China Direct

Reed Smith - a business insight into new China Civil Code

CBI member, Reed Smith has published a helpful briefing on China’s new Civil Code and what its adoption at this year’s Liang Hui might mean for business.

The briefing focuses on the changes the Civil Code will make to China’s law on guarantees and security. As Reed Smith point out, upon the Civil Code taking effect in 2021, China’s Security Law and the Property Law will be repealed. The Civil Code thus consolidates the Security Law and the Property Law, and codifies or lays down the legislative framework in this area of law. This is a significant improvement, given that for a long time, the law on guarantees and security in China has been somewhat haphazard, complicated and, on occasion, conflicting.

Reed Smith advise that the promulgation of the Civil Code will have the positive effect of providing certainty and clarity. Furthermore, it will go some way towards modernising this area of law so that it is more in line with international practice.

To read Reed Smith’s briefing in full, please follow the link below:

Download Client Alert 20-438 The adoption of the Chinese Civil Code and its impl...

Reed Smith publishes Covid-19 China Restart Briefing

CBI member, Reed Smith, has published a helpful guide on how businesses should undertake a restart, as they get their operations back up and running, as the COVID-19 situation in China improves.

This comprehensive guide includes advice on how to handle differing provincial and regional restart guidelines, as well as a list of best practises employers should adopt to help minimise their employee’s exposure to COVID-19.

A link to the full report is included below. Reed Smith’s guidance on best practise when making the office COVID-19 secure is as follows:

• Establish an Employee Health Card System to collect employees’ recent travel information. Employees who have visited places seriously affected by COVID-19 should self-quarantine at home for 14 days;
• Provide training on the prevention and control of COVID-19, for example, via WeChat groups or by providing information on the company’s website;
• Reduce employees’ contact with visitors. The company should monitor visitors’ body temperatures and require visitors to register before entering its premises;
• Make available all necessary over-the-counter medicines and personal protective equipment, such as face masks and hand sanitizers, for the prevention of COVID-19;
• Keep the company’s premises well ventilated. Companies should open the door or windows if the company’s air conditioning system is a non-fresh-air fan coil system. If the air conditioning system is an HVAC system, the returned air valve should be closed; and the fresh air ventilation system should be turned on for at least one hour after the closing of business on a daily basis to ensure that the indoor air is fresh. The opening of the fresh air ducts and other parts of the air conditioning system must be sanitized to avoid contamination in accordance with the standards set forth in “National standards for cleaning and sanitizing central air conditioning system for public places.” If the company cannot ascertain the type of air conditioning system or how it produces air, or, if there is any suspected or confirmed case within the company premise, the company should cease using the air conditioning system in question;
• Remind employees of the need for frequent hand-washing;
• Disinfect elevators, cafeterias, restrooms and other public areas on a daily basis;
• Clean employees’ work uniforms (if applicable) on a daily basis;
• Keep the workplace clean by, for example, emptying the garbage bins on a daily basis and conducting pest control;
• Reduce the frequency of employee gatherings; reduce group activities among employees;
• Monitor employees’ body temperatures, with the body temperature of those in self-quarantine monitored twice a day. Companies must also monitor other employees’ body temperatures each time they enter the workplace; this can be performed by facility managers. HR should continue to monitor any suspected cases of infection and the health status of absent employees, and report confirmed cases to the local disease control authorities or health care institutions, as well as complying with quarantine measures for confirmed cases and issuing an alert to other employees while also protecting the privacy of affected employees;
• HR should keep abreast of national and local regulations and comply with government guidance on emergency response, assist companies and employees with disease control and other health and safety measures, and cooperate with the government with respect to investigation, testing, sampling, the collection of financial, material or human resources for disease control, quarantine measures, and other public health initiatives. Noncompliance with government directives and emergency measures could result in criminal or civil liabilities.

To read the advice in full, please follow the link.

New China Cybersecurity Review Measures - Legal Overview

 

Dear CBI Members and Partners,

We are very grateful to CBI Member Evershed Sutherland for the following update on new China Cybersecurity measures. Please refer to the summary below and contact the CBI's China team should you require any information from Evershed Sutherland directly.

https://es-notifications.com/74/6375/may-2020/china-issues-new-cybersecurity-review-measures.asp?sid=d17efd0f-8535-4411-a19e-8cb8dab89386

Kind Regards,

CHINA DIRECT

Burges Salmon legal briefing - COVID19

CHINA DIRECT would like to sincerely thank CBI member, Burges Salmon for producing a briefing document to assist businesses struggling with negotiations with lenders during the COVID19 emergency.

