penalties such as revocation of its license. Many industries are regulated by different governmental authorities, any company enterprises engaged in these industries must first obtain licenses, approvals and/or permits from the relevant governmental authorities before carrying out the business.
4. A company seal is very important to a Chinese company as attaching the seal is required for the company to be bound by a contract. It is essential for a Chinese company to attach its company seal to a contract in addition to the signature by its legal representative or authorised representative, for a contract to be properly executed.
5. Under Chinese law, land cannot be owned outright privately, therefore in order to make use of a piece of land, a company shall obtain ‘land use right’ from the local government. With this right, the company is entitled to use the land exclusively for a specific purpose for a certain period.