Olympic Trials

This summer's Olympic Games are frequently cast as a coming out party for the world's fastest growing economy. It's not a bad metaphor. Like a lanky teenager trying to master a rapidly maturing body, China can appear a jumble of contradictions--at once aggressive and defensive, and brimming with potential.

Although China's economic ascendancy is undisputed, its insular culture has already made it something of an awkward host. Wary of foreigners and sensitive to criticism, China has struggled to manage ongoing international protests regarding the Tibet situation while trying to put its best face forward for the Games.

Still, the central government's concerted efforts to showcase China for the Olympics make this a watershed year.

"The Olympic Games are changing China," says Thomas Chan, a Los Angeles lawyer specializing in Sino-American trade. "It's changing policy, media--it's just amazing. After the Olympic Games it's not going to turn back."

It's the perfect moment for corporate counsel to turn an eye to this juggernaut and consider the ways China is evolving. The dominant themes of recent years--counterfeiting and copyright and trademark enforcement--are beginning to shift to the periphery as China's legal climate presents a more nuanced, mature profile.

Information Flow
Things are changing in China, and fast. Chan, a Hong Kong native who has been an American general counsel and a trade adviser to the Reagan and Bush administrations, is astonished at the free flow of information that followed the May earthquake--not just internationally, but within the country as well.

"There was no clamping down," he says. "This has never happened before, and it had nothing to do with foreigners. The genie is out of the bottle."

One frequent subject of that reporting was earthquake victims' outrage at corrupt local authorities. At the same time, they generally voiced strong support for the central government. That distinction points to one of the key emerging business issues in China: whether Beijing can project its authority into China's more remote areas.

President Hu Jintao, who comes from the interior, recognizes the risk in a stark disparity between a rich, industrialized coast and poor, rural inland populations. The ongoing relief and rebuilding effort in Sichuan may go a long way toward demonstrating the central government's power there--power that will be essential to future business development.

As China's wealth grows, its coastal cities will cease to be havens for cheap labor and manufacturing. "For that, you will have to go to the interior, or to Africa, Vietnam or Pakistan," Chan explains.

Visa Crackdown

In the short term, the Olympics may be more of a headache than an opportunity for international companies doing business in China.

"If anything, the Olympics have created a lot of controversy regarding Tibet," says Roger Marks, general counsel of Retail Concepts International and a frequent traveler to China.
That controversy has led the government to dramatically curtail the visas it issues in an attempt to keep Tibet protesters out.

Dan Harris, a partner at Harris & Moure in Seattle and editor of the China Law Blog, says he's been getting calls from people who have been kicked out of the country and are desperate to get back in to run their own companies.

For his own purposes, Harris usually travels on a one-year, unlimited entry visa. "They're just not giving those anymore," he cautions. "You have to get a new visa every time, and it's very difficult to get one for more than 30 days."

Until recently, people visiting China for business could easily go for a maximun of 90 days. When their visas were about to expire, they could bounce to Hong Kong for a nice weekend, renew the visas and come back. Not anymore. Applications must now be filed from the traveler's home country.

"It's also very difficult to get tourist visas," Harris adds, "which is what a lot of people would come in on to do business. Technically they shouldn't, but it was easy and until now, no one cared."
Harris says he's heard of college graduates required to produce elementary school transcripts to get a tourist visa.

"That's sort of their way of saying get the hell out," he says.

If you have a legitimate company already set up in China, you can still get a Z-visa--a three-month, single-entry visa that is much simpler to acquire. The problem is that a lot of businesses never took the time to formally incorporate and are not legitimate in the eyes of the government.

"People who have been operating on the edge in China for a long time--and succeeding--are now being essentially kicked out because they don't have a company," he says. "There are American companies in China that have gotten pretty big completely illegally. What happens is they start illegally, not expecting to grow fast. Then they do very well and get worried."

Harris gives the example of a manufacturing company that makes licensed goods for a well-known American company. The company does $10 million a year with high profit margins, but the owner was abruptly forced to leave China because his business wasn't legal.

The good news is that it's fairly easy to legalize a business without suffering repercussions for what you've done in the past. Harris says companies should make sure all their operations in China--and those of any business partners or affiliates--are fully legitimate, or they may be left holding the bag.

Patent Challenge

Chan points to one more bit of evidence that a tide is turning in China. A client recently came to him for his opinion on how to work around a Chinese patent.

"It's the first time that's ever happened," he laughs. "Now we have to worry about Chinese patents. Before, we accused them of stealing our IP. They decided that they needed to protect IP, so everybody's registering patents. They're subsidizing it. If you want to file a patent, the government will give you money to do it."

Although it's an uphill battle to control counterfeit goods, Chinese industry has taken to heart the fact that they need to control intellectual property if they want to go head to head with the rest
of the world.

"The Chinese are protecting IP for their own sake, not to appease us anymore. That phase is over," he concludes. "They send people to jail on the first offense now for counterfeit violations. We don't do that. I see Chinese feeling more and more confident of themselves."

Contributing Author

Steven Andersen

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