The briefing document contains advice to businesses who might need to default on loans or draw stop as a result of reduced trading and profitability during this virus period.

Material Adverse Change:

According to Burges Salmon, because during the Global Financial Crisis of 2007/2008 the majority of lenders did not rely on Material Adverse Change clauses as either a draw stop or event of default, now that COVID-19 has spread to affect the global economy, there is no reason why lenders would take a different approach under the present circumstances. Burges Salmon advise that businesses pay more attention to specific events that could cause a company to default on their loans than the more general, and unspecific nature of Material Adverse Chance clauses.

Financial Covenants:

Burges Salmon suggests that businesses would be better served by reviewing any financial covenants they hold with lenders and whether poorer than expected financial performance arising from COVID-19 will result in a breach.

According to Burges Salmon, the three key things to consider are:

• Are the covenants calculated against historic performance or do they also look forward?
• How much headroom was built into the covenant levels as against expected financial performance at the time they were set?
• Are there cure rights? And is the business, or are the owners and other stakeholders in a position to exercise those?

Burges Salmon advise that in the case of historic only covenants, any breach will only occur in the future, when the trading period has finished, and the covenants are tested against financial information for that period; buying business time.

In the case of look forward covenants, Burges Salmon advise that it should be fairly clear whether or not the covenants will be complied with at the next test date, depending on the preservation of, or disruption, to that income stream. That said, Burges Salmon expect lenders to be reluctant to seek to exercise their rights, and to call default based on a breach of covenant, when the means of remedy is at best uncertain and at worst unknown.

Talk to your lender:

The key concluding message from Burges Salmon is to maintain open and continual dialogue with those with which your business might owe money during this unpredictable period.

To read the report in full, please follow the link.

Update on amendments to China’s Trademark Law

 

Readers of China Direct should be aware that amendments have been made to China’s Trademark Law, and will come into effect November 1^st, 2019.

The 4^th Amendment to the Trademark Law increases statutory damages to RMB 5 million and aims to manage bad faith registration and the hoarding of trademarks for sale.

After November 1^st, Article 4 of China’s Trademark Law will read: “Applications for trademark registrations that have been made in bad faith, and are not intended for use, shall be refused.”

The amendment to Article 4 is significant to foreign businesses with interests in China because it codifies a shift towards vetting trademark applicants to ensure that they are not ‘trademark squatting.’ China operates a ‘first-to-file’ trademark registration system which is based on the ‘good faith principle’ that the applicant intends to use said trademark. However, as a result, under China’s current trademark law there is no deterrent in law to manage trademark squatting. The codification of the refusal of suspect bad faith trademark applications is good news for foreign business because it pushes the onus onto the applicant to prove that they intend to use the trademark, whereas previously intention to use was assumed.

Crucially, Article 4 can be applied in examination of a trademark application, in opposition, or as part of an invalidation of a trademark action as absolute grounds for refusal. As a result, foreign companies who find that their trademark is being used in China illegally have a wider set of tools at their disposal to seek punitive damages.

In addition to the amendment to Article 4, China’s new trademark law raises the limit on statutory damages to RMB 5 million. Moreover, where infringement has been committed in bad faith and the circumstances are deemed to be a ‘serious infringement’, the infringer shall be subject to punitive damages of up to five times the value of that inflicted on the plaintiff. Furthermore, any counterfeit goods, and the materials and tools mainly used to manufacture the counterfeit goods shall be destroyed, while counterfeit goods should be prohibited from entering commercial channels, even if the counterfeit trademark is removed.

For more information on amendments to the Trademark Law, please contact: [email protected]

DLA Piper advises Ping An on HK virtual banking license

 

CBI member, DLA Piper has announced that it successfully advised Ping An OneConnect on the regulatory issues in the course of its successful application for a virtual banking license granted by the Hong Kong Monetary Authority.

The Hong Kong Monetary Authority granted Ping An a license to set up a virtual bank, with the company planning to launch four of these newly licensed virtual banks over the next 6 to 9 months. Virtual banks have become a key innovation driver in Hong Kong, with virtual banks having been identified as key pillars to the expansion of financial inclusion to individuals and business of all levels and sizes.

