4 Operating in China

Whereas the previous parts addressed the basic political and legal system of China and the entry into Chinese market, this part will outline the principle business and commercial regulations governing the operations of FIEs in China.

4.1 Taxation

  1. Tax System

    Under the current tax system, the PRC imposes about twenty (20) types of taxes, including enterprise income tax (the "EIT"), value added tax (the "VAT"), business tax, property tax, consumption tax, land appreciation tax (the "LAT"), land use tax, deed tax, stamp duty and individual income tax (the "IIT"). PRC has signed income tax treaties and arrangements with more than 80 countries and regions, including two special administrative regions of the PRC, Hong Kong and Macau.

  2. EIT

    On 1 January 2008, the new unified PRC Enterprise Income Tax Law (the "EIT Law") became effective. It consolidated the previous two separate income tax regimes for domestic enterprises and FIEs into one single income tax regime. The new EIT Law introduced the concept of resident enterprises, unified the tax rate for Chinese domestic enterprises and FIEs, replaced the old tax incentive system with a new model and addressed special tax adjustments, such as adjustments made pursuant to transfer pricing, or thin capitalization rules.

    1. Resident Enterprises vs. Non-resident Enterprises

      A resident enterprise refers to an enterprise which is legally established in accordance with PRC law, or an enterprise which is legally established in a foreign country or region whose actual administration institution is in China. The actual administration institution refers to the institution that actually and comprehensively manages and controls the production and operation, staff, account, property and other aspects of the enterprises. A resident enterprise should pay EIT on its worldwide income, i.e., income derived from sources both inside and outside the PRC.

      A non-resident enterprise refers to an enterprise which is legally established in a foreign country or region whose actual administration institution is outside China, but which either has an establishment in the PRC or has no establishment in the PRC but derives PRC-sourced income. A non-resident enterprise which has an establishment or place in the PRC pays EIT on income which is derived from sources inside the PRC, as well as on income which, although derived from sources outside the PRC, is effectively connected with such establishment. If a non-resident enterprise has no establishment in the PRC, or has an establishment in the PRC but has derived income not effectively connected with such establishment, it pays EIT only on income derived from sources inside the PRC.

    2. Tax Base and Tax Rate

      The taxable income of an enterprise is defined as the amount remaining from its gross income in a year, after non-taxable income, tax-exempt income, various expenses and losses have been deducted. Losses incurred by an enterprise may be carried forward for a period of five (5) years. No carry-back is permitted. Reasonable expenditures which have actually been incurred and are related to the generation of income, including costs, expenses, taxes, losses and other expenditures are deductible.

      A PRC resident enterprise is subject to EIT at a rate of 25% on its worldwide income. A non-resident enterprise having an establishment in the PRC is subject to EIT at a rate of 25% on its PRC-sourced income received by the establishment as well as its non-PRC-sourced income actually connected with the establishment. Where a non-resident enterprises that does not set up an institutions or establishments in China, or where institutions or establishments are set up but there is no actual relationship between the income and such institutions or establishments, the non-resident enterprise should pay EIT at a rate of 10% in relation to the income originating from China, which should be subject to tax withholding at source with the payer as the withholding agent. Under certain tax treaties between China and other countries and/or regions, non-resident enterprise may enjoy more preferential tax treatment depending on the provisions of such treaties.

    3. Tax Incentives

      Various EIT incentives are provided in the EIT Law. Preferential treatment is generally granted to industries and projects, the development of which is supported and encouraged by the State.

      Qualified high-new technology enterprises (the "HNTEs") enjoy a 15% preferential tax rate nationwide. Further, in respect of HNTEs established in the five special economic zones (Shenzhen, Zhuhai, Xiamen, Shantou and Hainan) and Pudong New Area of Shanghai, a tax holiday of a two-year exemption of EIT and a three-year half reduction of EIT will apply commencing from the first profitable year.

      Venture capital investment enterprises enjoy a bonus deduction equaling 70% of the investment made to qualified medium and small sized high-tech enterprises, upon reaching two (2) years of ownership. A bonus deduction or amortization of 50% of expenses incurred for research and development activities for new technology, new products, or new craftsmanship is also available to most enterprises.

      Incomes earned from projects of agriculture, forestry, husbandry and fishery, incomes earned from business operations of important public infrastructure investment projects supported by the state, and incomes earned from eligible projects of environmental protection, energy and water saving may be exempted or reduced.

