China - Law Firms Accessing And Understanding The Government: A Must For Doing Business In China

Thursday, December 1, 2005 - 01:00
Richard Jay ("Tad") Ferris
Hongjun Zhang

Editor: Would each of you gentlemen tell our readers something about your professional experience?

Ferris: I have been practicing law for over a decade, initially in the public international law and Asian regional law arenas and, over time, as a lawyer focused almost completely on Chinese legal issues as these issues relate to multinational corporations, foreign governments, and international organizations. This practice evolution mirrors the increasing involvement of my clients, here and elsewhere in the world, in China and with Chinese legal issues. Prior to law school here in the United States, I studied with the National Taiwan University Faculty of Law as a visiting legal scholar and also worked at Chinese law firms. I also spent an early part of my career on a project that involved meeting with law drafters in the region to understand the evolving legal system and challenges to creating effective implementation of laws. This early experience still proves useful to my career, where I often must anticipate challenges for clients involving dynamic legal systems. I went on to pursue my law degree in the U.S., with a principal focus on comparative and international legal studies. Over roughly three decades I have been involved in China and Chinese studies, I have learned Mandarin, Fukkienese, and Southern Min, among other languages. Fluency in Chinese, particularly Mandarin, is critical to my practice. Despite the prevalence of English in a Chinese-oriented practice, even among Chinese colleagues, it is obviously critical to be able to review Chinese documents and speak directly with government officials.

Zhang: I entered private practice six years ago after attaining an advanced law degree in the United States. After more than a decade of work in the Chinese government. I began my career as a Program and Planning officer in what is now the State Environmental Protection Administration of the Chinese government. Following that, I went to the National People's Congress (NPC). I eventually served as Legislative Director at the NPC. My duties covered a wide range of areas, including law drafting and supervision of local government implementation of law. I have studied law drafting and enforcement issues in training and university programs around the world, including in the European Union.

Since joining Holland & Knight, my focus has been on advising clients on a wide range of Chinese regulatory issues and related matters. In particular, my work has focused on assisting clients in developing successful strategies for dealing with multiple Chinese government authorities and establishing legal risk management strategies for the China market.

Editor: Would you tell us about the evolution of your practice?

Ferris: I knew Hongjun for many years prior to joining Holland & Knight. We had been discussing how to work together, it seems, long before he left in the late 1990s to study at Harvard Law School with the encouragement of the National People's Congress. Our decision to work together fortuitously came at a time when China was becoming more transparent, and information was becoming more accessible. The changes in rulemaking transparency have been quite dramatic over the past several years. This contributed greatly to the call for our involvement in government rulemakings and related issues.

We handle a great variety of government approval and registration processes on the regulatory side. Our regulatory compliance practice extends to project construction, facility operations, export and import of materials, transportation and the regulation of the sale of products. We also work on a day-to-day basis in the areas of corporate social responsibility, environmental, health and safety, customs, transportation, and confidential business information protection regulatory and government affairs.

Zhang: One area we are significantly involved in concerns government approvals or registration processes affecting projects and products. A second area concerns the regulatory aspects of transactions involving Chinese law. A third area involves advocacy for clients involving Chinese statutes, laws and other documents with legal effect, such as interpretive decisions issued by Chinese agencies that affect particular client issues. Chinese law has developed rapidly in recent years, and every agency is constantly in the process of drafting new laws. If proposed Chinese legislation imposes a compliance burden for our multinational clients, we may be called upon to develop the advocacy plan and to provide industry input into the law drafting process. A fourth area concerns legal risk management. For instance, Chinese laws often lack detail. A particular Chinese law that addresses a particular client activity, for example, may lack sufficient detail to afford our client with the necessary legal comfort that their proposed or existing activities are protected per Chinese law. We may be engaged to develop and implement the strategy to minimize such legal risks.

Editor: Access to the Chinese government is particularly important for foreign enterprises seeking to invest or conduct operations in China. What are the principal government agencies you deal with?