Roy Chan, senior corporate partner at DLA Piper said, “[DLA Piper] are delighted that our long term client Ping An OneConnect has been granted a virtual banking license by the HKMA. The launch of virtual banks in Hong Kong is a key milestone towards facilitating greater financial innovation in the city and the regions. These licenses and their holders provide a key avenue to attract The Greater Bay Area customers and an opportunity to enhance Hong Kong’s business prospects. [DLA Piper] also see this as a great way to include more people and businesses in our financial market, as such we are pleased to work alongside our clients to capitalise on the opportunities this presents.”

To view the full press release, please follow the link.

Clifford Chance announces new Hong Kong business

CBI member, and world-renowned international law firm, Clifford Chance has reported that it advised on and completed two major deals in Hong Kong.

Clifford Chance advised leading Mainland China-based investment holding group, Shenwan Hongyuan, on its US$1.16 billion initial public offering on the Hong Kong Stock Exchange, while also managing the Singapore-based consortium, Kai Tak Sports Park Ltd., while it bid to develop, build and operate a $3.8 billion sports park that will become a key part of the Greater Bay Area initiative’s infrastructural development.

Shenwan Hongyuan’s listing on the Hong Kong Stock Exchange is the largest Hong Kong IPO thus far this year. The IPO listing is the 10^th PRC securities firms’ Hong Kong IPO that Clifford Chance has worked on, following success advising clients such as, CSC Financial, China Merchants Securities, and China Everbright Securities.

CBI member, and world-renowned international law firm, Clifford Chance has reported that it advised on and completed two major deals in Hong Kong.

Clifford Chance advised leading Mainland China-based investment holding group, Shenwan Hongyuan, on its US$1.16 billion initial public offering on the Hong Kong Stock Exchange, while also managing the Singapore-based consortium, Kai Tak Sports Park Ltd., while it bid to develop, build and operate a $3.8 billion sports park that will become a key part of the Greater Bay Area initiative’s infrastructural development.

Shenwan Hongyuan’s listing on the Hong Kong Stock Exchange is the largest Hong Kong IPO thus far this year. The IPO listing is the 10^th PRC securities firms’ Hong Kong IPO that Clifford Chance has worked on, following success advising clients such as, CSC Financial, China Merchants Securities, and China Everbright Securities.

China Co-Managing Partner, Tim Wang said, “Clifford Chance are pleased to continue our streak advising China’s major securities firms on their Hong Kong IPOs. Our team has built up unrivalled expertise and we are fully committed to serving our clients in this sector, whether on outbound investments or securities offerings.”

Clifford Chance’s cross-border team was also busy, advising a consortium titled, Kai Tak Sports Park Ltd. on the successful tender bid for a 25 year contract to design, build and operate the Kai Tak Sports Park, a 28-hectare site occupying the former Kai Tak International Airport which will be converted into a 50,000 seat stadium with a retractable roof and attached indoor sports facilities.

The Kai Tak Sports Park Ltd. consortium was based in Singapore while tendering for the contract, meaning that Clifford Chance had to call on colleagues operating out of both Clifford Chance’s Singapore office and Hong Kong hub to manage the bid.

Hong Kong partner, Frank Yuen said, “This is a really proud moment for Clifford Chance’s multidisciplinary team of colleagues across Hong Kong and Singapore who advised Kao Tak Sports Park Ltd. on their successful bid for this landmark sports infrastructure project in Hong Kong. This complex matter played to Clifford Chance’s strengths as a firm and our ability to work seamlessly as one team for our valued client.”

Clifford Chance serves as a prime example of a UK company finding opportunity within the Greater Bay Area through working in collaboration in an advisory capacity with Mainland Chinese State-Owned Enterprises. Regular readers of China Direct may remember, that on top of these two major wins, Clifford Chance also advised People’s Bank of China on its first multi-currency, multi-tranche bond deal back in January, to support the development of the Greater Bay Area.

To read more about the Greater Bay Area and the opportunities for UK businesses across a range of sectors, please follow the link.

 

 

Everything you wanted to know about IP in China but were too afraid to ask

CBI members in Beijing gathered yesterday to receive the annual IP briefing from a renewed IP network stretching across Beijing and Shanghai. Members also received a briefing from the visiting Deputy Director for International Policy from the Intellectual Policy Office (IPO), outlining how the IPO was adapting its strategy to handle the imminent changes in IP protection companies will face as a result of the UK leaving the European Union, as well as where the IPO sees opportunity to work with China on improving its own domestic IP strategy.

