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Foreign Investment Foreign Investment and and
IP Protection in IP Protection in China China
Presented by: Presented by: Julia ZhuJulia ZhuAllan Law Group/Alpha Leader Group U.S.Allan Law Group/Alpha Leader Group U.S.
Los AngelesLos AngelesMay 14, 2008 May 14, 2008
© Allan Law Group © Allan Law Group 2008 2008
Foreign Investment Foreign Investment In ChinaIn China
© Allan Law Group 2008© Allan Law Group 2008
Foreign Investment in China Foreign Investment in China Overview:Overview:
One of the premier destinations for foreign One of the premier destinations for foreign investment investment
Overall foreign direct investment (“FDI”) to Overall foreign direct investment (“FDI”) to China rose by nearly 13.8% in 2007 over 2006China rose by nearly 13.8% in 2007 over 2006
Estimate for China’s inbound FDI in 2008: Estimate for China’s inbound FDI in 2008: growth in 4% - 6% rangegrowth in 4% - 6% range
Top foreign investors: HK the first; US the Top foreign investors: HK the first; US the sixthsixth
Top FDI destination: eastern region – 81.9%Top FDI destination: eastern region – 81.9% Hot sectors: manufacturing (57.7%) and real Hot sectors: manufacturing (57.7%) and real
estate (11.9%)estate (11.9%)
Source: The US- China Business CouncilSource: The US- China Business Council © Allan Law Group 2008© Allan Law Group 2008
FDI in ChinaFDI in China FDI in China (Total and US) 1998-2007
Source: Ministry of Commerce (MOFCOM)* MOFCOM stopped reporting contracted foreign investment figures by country in December 2005. Beginning in 2005, the number of contracts refers to the number of projects and the contracted value refers to actual investment levels.**Beginning in 2006, FDI statistics explicitly include financial and non-financial FDI; the cited figure incorporates both categories.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Total Foreign Direct Investment (FDI)
No. of Contracts* 19,799 16,918 22,347 26,139 34,171 41,081 43,664 44,019 41,485 37,888
Amt. Contracted ($ billion)
52.10 41.22 62.38 69.20 82.77 115.07 153.48 189.07 200.17 NA
Amt. Utilized ($ billion)
45.46 40.32 40.72 46.88 52.74 53.51 60.63 60.33 69.47** 82.66**
US Direct Investment
No. of Contracts 2,238 2,028 2,609 2,594 3,363 4,060 3,925 3,741 3,205 2,627
Amt. Contracted ($ billion)
6.48 6.02 8.00 7.51 8.20 10.16 12.17 NA* NA* NA*
Amt. Utilized ($ billion)
3.90 4.22 4.38 4.86 5.40 4.20 3.94 3.06 3.00 2.62
US Share of Utilized Investment
8.50% 10.47% 10.76% 10.37% 10.24% 7.85% 6.50% 5.07% 4.12% 3.50%
© Allan Law Group 2008© Allan Law Group 2008
Foreign Direct Investment by Vehicle Type, 2006 and 2007
Note: FDI=foreign direct investment; EJVs=equity joint ventures; CJVs=cooperative joint ventures; WFOEs=wholly foreign-owned enterprises
Number of Projects Utilized FDI Value ($ billion)
2006 2007 % Change 2006 2007 % Change
Total FDI 41,473 37,871 -8.69 65.82 74.77 13.59
EJVs 10,223 7,649 -25.18 14.83 15.60 5.13
CJVs 1,036 641 -38.13 1.99 1.42 -28.77
WFOEs 30,164 29,543 -2.06 48.56 57.26 17.92
Foreign-invested shareholding ventures 50 38 -24.00 0.44 0.49
Source: The US- China Business Source: The US- China Business CouncilCouncil
Issues to Watch in Issues to Watch in 20082008
Economic protectionism Economic protectionism
Product safety Product safety
New rules on foreign investment New rules on foreign investment Enterprise Income Tax LawEnterprise Income Tax Law Labor Contract Law Labor Contract Law Antimonopoly Law Antimonopoly Law Catalogue Guiding Foreign Investment in Catalogue Guiding Foreign Investment in
Industry Industry © Allan Law Group 2008© Allan Law Group 2008
Chinese Government Chinese Government Wants:Wants:
Encouraged SectorsEncouraged Sectors:: ServicesServices New and high-technologyNew and high-technology Energy and the environment Energy and the environment Healthcare Healthcare
© Allan Law Group 2008© Allan Law Group 2008
Chinese Government Chinese Government Doesn’t WantDoesn’t Want
Restricted or Banned Sectors:Restricted or Banned Sectors: Real estateReal estate Media and publishing Media and publishing Solely devoted to export Solely devoted to export China mastered or high usage of China mastered or high usage of
resources or energy resources or energy
© Allan Law Group 2008© Allan Law Group 2008
Traditional Investment Traditional Investment Vehicles Vehicles
Direct Entry Methods:Direct Entry Methods: Wholly-foreign-owned enterprises Wholly-foreign-owned enterprises