Ferris: Since most of the industries we represent are heavily regulated, our interaction with government agencies is intense. In the past few months we have been dealing with the Food & Drug Administration; the Customs Administration; the Ministry of Commerce; the Ministry of Information; the Ministry of Labor and Social Security; the Ministry of Health; the National Development and Reform Commission; the State Administration for Quality Supervision, Inspection and Quarantine (AQSIQ); and local affiliates of these national bodies. We also work with the State Administration for Workplace Safety, the State Environmental Protection Administration, the State Intellectual Property Office and then, at higher levels, the State Counsel and the National People's Congress.

Editor: What guidance can you provide our corporate counsel readers on dealing with agencies of the government?

Ferris: There are a number of potential pitfalls that corporate counsel may need to address when engaging with Chinese government authorities. The following can be considered the "top five."

The first issue involves information access. Access to accurate, timely, and comprehensive information is critical to providing counsel. Individuals accustomed to practicing law in the U.S. may come to China with an assumption that is not unusual in our information-intense society - that access to information in China has kept pace with access to information in the U.S. China is just beginning that process and still, little is available in English. There is certainly more information available today on the Internet than was the case a few years ago, but there is still the question of whether it is authoritative, whether it is actually the law in question, and whether the law accessed has been superseded or otherwise revised. In China, much authoritative information exists only in print, and it may be available only at the agency's local printing office.

The second issue involves sensitivity to the ground rules for government relations in China. In dealing with government officials, it is important to understand the protocols for engaging such officials and how these protocols might influence a particular advocacy or other goal. High level meetings may not be easy to schedule, and it is essential to understand how a request for such a meeting, sent for instance via the agency international office rather than through other intermediaries, may in certain circumstances hinder, rather than facilitate, meetings with the officials with primary decision making authority for the issue in question.

The third issue involves the importance of developing and maintaining a long-term strategy for government relations in China. Companies which interact with government agencies only when they have a problem that requires government intervention may be at risk of creating resistance to their requests for assistance within key government bodies. It is important to remember that most Chinese officials do not think of themselves as public servants. Meetings with stakeholders/companies are often perceived of as "favors" to the individuals requesting the meeting. As such, it is important to develop the company government relations strategy so that the strategy contemplates exchanges of information and meetings that might also be of interest to, or in response to questions by, the Chinese officials in question, and not simply requests for assistance with "company" problems or issues.

The fourth issue involves the need for company sensitivity to the level of government being engaged on a particular issue. Often, the local government is a company's first point of contact in China. Local governments are often very eager to attract investment, particularly where such investments represent significant amounts and/or involve technologies that are favored by the national government. Confusion can arise where the local governments, in an attempt to attract a particular investment project, resist company contact with the national government or otherwise indicate that they can waive or interpret national government requirements in favor of the project in question. There is a certain tension at play here between the local government (wishing to attract the investment) and the national government (which interprets the laws). We advise our clients to maintain a channel of communication with the national authorities and to advise them when a significant investment is contemplated as a matter of corporate policy, to minimize problems with local government resistance to such communications down the road, and to provide a window of opportunity for engagement of national government officials, if needed. The Chinese national government has been increasingly sensitive to local government "variation" from national government requirements and has intervened to correct such variations, sometimes triggering significant business interruptions.

The fifth issue concerns the need to routinize within a company the balancing of legal and practical risks associated with dealings with the Chinese government. In any particular project, it is important to look at what the Chinese law is affecting the project, as well as how this law is applied. Only by looking at both can the true risks of a particular course of action be understood.

Zhang: Within one company it is often very helpful for the legal team to work closely with both the government affairs and the business teams. A failure to coordinate action among these or equivalent groups can result in different messages being communicated (directly or indirectly) to the Chinese government, and complication of the business goals.

Editor: What about the future? What kinds of things do you think you will be doing in your practice over, say, the next five years?

Zhang: As more multinational investors enter the Chinese market, and the positive trend toward transparency and rule of law accelerates, I believe the need for experienced government relations and regulatory counsel will increase. We have every intention of expanding our abilities to address new challenges and opportunities that the Chinese legal and government systems raise for our clients.

Ferris: In our practice we serve as advocates, diplomats, investigators, business risk managers and interpreters. As the practice evolves and China develops a more accessible legal system, I think one signal that the legal system is evolving in a positive manner would be that investigation, "finding the critical information," occupies less of corporate counsels' time.

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