  3. IIT

    China has a progressive IIT ranging from 3% up to 45%. Generally, an individual who has a domicile in the territory of China or who has no domicile but has stayed in the territory of China for one (1) year or more should pay individual income tax for his/her incomes obtained in and/or outside the territory of China. An individual who has no domicile and does not stay in the territory of China or who has no domicile but has stayed in the territory of China for less than one (1) year should pay individual income tax for his incomes obtained in the territory of China.

    An FIE must generally serve as a withholding agent for its employees, and withhold and pay IIT on their behalf each month. China relies principally on withholding to collect IIT, and only those individuals whose annual income is RMB120,000 or more, whose income from outside the territory of China, who receive wage and salary income from at least two (2) sources within the territory of China, or who receive taxable income but have no tax withholding agent, are required to file separate annual tax returns to the competent tax authorities.

  4. VAT

    VAT is levied on the sale of goods inside the PRC, the import of goods into the PRC and the provision of processing, repair and maintenance services in the PRC. The standard tax rate for most goods is 17%, though a concessionary rate of 13% applies to certain goods such as agricultural machinery, books and utilities.

    The PRC VAT regime distinguishes between general VAT taxpayers and small scale VAT taxpayers. The threshold to qualifying for general VAT taxpayers are those whose annual sales are above RMB 0.5 million for manufacturing enterprises and above RMB 0.8 million for trading enterprises. The small VAT taxpayers should pay VAT at a lower rate of 3%.

  5. Business Tax

    Business tax is levied on the provision of most services within the PRC, the transfer of intangible property in the PRC and the transfer of real property in the PRC.

    Business tax rates

    Services Tax rate
    Construction, transport, post and telecoms, cultural activities and sports 3%
    Banking and insurance 5%
    Services, transfer of intangible assets 5%
    Sale of real properties 5%
    Entertainment 5%-20%
  6. Consumption Tax

    Consumption tax is imposed as a measure to monitor the consumption of goods deemed as luxury or unhealthy. It is charged to any person or unit engaged in the manufacturing, subcontracting, importing or processing of the prescribed goods. The rate varies, depending on the exact taxable items.

  7. Stamp Duty

    Stamp duty is levied on specific documents executed or obtained in the PRC. The rates generally range from 0.01% to 0.003%, depending on the type of document. To the extent that a document is a contract to which there is more than one contracting party, each party needs to pay stamp duty at the full statutory rate.

  8. Deed Tax

    Deed tax is levied on the transfer of land use rights and real property. The rate is 3% to 5%, depending on the location of the land or property. Deed tax is payable by the transferee.

    1. LAT

      LAT is levied on the gain from the transfer of State-owned land use rights and the property situated on the land. The rates are progressive ranging from 30% to 60%, depending on the percentage of the appreciation.

  9. Property Tax

    Property tax is levied on the ownership of real property in urban areas. It is assessed at an annual rate of 1.2% of the original cost of the building with less a 10% to 30% deduction (this percentage of deduction is determined by the relevant local authorities and thus may vary from location to location) or at a rate of 12% of the annual rental income.

    From 1 January 2009, Chinese companies or individuals have stopped paying property tax; however, FIEs, foreign enterprises and organizations and foreign individuals continue to pay property tax. In early 2011, Chongqing and Shanghai has begun to levy property tax again.

  10. Urban Land Use Tax

    Urban land use tax is levied on the ownership of land use rights in urban areas. The exact rate depends on the location of the relevant land. According to the national regulations, the applicable rates per square meter are RMB 1.5 to RMB30 per year for large cities, RMB1.2 to RMB24 per year for medium-sized cities, RMB0.9 to RMB18 per year for small cities and RMB 0.6 to RMB12 per year for counties.

  11. Customs Duty

    Customs duty is levied on the imported and exported goods and articles entering or leaving the territory of the PRC. Customs duty is payable according to a tariff schedule. With free trade agreements (the "FTA"), goods traded between the PRC and the FTA signatory countries qualify for lower customs duty rates. Qualified enterprises enjoy duty reduction or exemption as a tariff preference measure.

  12. 4.2 Employment

    1. Regulatory Environment

      The foundation for China's employment laws, rules, and regulations is the PRC Labor Law, which was enacted on 1 January 1995 by the NPC. Another milestone in the development of China's labor and social security legislation is the PRC Labor Contract Law, which was passed by the NPC and came into force on 1 January 2008. Later, the Regulations of Implementation on the PRC Labor Contract Law became effective on 18 September 2008, which specifies certain issues on labor.

