Spring 2008

FROM THE EDITORS


Welcome to the second issue of China Trends, DLA Piper’s global newsletter on China’s developing business laws. In keeping with our broader goals at DLA Piper, China Trends seeks to inform and guide our clients and friends on matters that affect their businesses.

Our lead story—written by Shanghai partner Jeff Greene—covers China’s proposed Energy Law. China will soon become the largest consumer of energy in the world. The Energy Law represents a policy-driven effort to move the country away from its historical dependence on coal, oil, and other fossil fuels. As China focuses on alternative energy sources to meet growing demand, the proposed Energy Law would encourage foreign investment in the renewable energy sector by streamlining the approval process. With growing investor interest in alternative energy throughout the world, China’s proposed Energy Law could not be more timely.

In our second article, Rocky Lee, Steve Liu, and Chris Terry address another hot issue for foreign investors. Earlier this year, several state agencies in China issued severe restrictions on foreign investment in companies providing audio-visual content over the Internet. Regulators in China have long been concerned with online broadcasting. However, the threat of increased regulation has not dampened the appeal China-based Internet businesses hold for venture capital and other investors. Technology and media-focused investors will watch closely in the coming months as China’s regulators refine and implement these new rules.

In our third article, Richard Wageman, Stan Abrams, and Belinda Tang examine a new set of regulations that will permit foreign investment in China’s live performance market.

Finally, Matt McConkey, head of our international trade practice in Beijing, along with Cheng Liu and Xiaoming Xie, introduce us to China’s anti-dumping regulations. Most of our readers are already familiar with the US anti-dumping regime and its impact on Chinese and other companies that sell their products in the US market. But many will be surprised to learn that China has its own anti-dumping laws, which can be of equal concern to US companies exporting to China.

We welcome you to contact the authors of these articles, or your
DLA Piper lawyer, for additional information about these legal developments and the ways they will impact your business. If it matters to you, it matters to us.

CHINA’S NEW ENERGY LAW

WOULD EMPHASIZE RENEWABLE SOURCES

by Jeffrey J. Greene, Shanghai

China’s National People’s Congress is expected to consider new legislation governing China’s energy sector (the Proposed Energy Law).

If enacted, the Proposed Energy Law would create a comprehensive energy policy and regulatory scheme governing all energy development, exploitation, and management activities within China.

Based on current drafts of the Proposed Energy Law, it appears that China intends for renewable energy sources to play a very prominent role in a comprehensive energy policy and regulatory scheme.

For our readers, we have written an overview of the Proposed Energy Law. Please read it here.

NEW REGULATIONS FOR INTERNET VIDEO AND OTHER

ONLINE MEDIA

by Rocky Lee, Steven Liu, and Chris Terry, Beijing

China’s new Regulations on the Administration of Internet Audio-Visual Programs (the 2008 Rules) are now in effect, and present heightened enforcement concerns for providers of online audio-video programming in China.

The 2008 Rules assert stronger control over Internet service providers, including prominent video sharing sites, and contain liability provisions that should be of note to investors in online programming providers.

For more information about the 2008 Rules, please read our
overview here.

FOREIGN INVESTORS PERMITTED IN

CHINA’S LIVE PERFORMANCE MARKET

Nine Chinese ministries and commissions, including the National Development and Reform Commission and the Ministry of Culture, have jointly issued the Certain Comments on the Establishment of a Rational Supply System for the Performance Market and the Promotion of the Prosperous Development of the Performance Market (Comments), which will allow foreign investors to invest directly in live performing arts projects in China for the first time.

By opening the live performance market to foreign investment, China expands the permitted scope of foreign investment to include performance projects, such as content production and project operations. The potential beneficiaries are foreign investors who have been eying China’s vast live performance market, and who stand to benefit from the new channels the Comments open up for injecting funds into this flourishing domestic market.

We have prepared a summary of this new policy, which is good news both for foreign investors and for China’s multi-layered live performing arts. Please read it here.

