Highlights from 2022
Welcome everyone to the 26th and final post for my China Tech Law Newsletter in 2022. It has been really fun work putting out content consistently every 2 weeks. As everyone knows, we lawyers like to talk, and we like to write even more! And when you get to write about your own firsthand experience and people respond, its always easier as well.
Over the course of the year, the subscriber base has built up to over 2800 people. Many of whom are 3rd degree connections. I don't know how you found me or this blog, but very happy you're here!
For those of you subscribing later in the year or for those of you who didn't have a chance to catch every post, I wanted to take this final 2022 opportunity to pull highlights from the most popular posts this past year. Links to original posts included.
OK, here we go:
"Instead, we have seen regulators in our recent discussions going back to an emphasis on "publishing" (broadly speaking) of content over the internet for commercial gain and that (for purposes of a requiring an ICP License) this publishing (发布）is limited to situations where third party information itself?is?the product or service. That is to say, where substantial processing of that information takes place and analysis is added to it before being presented in some other format to the customer - that this is actually publication of the SaaS company's own information rather than a third party (and thus not subject to ICP license requirements)."
"A foreign company coming to China will certainly look to hire local talent to manage the local China business, but these managers will not have sufficient skin in the game through equity at the offshore level to have the same alignment as Wang Xing does with Meituan's VIE structure. You as a foreign company also have to ask yourself, do you want to give a new local GM hire such control and leverage over the local structure when you may need to ask that person to leave later for poor performance reasons?"
"First, the primary regulator here, the Cybersecurity Administration of China (CAC) is an overstretched regulatory agency at the moment and will not be knocking on your door during the first few months after the law takes effect, especially with implementing regulations still to follow. The DSL and Cybersecurity Law, and even the PIPL, were drafted with national security in mind first in addition to concerns over data integrity and privacy.?Technical compliance is one thing, but being aware of this overarching principal and how it will drive enforcement of these new laws is also key to helping you look at your own business in China and deciding how much of your (limited) resources you put into building the “perfect” data compliance system."
"Today, these companies from big to small, as embodied by their legal departments, have tremendous respect for IP and most definitely read and negotiate every major contract they sign.?Source code, know-how, and patents, are the lifeblood of these companies.?These companies have so much more of their own valuable IP than 10 years ago, and they’re protecting it from other Chinese competitors.?
Legal contracts matter, and the environment to enforce those agreements has also improved dramatically especially in the large cities like Shanghai, Beijing, and Shenzhen. And the improving environment benefits everyone - Chinese and foreign companies alike."
"So this process may look different from how research is done in say the US, but this is definitely still research.?The process is usually something like this:
(1)?Pull from the relevant regulations
(2)?Consider from our own experience what we’ve seen with similar clients
(3)?Supplement by researching for industry commentators in the field. [Side note: Universities and their professors have an outsized influence on drafting of regulations.]
领英推荐
(4)?Look for similarly situated companies and their licenses and policies to the extent publicly available
(5)?Call the regulators
(6)?Apply our own judgments from practical experience to any remaining ambiguities, including understanding of history, language, culture, and most importantly - an understanding of macro policy goals of the regulators.
(7)?Recommendations
"But that is done at a cost to future investors.?First, having a major local investor has essentially turned this into a local business for the foreseeable future.?As big as the market in China is, that may make it hard for the company to go global and achieve vaunted unicorn status.?
Second, future foreign investors will not want to typically come in at the local level where they are less familiar with rules on share ownership and preference stock rights, abilities to liquidate their investments, and other perceived exposure to local liability (even if totally based on misconceptions).?Essentially you’ve boxed yourself in to raising locally from this point forward."
"On balance, with the right preparation (if for example you are having to do a full local audit anyway) a dividend payment can be made if money is not needed urgently and you are dealing with amounts to make the process worth it. A royalty payment or service fee can be made if you have IP you can license in or technical support you provide with a straight face.?For example, technology which may or may not be patented, global brand trademarks (you’ll want to get those registered locally btw), etc.?
So where does this lead us??Well, taking money out of China is not for the faint of heart. It requires planning and patience. But its also quite doable. And if you can multitask like me, more power to you."?
"Often what drives termination discussions sideways is when the employee is not given any reason or severance offer and/or the line manager and HR takes a very aggressive tone about the whole process.?That usually backfires spectacularly in China as an employee will become defensive, go to his friend who is a lawyer or HR manager, and begin to dig in for a protracted fight.?His fellow colleagues will know what happened and support him.?At this point it becomes a matter of pride just as much as a matter of who is right or wrong under the law."
"As a compromise, I’ve found that Singapore companies are relatively well accepted by most angel and early stage venture capital investors and at the same time also offer that reduced 5% withholding tax rate in certain situations through its own tax treaty with China.?You may ultimately still decide to put a Cayman or other entity on top, but you also may never need to either.?Much more likely than an IPO is for you to be acquired by a larger strategic company buyer.?In those cases a Singapore parent company should be more than sufficient and certainly acceptable to most any buyer."
"Instead,?you talk about fairness, right and wrong.?You open up the discussion to let people talk themselves about what they would do in situation X, Y, or Z.?Yes, what they say in a company training may be difficult to do in practice when the time comes, but it starts with issue spotting and awareness.?When compliance is less about lecturing on an abstract concept for a law made half way around the world, and more about doing the right thing, with relatable examples, the vast vast majority of people here (or anywhere)?will?do the right thing."?
Ok that's it for 2022 and another edition of my China Tech Law Newsletter! Wishing everyone a happy holidays and a great 2023. Remember to subscribe if you haven't already, and see you back here in 14 days!
Congrats Art Dicker!
Board Director, Faculty at NYU, APAC Strategy Head, and Mentor.
2 年Great insights Art Dicker, look forward to your posts in 2023!
Art as always, great China insights and knowledge. Software and cloud companies seeking to expand in China should read Art’s work.
交大电院自动化系的博士生@上海转化医学研究中心
2 年Mostly, I do not think you should be too concerned about the number of subscribers. You really want everyone's "China Guy or Gal" to read for the quality! Then they have some idea of who to call instead of Ghostbusters for their friends or colleagues legal predicaments hopefully before they really become problems. You are better off having fewer followers who are interested in taking the time to actually read your work. Impact Factor works the same for Engineering in China so we can swap patents for papers and still graduate. During my MSc I published a simulation about a boiler in a nuclear reactor and someone built a scale mock-up down the street at China Nuclear and did some experiments. The impact factor is very low, because no one reads Annals of Nuclear Energy...by candle light that is. My point is that lawyers are usually pretty great creative writers in their spare time...otherwise why would we read their blogs and pay them to write our contracts?
Legal, Compliance, IP, Accounting & Tax support in China (R&P | Acclime)
2 年I'm very impressed and proud by how my colleague Art Dicker has given this newsletter shape after we discussed the idea last year. Surely blogs and newsletters are an ancient trade, but he has given it an expert twist, therewith being more relevant, and made it available on LinkedIn, therewith being easy accessible. You have R&P China Lawyers full support!