      Employment matters, including those of FIEs, within the territory of the PRC are all subject to the PRC Labor Law, the PRC Labor Contract Law, and other laws and regulations issued by the NPC or the central government. There are also local regulations and rules issued by provincial, municipal, and other lower level government authorities that are only applicable to the relevant local regions.

    2. Contract of Employment

      PRC law allows the employer to engage a part-time employee with an oral contract. However, in case of any employment of full time employee, the parties are required to enter into a written labor contract within one month from the date of commencement of employment. Failure to comply with this provision results in the employer being required to pay to the employee twice the amount of the agreed remuneration as salary.

    3. Minimum Wage

      There is a system of guaranteed minimum wages and salaries for Chinese workers. Local people's government will formulate its own specific standards for minimum wages and salaries. The payable wages and salaries (exclusive of any overtime pay, social insurance/housing fund contributions borne by the employee, or any allowance for middle/night shifts, high/low temperature etc.) shall be in no case lower than the local minimum wage and salary standards if the workers have provided "normal work" pursuant to their labor contracts.

    4. Working Day and Overtime

      There are three kinds of work hour systems, i.e., standard work hour system, comprehensive work hour system and indefinite work hour system.

    5. Social Insurance

      The employer is obliged to have their PRC employees enrolled in the applicable social insurance schemes provided by the local labor authorities, and withhold the contributions borne by the employee (referred to as the "Individual Contributions" below) from his/her monthly salary and pay the individual contributions as well as the contributions borne by the employer (the "Company Contributions") to the local social insurance institution each month.

      The rate and contribution basis of social insurance premium depends on the relevant local regulations. Different localities provides for different categories of social insurance schemes, which mainly depends on the localities of the domicile of the employees.

    6. Health and Safety

      Employers are required to strictly implement the rules and standards of the State with regard to occupational safety and health, carry out relevant education among employees, prevent accidents in the process of work, and lessen occupational hazards. Facilities of occupational safety and health must meet the standards set by the State.

    7. Termination of Employment and Economic Compensation
      1. Termination initiated by employer

        The employer is generally not allowed to unilaterally terminate the labor contract at will or without cause. The termination of employment initiated by the employer is not allowed unless some specific conditions (i.e., the statutory termination grounds) have occurred, for instance, the employee seriously violates work rules and regulations of the employer.

        If the employer terminates the employment of the employee in violation of law, the employee may request for specific performance, i.e., reinstatement to his/her job position. If the employee does not so request or the contract is no longer capable of being performed, the employer shall pay twice the usual severance pay amount as damages to the employee.

      2. Termination by mutual consent

        If the employer proposes to terminate the employment of the employee, and the employee so agrees after negotiation between the parties, the labor contract can be terminated, which is referred to as the "termination by mutual consent" in the PRC employment law.

      3. Termination initiated by employee

        The employee may: ? unilaterally early terminate the labor contract without cause as long as he/she gives a 30-day prior written notice to the employer (in case such employee is in probationary period, such prior notice period is three (3) days); or ? immediately terminate his/her labor contract without any prior notice under some specific circumstances, such as when the employer does not pay the employee in full and on time.

    8. Labor Secondment or Contractual Worker

      The ROs set up by foreign companies are not allowed to employ staff directly in the PRC but may only obtain the staff through certain designated labor agencies (the "Agency") like Foreign Enterprise Services Corporation (the "FESCO"), which is generally referred to in China as the labor secondment arrangement. Local labor bureau are in charge of monitoring compliance. Under this arrangement, the RO as the Secondee Company signs a service contract with the Agency for engagement of their labor secondment services, and the employee as the Seconded Employee, who may be appointed by the Secondee Company or the Agency, signs labor contract with the Agency and is seconded to work in the Secondee Company.

      1. Employment of Foreigners

        In most cases, employers must recruit Chinese nationals if at all possible. In order to bring in a foreign employee, the employer must first apply to the local labor bureau for an employment permission certificate to bring in the intended employee. Once the employer has received the employment permission certificate, the foreign employee must apply for a work visa at his local Chinese consulate. After entering China, the employee must obtain a work permit and residence card prior to commencing employment. Foreign experts, off shore petroleum workers, cultural and artistic performers, and representatives of ROs enter China under different procedures.