CHINA’S ANTIDUMPING PROCEDURES:

WHAT TO EXPECT, WHAT TO DO

For decades, there have been many cases where Chinese and other Asian manufacturers have been accused of “dumping”1 their products in the US market. While US importers and manufacturers may be well acquainted with the US antidumping regime, they are often less familiar with antidumping laws that exist in foreign countries, including China. As antidumping regimes in all countries may be susceptible to political influences and retaliatory agendas, it is increasingly important for companies engaged in international trade to understand these laws in all markets where they import/distribute their products.

As China grows as an export market for US manufactured goods, the threat of Chinese antidumping actions increases, and it is important for companies to be sensitive to this issue. For our readers, here is an overview of the antidumping investigation process in China and what producers and exporters may do. Please read it here.

1 “Dumping” refers to the practice of exporting products to another country, selling them there at a price below the cost of producing the item or below the price it charges at home.

DLA PIPER IN THE NEWS

DLA PIPER GAINS NEW ACCESS TO CHINA’S OFFICIAL FOREIGN DIRECT INVESTMENT STRATEGIES

DLA Piper has been appointed by the Ministry of Commerce (MOFCOM) of the People’s Republic of China as one of its “preferred law firms,” a designation given to only a dozen firms in all, most of them domestic Chinese firms. The designation came about as a result of work by the firm’s Franchise and Distribution group, both in China and the US. As general counsel to the International Franchise Association (IFA), the firm represented the IFA and its members to assist MOFCOM and other Chinese government agencies in formulating China’s franchise regulations, work that was highly praised by MOFCOM and led to the designation. The work was handled by Richard Wageman, Mark Williams, Xiaoming Xie (all Beijing), Tao Xu (Northern Virginia), and Philip Zeidman (Washington, DC).

In addition, DLA Piper has boosted its China practice with a critical appointment to a senior position in the China Council for International Investment Promotion (the CCIIP), a government-sponsored body under the purview of MOFCOM. Rocky Lee, partner and head of
DLA Piper’s China Venture and Private Equity practice in Beijing, has been appointed the vice chairman of CCIIP.

The CCIIP plays a significant role in directing and coordinating reform with respect to regulatory processes and requirements relating to foreign direct investment in China. This body is often provided the opportunity to review and comment on draft laws and regulations become they become effective. Mr. Lee’s position on the CCIIP, for which he was nominated by MOFCOM and approved by members of the Council, offers DLA Piper a unique position from which to monitor China’s evolving regulatory environment. Fan Zhang, the founding partner of Sequoia Capital China, is the chairman of the CCIIP, and its honorary chair is China’s Vice-Premier Wu Yi.

Mr. Lee’s appointment is the latest achievement by DLA Piper adding value for clients interested in doing business in China. Mr. Lee notes, “This level of access at MOFCOM will be beneficial to clients seeking to make direct investments, acquire companies or assets, and make venture or private equity investments in China.”

He adds, “Our Beijing, Shanghai, and Hong Kong offices each have a full-service foreign direct investment, M&A, and VC/PE practice, enable us to give our clients superior service and reinforcing our seamless service offerings across all three of our Greater China offices.”

Examples of important legal issues now under discussion within the CCIIP include:

  • Renminbi fund formation
  • Foreign investment by venture and private equity firms
  • Overseas listings by Chinese companies on foreign exchanges such as the NASDAQ, London AIM, and HKSE
  • Foreign investors’ M&A activity and the corresponding approval processes

Public commentary on draft regulations and laws in the PRC is a carefully controlled process. Mr. Lee’s appointment reinforces
DLA Piper’s already strong relationships within the Chinese government and investor community.

DLA PIPER WELCOMES

NEW ARRIVALS

Peng Tao, a New York-qualified lawyer with extensive experience in tax issues in the People’s Republic of China, has joined DLA Piper’s Tax practice as Of Counsel. He is well versed not only in tax matters but in China’s corporate laws, focusing his practice on PRC tax and transfer pricing, mergers and acquisitions, foreign direct investment, and general corporate and commercial issues in China. He has assisted numerous clients with their investment projects in China.

