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Doing business in China: A legal perspective

With a booming economy, China has become an economic powerhouse for UK businesses looking to expand, as a result of the country’s high growth and investment potential.

While the Chinese market is attractive to investors across a range of sectors, the country has a reputation for being a difficult market to penetrate from an international perspective. As a result, growing UK companies with global aspirations require a carefully considered strategy to ensure a successful expansion into China, regardless of the size and sector in which they operate. With the right planning in place, businesses can ensure that they are prepared from the outset and are able to avoid the common mistakes made when navigating such a complex market.

At a recent event held by Sherrards’ China team, alongside IP law firm Haseltine Lake, we helped prepare businesses by shedding light on some of the key legal issues faced by companies entering and operating in China, as well as how these challenges can be overcome.

Chinese legal system
In the UK, the legal system is highly-established, comprehensive and reputable, so much so that it is often the preferred governing law for international business transactions. In China, corporate and commercial laws are developing rapidly, with a number of laws in place that are yet to be tested. This can mean that processes around finalising contracts are often less formal than in the UK.

Governing laws
It is recommended that all matters related to UK businesses operating in China are governed by UK law so that if disputes arise they are subject to one of the three UK legal systems for England and Wales, Scotland and Northern Ireland. UK law enables parties to resolve matters through arbitration rather than court proceedings, if applicable. However, it is important to have a trusted Chinese law firm involved from the outset, working in partnership with UK businesses and law firms to support matters on the ground in China.

Market access
Chinese businesses tend to operate through trusted local networks due to language and cultural familiarities, which can make accessibility a challenge for external overseas companies. This reinforces the need to build relationships with legal contacts and business partners that are familiar with the Chinese market, fluent in the language and have access to crucial networks.

Intellectual property
Having only introduced patent laws over the past 30 years, there are question marks over China’s reputation for IP protection and businesses are advised to be vigilant as a result. This is in fact shifting, with China implementing stricter enforcement of patent laws, but it still remains an issue. It is, therefore, advised that businesses adopt measures to protect their IP through the use of trusted legal partners who understand the IP legal landscape in China.

Litigation procedures in China are significantly different to those of the UK system. The Chinese process for resolving disputes is often considered to be less thorough and stringent than the British approach, involving practices that are considered the norm in China but not widely accepted in the UK.

Laurel Zhang of Sherrards’ China and Southeast Asia team, explains: “The key to operating in China is to gain the trust of your partners and investors. Most importantly, when trading with China, connections are crucial. Ensuring you have a partner on hand, who understands the market and the risks involved from the outset, is vital.”

If you are looking to expand your business internationally and would like to speak to a member of our team, please visit our International page, or our China and Asia page for queries related specifically to our Chinese legal services. You can also contact Laurel Zhang of our China and Southeast Asia team for more information on +44 (0)20 7478 9916.

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