    4.3 Antitrust & Competition

    1. Legislation

      A broad range of PRC laws contain one or more provisions prohibiting anti-competitive practices such as price-fixing, market-sharing and below-cost sales. These include the Anti-Unfair Competition Law and the Price Law. Many of these provisions have not been widely enforced, and the fragmented structure of the competition legislation reflects the historical absence of a cohesive competition policy in the PRC.

      However, a comprehensive Anti-Monopoly Law (the "AML") came into effect on 1 August 2008. A number of provisions in the AML overlap with pre-existing competition provisions, but it is expected that the AML will be the primary law used to tackle anti-competitive conduct going forward. The AML regulates three (3) main areas of business conduct: monopoly agreements, the abuse of a dominant market position, and concentrations (i.e., M&A deals and certain other transactions) with anti-competitive impacts. These prohibitions are understood to apply to nearly all businesses, although SOEs may receive some special treatment under the AML, and certain activities of agricultural producers and farming entities are exempt from the law.

    2. The Development Nature of the PRC Competition Regime

      Prior to the commencement of the AML, most PRC competition-related provisions were rarely enforced. The main exception was the merger control regime under the M&A regulations. However, the commencement of the AML, and the introduction of significant new legal liabilities relating to anti-competitive practices, reflects an increasing focus on competition issues in China. This suggests that, going forward, competition provisions may be enforced with more vigor than historically has been the case particularly once further detailed implementing regulations and guidelines regarding application and enforcement of the AML are released.

      It should also be noted that many of the laws prior to the AML that incorporate competition-related provisions remain in force. While many of these provisions overlap with the AML, in some cases they may have a potentially broader application. Additionally, some competition provisions are sector-specific, relating to industries such as banking and telecommunications. It is possible these provisions may still be applied going forward, either in conjunction with the AML or on a stand-alone basis.

    4.4 Intellectual Property

    Intellectual property protection is a key consideration for foreign investors entering Chinese market. The PRC has a comprehensive regime of intellectual property laws which provide a wide range of remedies and channels for enforcement, including civil and criminal courts, several different administrative enforcement authorities, prosecutors and polices. Legislation facilitating private prosecution by intellectual property owners came into effect in 1997. These intellectual property laws are compliant with the requirements under the Agreement on Trade-Related Aspects of Intellectual Property Rights (the "TRIPs Agreement") of the World Trade Organization. Also, China is a party to most of the international conventions on intellectual property rights, including:

    • the Paris Convention for the Protection of Intellectual Property Rights
    • the TRIPs Agreement
    • the Berne Convention for the Protection of Literary and Artistic Works
    • the Universal Copyright Convention
    • the WIPO Copyright Treaty
    • the Locarno Agreement for International Classification for Industrial Designs
    • the Madrid Agreement for the International Registration of Trademarks
    • the Nice Agreement for the International Classification of Goods & Services
    • the Patent Co-operation Treaty
    • the Strasbourg Agreement for International Patent Classification
    • the Budapest Treaty for Deposit of Micro-organisms
    • the Geneva Convention on Unauthorized Duplication of Phonograms
    • the WIPO Performances and Phonograms Treaty

    Although the laws are there, the level of infringement and the inadequacy of enforcement has been the subject of disputes with Chinese trade partners, particularly the United States of America. In China, PRC law provides protection for the patent, trademark and copyright.

    1. Patent

      There are three (3) types of patents in China: invention patents, utility model patents and design patents. Invention refers to any new technical solution relating to a product, a process or improvement thereof. Utility model refers to any new technical solution relating to the shape, the structure, or their combination, of a product, which is fit for practical use. Design refers to any new design of the shape, pattern or their combination and the combination of color and shape or pattern, of a product, which creates an aesthetic feeling and is fit for industrial application.

      Patents may be assigned or licensed, but only upon registration with the State Intellectual Property Office of the People's Public of China (the "SIPO"). Invention patents are the most robust of the three (3) kinds of patents, involving a meticulous review process that takes several years to complete, and providing protection for a period of twenty (20) years from the date of filing to SIPO. Utility model patents and design patents have a less meticulous and lengthy review process, and also provide a shorter period of ten (10) years after the date of filing. China's patent system works on a first to file basis.

    2. Trademark

      In China, trademarks include registered trademarks and unregistered trademarks. Only if trademarks are registered with the Trademark Office of the State Administration for Industry and Commerce of the People's Republic of China (the "Trademark Office") can such trademarks seek protection under the PRC Trademark Law, unless the unregistered trademarks are be defined as well-known trademarks. The period of validity of a registered trademark is ten years commencing from the date of approval for the registration, with subsequent ten-year extensions being available. Registered trademarks may be assigned or licensed provided such assignments or licenses are registered with or approved by the Trademark Office.

