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The 10 considerations for doing business with China

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Trade Minister Andrew Robb has just confirmed that the China-Australia Free Trade Agreement grants Australia most favoured nation status, which puts Australia on par with the EU and the United States in its trading relationship with China.

This is great news for Australian business and unlocks significant new opportunities. China is Australia's largest export market for both goods and services, accounting for nearly a third of total exports, and it is a growing source of foreign investment.

The potential is huge, but the challenges of doing business in China are not to be underestimated and not to be undertaken without legal advice. Fruitful business partnerships will require expert guidance on both Chinese and Australian law.

Following are 10 considerations to keep in mind as you consider how your business can best benefit from this historic agreement:

  1. It is important to have a sound business and tax structure that works well under the laws of both countries from the very beginning. It can be prohibitively difficult to restructure later on.
  1. You should use a qualified legal firm with a strong knowledge of Chinese law to review all contracts. Lack of information about a potential partner’s credit and professional background could ruin a promising deal.
  1. In China, all foreign investments need to be registered with the appropriate local and state authorities. Make sure that you allow sufficient time for what may be a time-consuming process.
  1. Exporters should also be prepared to deal with Chinese tax, accountancy, employment law, transport infrastructure and the Chinese commercial legal system, as well as industry-specific regulations.
  1. Keep in mind that certain exports of goods or expertise to China may also be restricted under Australian law.
  1. Companies doing business in China should structure transactions and draft agreements with an eye toward minimising the risk of disputes that might require access to the Chinese legal system or legal action against a Chinese partner in Australian courts. This is especially true of intellectual property rights violations. Enforcement of the laws may be difficult, so it is important to act to prevent disputes, rather than plan to respond if they occur. Prevention is the key.
  1. If you are going to import Chinese merchandise, determine whether these imports are subject to restrictions under Australian trade laws.
  1. Be prepared for tough negotiations. It would be wise to anticipate that you may be dealing with legally ambiguous issues, particularly as China’s commercial laws are changing quite rapidly. Be firm, polite, creative and cautious in negotiations.
  1. Especially in the light of cultural differences, it is important to confirm that interpretations of any business deal are consistent and everyone understands duties and obligations in the same way.
  1. Business negotiations may involve the giving of small gifts and the payment of “facilitating fees.” Make sure that such payments and gifts are within your business’s guidelines and the requirements of law. The line between what is permitted and what is not can be quite hazy, so make sure you have the advice of legal counsel.

The China-Australia Free Trade Agreement and Australia’s status as the most favoured nation trading partner literally open up a whole new world for Australian business.

The agreement is expected to liberalise trade over goods and a range of service sectors, including education and financial services.

Making the best of this opportunity in the world’s second largest market will take a unique mix of enterprise and caution, including careful planning and negotiation with the assistance of experienced advisors.

About Rolf Howard

Rolf Howard has been in the legal practice since 1986 and a partner of Owen Hodge Lawyers since 1992. Rolf focuses on assisting clients to proactively manage legal responsibilities and opportunities to achieve competitive advantage. Rolf concentrates on business planning and formation, directors’ duties, corporate governance, fund raising and business succession. His major interest is to assist business owners and their financial advisers plan and implement strategies to build and exit from successful businesses internationally.  www.owenhodge.com.au

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