Doing Business in China – Legal and Commercial Considerations
China remains one of the world’s most important markets for international businesses. The country offers a vast consumer market, a highly developed industrial base and a central role in many global supply chains. At the same time, it is also one of the most complex jurisdictions in which to establish operations. Its legal framework, regulatory requirements and commercial practices differ in several fundamental respects from those with which European and North American companies are familiar.
Over the past two decades, the Chinese market has also undergone significant transformation. The regulatory framework has evolved as parts of the economy have been opened up, while the state has strengthened its control over others. Geopolitical developments, increased regulatory requirements and a greater emphasis on national security, data protection and strategic sectors mean that market entry must now be assessed from a far broader perspective than in the past.
For companies considering establishing operations in China, the challenge is therefore rarely confined to compliance with legislation. It is about understanding the interaction between the legal framework, business culture and the regulatory environment that characterises the Chinese market.
This article is based on more than two decades of practical experience in Chinese and international business. That experience also formed the basis of the book Is China in for a Hard or Soft Landing?, written by T. H. Svedlund, Lead Counsel at Forsety Legal. The book examines China’s economic development, business culture and investment environment from both a commercial and business law perspective, drawing upon practical experience gained from business establishments, investments, capital markets transactions and other cross-border transactions between China and the West.
The Choice of Establishment Structure Is a Strategic Business Decision
One of the first issues a company must consider is how its operations should be structured. This decision affects not only the day-to-day business but also the company’s ability to maintain control over its operations, protect its assets and adapt to future developments.
Depending on the nature of the business, market entry may take the form of a wholly owned subsidiary, a joint venture, a representative office or various forms of commercial cooperation. Each structure carries different legal, tax and operational implications.
There is therefore no universal solution. The most appropriate structure depends on the company’s objectives, the level of investment, the industry sector, the applicable regulatory framework and its long-term strategy for the Chinese market.
The Regulatory Framework Continues to Evolve
In recent years, Chinese legislation has become both more comprehensive and more specialised. Areas such as corporate law, data protection, cybersecurity, competition law, employment law and foreign investment have all undergone significant reform.
For international businesses, this means that establishing operations cannot be viewed as a project with a clearly defined end date. The legal structure must be capable of accommodating a regulatory framework that continues to evolve over time and in which regulatory practice may, in some cases, develop more rapidly than the legislation itself.
A successful market entry therefore depends not only on meeting today’s regulatory requirements but also on creating organisational and legal structures capable of adapting as circumstances change.
Business Culture Also Influences the Legal Framework
International companies often regard legal matters and business culture as two separate disciplines. In the Chinese market, however, the relationship between the two is frequently much closer.
Negotiations are often characterised by long-term relationship building, with trust developing gradually over time. At the same time, legal agreements become increasingly important as business relationships grow more complex or investment levels increase.
International companies therefore need to understand both the commercial culture and the legal framework. An agreement that is legally sound but commercially disconnected may create practical difficulties, just as a strong business relationship cannot replace a carefully drafted legal framework.
The Protection of Intellectual Property Requires Forward Planning
For many businesses, brands, technology, product development and know-how constitute some of their most valuable assets. When establishing operations in China, protecting these assets becomes a key strategic consideration.
It is rarely sufficient simply to rely upon the intellectual property structure that exists in the company’s home market. Registrations, contractual arrangements and internal procedures often need to be adapted to the Chinese legal system and the local business environment.
Companies that postpone reviewing their intellectual property rights until after operations have already been established are likely to face considerably greater legal and commercial challenges than those that adopt a proactive approach.
China Forms Part of a Global Strategy
For many businesses, establishing operations in China is not an isolated project but part of a broader international expansion strategy. Decisions taken during the establishment process may have consequences extending far beyond the Chinese market.
Corporate structure, investment arrangements, financing, licensing, transfer pricing and intra-group agreements often need to be coordinated with operations in other jurisdictions. At the same time, consideration must be given to international regulatory frameworks, changes in trade policy and increasing compliance requirements.
Legal advice should therefore be based on an international perspective that takes account of both the Chinese operation and the wider global business.
Experience of Both Markets Provides a Stronger Basis for Decision-Making
Ultimately, international expansion is about making well-informed commercial decisions within a complex environment. For companies establishing operations in China, it is advantageous to work with advisers who not only understand the law but also appreciate how business is conducted across different legal systems and business cultures.
For more than twenty years, Forsety Legal’s team has advised on cross-border business between China and the rest of the world. We have assisted international companies with market entry, investments, restructurings and commercial collaborations in China, while also advising Chinese companies on international expansion, investments, acquisitions and capital markets transactions, including initial public offerings (IPOs).
This experience provides us with a perspective that extends well beyond individual legal issues. We understand the commercial drivers on both sides of the transaction and are able to identify the legal risks and opportunities that arise when businesses operate across national borders.
How Can Forsety Legal Help?
Establishing operations in China requires more than knowledge of local legislation. It requires advisers who understand the interaction between law, business culture and international business strategy.
Forsety Legal has extensive experience advising both international companies establishing and investing in China and Chinese companies expanding globally. We provide strategic legal advice throughout the establishment process, from selecting the appropriate corporate structure and negotiating commercial agreements to investments, restructurings, intellectual property matters and cross-border transactions. We also have extensive experience advising Chinese companies on international investments, acquisitions and capital markets transactions, including initial public offerings.
Our strength lies in combining deep expertise in business law with practical experience of navigating different legal systems and business cultures. This enables us not only to help businesses manage legal risk but also to establish sustainable structures that support long-term international growth.
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