    3. Copyright

      The PRC Copyright Law provides protections for creative works, including software. The National Copyright Administration of the People's Republic of China (the "NCAC") oversees the copyright system. The NCAC oversees a non-mandatory registration process covering the both registration of copyrights themselves and of assignments or licenses thereof.

    4.5 Real Property

    1. Overview

      In China land in urban areas shall be owned by the State, and land in rural and suburban areas, unless otherwise prescribed by the State, shall be collectively owned by farmers, including land for houses and private plots in fields and on hillsides. Neither domestic companies nor FIEs can own land, although they may hold land use rights.

      For State-owned land use rights, there are two (2) different types, allocated land use rights and granted use rights. Generally, the State-owned land use right shall be obtained by paid means such as grant. However, upon the approval from the government at or above the county level, the State-owned land may be allocated for government institutions or the military; urban infrastructure or public welfare projects; or energy, transportation and water conservancy projects as well as other infrastructure projects supported by the government. In general, allocated land use rights cannot be transferred or leased without first being converted into granted land use rights (for which a grant fee must generally be paid to the government). The government may reclaim allocated land use rights at any time without compensation.

      Granted land use right is the right to use land for a specific purpose for a fixed term, seventy (70) years, fifty (50) years or forty (40) years, depending on the purpose of land. A grant fee must be paid to the government for granted land use rights.

      Buildings on land generally should be owned by the same person that holds the corresponding land use rights. Nevertheless, land use rights and buildings on the corresponding land are sometimes owned by different persons.

    2. Land use rights transfers

      Under PRC law, only granted land use rights may be transferred. Nobody will obtain title to allocated land, even if someone purports to sell it to you, provided that it is first converted to granted land use rights (for which a grant fee must first be paid to the government). Vacant land is required to be at least 25% developed before the corresponding land use rights can be transferred. The government may reclaim vacant land if development is not started within two (2) years of transfer.

    3. Renewal of land use rights

      From 1 October 2007, the term of residential land use rights will be automatically renewed upon expiry. This is a welcome relief to those owning residential properties in China. It will also ensure that financing remains available for residential property approaching expiration of its land use right term. Non-residential land use right terms are not granted automatic renewal under the Property Law. Rather, renewal will be subject to other laws and regulations.

    4. Easements

      The creation of easements has been recognized since the PRC Property Law became effective on 1 October 2007. The ability to create easements recognized by law is likely to be of particular importance for infrastructure projects that involve the construction of pipelines or other networks requiring access to land over which the project owner does not hold the land use rights.

    5. Leasing

      Land must generally have been developed before it can be leased. A lessee is required to comply with the terms and conditions of the land use rights grant contract. A registered lease with authorities will gain priority over any unregistered lease.

    6. Expropriations

      Land may be expropriated by the government only in special circumstances and in the public interest. Compensation is required to be paid if land is expropriated.

    4.6 Foreign Exchange

    China's currency, the RMB, is not fully convertible. The RMB is ultimately monitored and controlled by China's State Administration of Foreign Exchange (the "SAFE"). In the past, all foreign currency transactions involving the purchase or sale of RMB were subject to SAFE's review and approval. Since China became a member of the WTO in 2001, China's foreign currency policy has become increasingly less restrictive.

    Under PRC law, foreign currency transactions are categorized as the capital account transactions and the current account transactions. Capital account transactions refer to the transaction items in the balance of payments leading to changes in external assets and liabilities, including capital transfers, direct investments, portfolio investments, derivatives, loans, etc. Current account transactions refer to the transaction items in the balance of payments involving goods, services, income, and current transfers, etc. Compared to payments of capital, current account items may face relatively easier control.

    An FIE may, subject to SAFE approval, open a foreign exchange account with a designated foreign exchange bank. Usually, the account must be opened within the same area in which the FIE is registered. The approval is required to open an account in another area. An FIE may purchase foreign exchange if it has insufficient funds in its foreign exchange account to meet a foreign exchange obligation. Foreign currency accounts of FIEs are subject to annual inspections by SAFE. Moreover, foreign investors without an FIE in China may open a multicurrency account with a bank to fund the pre-establishment expenses of an FIE.