(“WFOEs”)(“WFOEs”)
Joint ventures (“JVs”)Joint ventures (“JVs”) Equity joint ventureEquity joint venture Cooperative joint venture Cooperative joint venture
© Allan Law Group 2008© Allan Law Group 2008
WOFE v. JVWOFE v. JV
WOFEWOFE ProsPros
No Chinese partner or JV contract No Chinese partner or JV contract Full control over management and production Full control over management and production Better IP protection Better IP protection
ConsCons Legal and regulatory restrictionsLegal and regulatory restrictions Lack of existing sales and distribution networkLack of existing sales and distribution network No production site and workforceNo production site and workforce Lack of local “Guanxi”Lack of local “Guanxi”
© Allan Law Group 2008© Allan Law Group 2008
JV v. WFOEJV v. WFOE
JVJV ProsPros
Greater range of investment areasGreater range of investment areas Easier government approval Easier government approval Operational facilities in place and skilled staff Operational facilities in place and skilled staff Existing supply chainExisting supply chain
ConsCons Misunderstanding possibleMisunderstanding possible IP protection concernsIP protection concerns Complicates exit strategies Complicates exit strategies
© Allan Law Group 2008© Allan Law Group 2008
Traditional Investment Traditional Investment VehiclesVehicles
Indirect Entry Methods:Indirect Entry Methods: Enter into licensing agreements with Enter into licensing agreements with
local companies local companies
Representative office Representative office
© Allan Law Group 2008© Allan Law Group 2008
Other Investment Other Investment Vehicles Vehicles
Mergers and Acquisitions (“M&A”)Mergers and Acquisitions (“M&A”) Growth factors for M&A InvestmentsGrowth factors for M&A Investments New Foreign M&A regulationsNew Foreign M&A regulations
Special Situation Investments Special Situation Investments including Non-performing Loans including Non-performing Loans
© Allan Law Group 2008© Allan Law Group 2008
IP Protection In China IP Protection In China
© Allan Law Group 2008© Allan Law Group 2008
IP Rights in China IP Rights in China
Treaties, legislation and special Treaties, legislation and special courts to safeguard IP rightscourts to safeguard IP rights
Poor enforcementPoor enforcement
Counterfeiters and infringers being Counterfeiters and infringers being more sophisticatedmore sophisticated
© Allan Law Group 2008© Allan Law Group 2008
Intellectual Property Intellectual Property Enforcement Enforcement
China IP Legal Enforcement China IP Legal Enforcement Dual Track System Dual Track System
Administrative EnforcementAdministrative Enforcement Special enforcement task forces in Special enforcement task forces in
administrative agenciesadministrative agencies
Judicial Enforcement Judicial Enforcement Civil litigation Civil litigation Criminal prosecution Criminal prosecution
© Allan Law Group 2008© Allan Law Group 2008
IP Protection: Practical IP Protection: Practical StrategiesStrategies
Early filing – “First to File” principleEarly filing – “First to File” principle Trademarks Trademarks PatentsPatents Copyright Copyright Trade secrets Trade secrets
Create and enforce a clear IP Create and enforce a clear IP protection strategy throughout the protection strategy throughout the organization organization
© Allan Law Group 2008© Allan Law Group 2008
IP Protection: Practical IP Protection: Practical StrategiesStrategies
Control the production processControl the production process
Strengthen the workplace safety Strengthen the workplace safety Background checks on key hiresBackground checks on key hires Non-compete and non-disclosure agreementsNon-compete and non-disclosure agreements
Conduct careful due diligence on potential Conduct careful due diligence on potential partnerspartners
Keep a close eye on competitors Keep a close eye on competitors © Allan Law Group 2008© Allan Law Group 2008
IP Protection: Practical IP Protection: Practical StrategiesStrategies
Engage with the legal system while Engage with the legal system while reducing dependence on itreducing dependence on it
Conduct surveillance of suppliers Conduct surveillance of suppliers and distributorsand distributors
Enlist political/media support Enlist political/media support
© Allan Law Group 2008© Allan Law Group 2008
Thank You!Thank You!
Allan Law Group Allan Law Group
© Allan Law Group 2008© Allan Law Group 2008