Before joining DLA Piper, Mr. Tao worked for two other international law firms in their Beijing and Palo Alto offices. Before he entered private practice, Mr. Tao worked for the Bureau of Legislative Affairs of the State Council of the People’s Republic of China, from 1992 to 1997. His main responsibilities were to draft and review tax and banking laws and regulations that were applicable nationwide.

His contact information:

Peng Tao
peng.tao@dlapiper.com
(212) 335-4932

Ghislain de Mareuil has joined DLA Piper’s Corporate and Finance group in its Paris office as a partner. De Mareuil advises and represents European companies and organizations investing or operating in the People’s Republic of China. Increasingly, he has also been assisting PRC companies doing business in or with the European Union and French-speaking countries.

Prior to practicing law, he worked in France, Japan and Cambodia. After being admitted as one of the laureates to the Paris Bar in 1998, he worked in Paris, Beijing, and Shanghai for two major law firms before joining DLA Piper.

His contact information:

Ghislain de Mareuil
ghislain.demareuil@dlapiper.com
+86 21 50372726

HONORS AND RECOGNITIONS

Josh Wong, of DLA Piper’s Litigation and Regulatory practice, represented DLA Piper when the firm won the prestigious Yorkshire and Humber China Business Award in March. This honor recognizes the firm’s work advising UK companies on their deals and disputes in China. DLA Piper is the first professional services firm to win the award.

Joanna Lavan, of ConnectChina, the company that organized the awards, commented, “The judges felt DLA Piper were worthy winners. Over the past 12 months they have established themselves as the law firm of choice for advice on China and in Josh Wong they have the most renowned lawyer on China matters in the region.”

Mr. Wong, a speaker of Cantonese, English, and Mandarin, is experienced in resolving disputes in the automotive, electronics, food and drink, telecommunications, and oil industries.

Mr. Wong’s contact information:

josh.wong@dlapiper.com
+44 (0)113 369 2717

DLA Piper’s Hong Kong office has been honored by Asia’s foremost legal magazine, Asian Counsel, as Firm of the Year 2007 in the area of Finance/Securities. Winners were selected on the basis of votes and testimonials from more than 260 senior in-house counsels across Asia and the United Arab Emirates.

“On behalf of all the lawyers in our banking team in Hong Kong, I am delighted that we have been given this award. This is a testimony of our continued efforts as trusted advisors to the banking industry over the years,” said Dr. Andrew Wang, partner and head of the Banking practice in Hong Kong, who was formerly the general counsel of the

Alastair da Costa, DLA Piper’s Managing Director, Asia, noted that the award “reflects not only the unremitting efforts of the banking team in Hong Kong, but also demonstrates the seamless cooperation among our offices in the region.”

DLA Piper received honorable mentions for two cross-border transactions at the Asian-Counsel 2007 Awards. In the first transaction, a team led by Liu Wei, Esther Leung, and Henry Wang served as the Hong Kong legal advisors to Bank of Beijing in its proposed IPO. The second transaction honored by Asia-Counsel was the listing of Indochina Capital Vietnam Holdings Limited on the London Stock Exchange, a transaction in which the firm served as US counsel and Vietnamese co-counsel in the US$500 million IPO. That team was led by Minh Dang, Hal Brown, and Matt Adler.

Zero2IPO, a leading independent research firm in China, has awarded DLA Piper the prestigious Lead Venture Legal Advisor Award for the second year in a row. The award, based on total deal volume, dollars invested as measured by deal size, and overall market reputation, draws information from Zero2IPO Group’s annual survey of venture capital firms investing in China. The honor recognizes the many achievements of DLA Piper’s venture capital practice in China and underscores the close working relationship between the firm’s US and China venture practices.