Speaking on the subject of IP protection in China, the following issues were identified as the main IP concerns for British business in China:

• Age and pace of Chinese system – China’s IP system has developed incredibly fast, with the first piece of IP law having been introduced in 1983. As a result, the Chinese government is both under pressure and very ambitious when it comes to introducing IP reforms. That presents a challenge for foreign businesses when it comes to keeping up with changes to China’s IP system and the reasoning behind those changes.
• Chinese IP system has been designed with Chinese companies in mind. Currently, only 1% of IP-related Chinese civil court cases involve foreign parties, while 85% of TM applications are made by Chinese companies
• That means that the Chinese IP system is under growing pressure to mature and cater to foreign companies as China ‘goes global.’ Members were then invited to provide inputs on technical IP issues, such as bad faith trademarks, patent law, e-commerce and copyright law. While discussing these specific areas in detail, several key trends emerged:

• The Chinese government is very good at introducing reforms and new regulations to clamp down on IP infringement. Where it is not so good however, is implementing these laws and punishing companies found to be infringing on another’s intellectual property
• The existing methods for punishing companies found to be infringing on another’s intellectual property are insufficiently punitive.
• Chinese companies are highly adept at finding ways around new and existing regulation, and see doing so as a way of guaranteeing a competitive edge over rivals.
• Existing legislation lacks the maturity to cater to foreign companies, who are used to dealing with systems of greater sophistication. This presents itself as a market access barrier as it makes it difficult to invest in collaboration with Chinese partners with the confidence that any transferred technology will be sufficiently protected in China.

 

For more information regarding IP and introductions to the UK Embassy's IP team please contact the CBI's Beijing office:

E: [email protected] Tel: 010 85253100

Thank You.

 

DLA Piper represents Ping-An in billion-pound live-streaming buy-out

CBI member and international law firm, DLA Piper represented the Chinese financial services provider, Ping An, on its successful exit from its investment in Bigo Inc. – a fast-growing live streaming platform – following a buyout by YY.

This was the third time DLA Piper has been consulted by Ping An on the Bigo case, following DLA Piper representing Ping An in its US$80 million series C investment in Bigo in 2017, and again in Ping An’s US$20 million follow-on investment in Bigo’s series D round of financing a year later.

DLA Piper Asia senior partner, Roy Chan said: “[DLA Piper] are delighted to have advised Ping An on another successful deal. [DLA Piper] has a long history and partnership with Ping An, and look forward to working with them across all aspects of their business in the future.”

Under the terms negotiated by DLA Piper, YY paid Ping An an aggregate purchase price of US$1.45 billion for the 68.3% of Bigo shares that YY did not already own, with a combination of cash and YY shares.

Gloria Liu, DLA Piper corporate partner who led the initial investments and this sale added: [DLA Piper] are proud to be counsel to premier private equity clients for the entire investment cycle, from fund formation to downstream investment and to exit. The Ping An – Bigo deal demonstrates the strength of [DLA Piper’s] private equity practise in Asia.”

Pinsent Mason powers brand along the Belt & Road

The multinational law firm and CBI member, Pinsent Masons has announced that it advised on a major $530 million Belt & Road power station deal in Pakistan. Pinsent Masons worked in cooperation with the Chinese engineering SOE, China Machinery Engineering Corporation, and provided counsel on brokerage and international trade and arbitration. This involved Pinsent Masons acting on behalf of Thar Energy Limited, one of Pakistan’s biggest power stations developers, on the ground in Pakistan.

Subsequently, Pinsent Masons managed to secure the financing of the power station, which will provide a power generation output of 300MW and will be coal-fired. The power station is positioned as an integral part of China’s Belt & Road, Pakistan Economic Corridor.

Pinsent Masons has played an active role in securing funding for initiatives involving Chinese partners along the Pakistan Economic Corridor since 2015. In the first instance, the law firm advised on the initial $700 million financing of a coal mine that was commissioned to provide resources for energy production and a $821 million power station that would take these resources and guarantee energy along the route.

The fact that Pinsent Masons was then asked to advise on a second power station highlights the fact that opportunities exist along the BRI for foreign firms which are able to provide specialist advise and support to Chinese companies operating an international setting.

The deal was negotiated and delivered by a cross border team working from Pinsent Masons’ offices in Beijing, Hong Kong, Singapore and Dubai. David Platt, lead partner said, “We are proud to have been an integral part of this project from the beginning. Not only is it extremely significant as part of the wider Belt & Road Initiative, it will help Pakistan’s energy landscape and resource.”

The transaction was signed in front of members of the China Pakistan Economic Cooperation Corridor Joint Committee. and China Machinery Engineering Corporation.