    4.7 Environmental Regulation

    The PRC Environmental Protection Law is the national law governing all environmental protection matters in the PRC. In addition to the Environmental Protection Law, other laws and regulations such as the Prevention of Atmospheric Pollution Law and the Prevention of Water Pollution Law have been enacted to regulate different parts of the environment. Different provinces and municipalities have also implemented their own environmental protection regulations which are of regional application.

    It should be noted that the PRC government has not separately formulated a set of rules and regulations concerning environmental protection for FIEs and FIEs within the territory of the PRC are subject to the same regulatory regime as domestic enterprises.

    It's also worth noting that China's recent green policy link benefits in other areas to environmental compliance. Green insurance policies require enterprises in certain sectors to insure against environmental damage. Green trade policies may result in higher export taxes on products made in pollution-intensive industries. The EIL Law also contemplates green taxation polices, providing tax incentives and sanctions concerning the environment.

    4.8 Product Safety

    China does not have a single, codified product safety law. Manufacturers and sellers of products and other stakeholders in this area must follow legal requirements as set out in various laws and regulations, including the General Principles of the Civil Law, the Law on Protection of the Rights and Interests of Consumers, the Criminal Law, and laws on the Administration of Pharmaceuticals and on Product Quality. China issued important legislation on food and product safety in the past several years, including the Law on the Quality and Safety of Agricultural Products in 2006; several sector-specific regulations covering the recall of vehicles, toys, food, and drugs in 2007; and the Food Safety Law and its implementing rules in 2009, which represented a milestone in the formation of China's product safety regime. These laws and regulations responded to the public's rising concern about product safety in China. Despite these laws and regulations, China has experienced a number of significant product safety issues in the recent years.

    4.9 Dispute Resolution

    As an increasing number of foreign investors penetrate the Chinese market, commercial disputes are expanding quickly both in number and in scale. China has made significant progress in increasing the integrity and reliability of its courts. The formal processes available for resolving such disputes in China have, in recent years, become increasingly similar to those elsewhere in the world.

    If a dispute cannot be settled through negotiation between the parties, the case must be submitted for litigation or arbitration. Under PRC law, it is permitted for the parties to choose for binding arbitration to resolve their disputes and the courts will generally enforce arbitration judgment without inquiry into the merits. It is worthy noting that arbitration is only possible if the parties expressly agree to arbitrate. In practice, the arbitration is favored by many foreign investors in China.

    1. Litigation

      The PRC courts consist of four (4) layers: the People's Court (at the district or county level), the Intermediate People's Courts (at the municipal level), the High People's Courts (at provincial level), and the Supreme People's Court (at the national level). The level of the competent court should be generally subject to the nature and size of the disputes. In most cases, disputes with a foreign connection may be initially in the Intermediate People's Courts.

      Court judgments may be appealed once, but the judgment of the second instance is final and binding upon the parties immediately. Under the PRC Contract Law, it is permitted to select a foreign law to govern the contract with a foreign connection and to provide for exclusive jurisdiction in foreign courts. In fact, it may be difficult for Chinese courts to enforce a judgment made by a foreign court, but Hong Kong's judgments are exceptions.

    2. Arbitration

      In comparison to litigation, the arbitration seems much quicker, more efficient and more reliable, thus major foreign investors would like to include an exclusive arbitration clause in their contracts.

    Under PRC law, an express clause clearly indicating the parties' selection of binding arbitration is enforceable, which should be in writing and contain a clear statement of the parties' intention to submit the dispute to arbitration, the scope of disputes subject to arbitration, and the specific arbitral commission to resolve the dispute. In addition, it is possible for the parties to reach an arbitration agreement after a dispute arises, but in most cases an arbitration clause is included from the outset in the operative contracts.

    The China International Economic and Trade Arbitration Commission (the "CIETAC") is one of the most frequently selected arbitration forums when the arbitration will be held within the PRC. Foreign investors sometimes do not agree to arbitration in PRC, including arbitration at CIETAC, because they believe that Chinese parties will have a home advantage, meanwhile, Chinese parties concomitantly often object to arbitration aboard. Therefore, Hong Kong seems as acceptable compromise to both parties. Of course, to select a third country's jurisdiction for arbitration is also common in practice. Since China is a party to the United Nations Convention of Recognition and Enforcement of Foreign Arbitral Awards, it is generally possible to obtain the enforcement of an arbitration award issued by a panel in any member country.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.