Basic China Compliance Rules For SMEs

(Before It's News)

As a member of AmCham China, I get a copy every month of AmCham’s magazine, Business Now. This month’s issue [hard copy version] has an article by John Zane, entitled, Playing by the Rules: As compliance comes to the fore, small businesses must take action. The thrust of the article (and the thrust of many a blog post we’ve done over the past year) is that China is cracking down on all businesses, foreign and domestic, large and small, and because of that, foreign SMEs need to initiate a compliance program to ensure that they are understanding and complying with China’s legal system.  

The full article is worth a read, but the “money” section is the following bullet point list of what every small company doing in business should be doing  by way of a China compliance program:

• Review the advantages and disadvantages of company formation, the business scope, and registered capital requirements. Be aware of what is involved in any changes to the company’s legal standing.

• Create employee contracts that comply with all aspects of Chinese labor law, and update them yearly. Whether the contracts are being renewed or terminated, they need to be reviewed at least a month prior to their termination date.

• Develop an employee handbook which complies not only with Chinese law but also international law. It is imperative that staff understand what inappropriate behavior is in terms of business practices, and that non-compliant behavior is listed explicitly and extensively. This is not only essential for employee training but is necessary in the event that such behavior results in litigation.

• Evaluate any contractual relationships with third parties or potential business partners thoroughly. Although extensive background checks and due diligence are often beyond the means of a small enterprise, risk assessments related to a third party are essential. Public records are available, such as a business license, company literature and website, operation location, and current operational ability of the company. Interviews and site visits should also be a part of this process.

• Be aware that compliance risks vary by location in China. Regulations adopted and adhered to in one city or province may not be the case in others. A small enterprise should have a thorough understanding of these markets and the particular business practices that exist within them.

A nice basic list. What do you think?

For more on China compliance, check out the following:

• China’s Foreign Company Double Standard: How To Fight Back
• China’s Compliance Miracle: I Mostly Believe.
• Identifying Your China Risk Factors (by our China Compliance Trainer)
• Beijing’s Shot Across the Bow on Corruption (Wall Street Journal article, by our China compliance lawyer)

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.

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