In the fourth quarter of 2007, the newly published Chambers Asia and Pacific Region 2008: A Client’s Guide listed DLA Piper’s China Venture Capital/Private Equity practice in the top tier, also individually naming partner Rocky Lee in the top tier; and Asia Law & Practice ranked DLA Piper the number 1 venture and private equity law firm and Rocky Lee the number 1 venture and private equity lawyer in China. This is the third consecutive year Rocky has received this honor.

DEALS

DLA Piper acted for China Eastsea Business Software Limited on its move from PLUS to AIM, completed on January 24, 2008 — the first listing by a Chinese company on AIM in 2008. China Eastsea provides information technology and business process outsourcing services, IT consulting, and a broad range of project work to clients in the petrochemical, petroleum, power, and telecommunications industries, as well as to ministries, state authorities, municipalities, agencies, and other organisations throughout the Chinese government. John Campion and Nikk Bond (both Birmingham) led the DLA Piper team, with assistance from Huilin Proctor (London) and due diligence carried out by Kevin Jones, Luanne Lu, and Ramon Gu (all Shanghai).

DLA Piper advised Jones Lang LaSalle Incorporated in its acquisition of Sallmanns Holdings Limited, a leading valuation firm in China. Jones Lang LaSalle specializes in real estate valuation sector in Asia Pacific and, through this acquisition, has formed the largest IPO, M&A, and financial valuations firm in Greater China.
DLA Piper prepared all the key documents related to the acquisition of the business, including the senior management's move to the client business. The transaction was led by Brett Stewien with Mabel Lui, Ying Huang, Zeze Chan (all Hong Kong), Kevin Jones (Shanghai), and Fouzia Zafar (Hong Kong).

DLA Piper advised the joint sponsors and underwriters on the US$5.5 billion listing of China Railway Group, the largest construction company in Asia and the third largest construction contractor in the world.

The IPO, which closed in November, was the largest A+H listing (dual listing in Shanghai and Hong Kong) in 2007. The listing also pioneered a new model, known as “first A then H,” in which a PRC’s companies
H shares are listed in Hong Kong, and listing of the A shares in Shanghai closely follows.

The joint sponsors and underwriters included BOCI Asia Limited,
JP Morgan Securities Ltd, UBS AG, and ABN AMRO Rothschild in the Hong Kong Listing. The DLA Piper team was led by Liu Wei and
Esther Leung (both Hong Kong) with support provided by lawyers and senior management in East Palo Alto, Hong Kong, London, Beijing, and Shanghai.

DLA Piper successfully acted for Xingye Copper International Group Limited in completing its initial public offering and listing on the Hong Kong Stock Exchange — a red-chip listing that raised a total of HK$255 million for the company and was the last IPO completed in Hong Kong in 2007. Xingye Copper International Group Company manufactures copper-based alloy plates and strips through its PRC subsidiaries, which together are the second largest producer of high-precision copper plates and strips in the PRC. Liu Wei and Esther Leung (both Hong Kong) led the DLA Piper team, which included lawyers in the Hong Kong and Shanghai offices.

DLA Piper acted as underwriters’ counsel to Merriman Curhan
Ford & Co. and Brean Murray, Carret & Co. in the US$72 million Nasdaq IPO of Fuqi International, a jewelry company based in Shenzhen, China. The offering was six times over-subscribed. This IPO was the first listing in the US by a Mainland Chinese jewelry company. The DLA Piper team was led by Marjorie Adams (New York) and Matt Adler (Seattle and Beijing).

COMING EVENTS

Kellogg Greater China Business Conference — Evanston

On April 19, Feng Xue (Chicago) will participate as a member of the “Government and Law” panel at the Kellogg School of Management Greater China Business Conference in Evanston, Illinois. The conference’s theme is “One World: Removing Barriers to Achieve Global Dreams.” DLA Piper is a sponsor of the event, which more than 300 senior executives and students are expected to attend. For more information, please click here.

International PIPEs Conference 2008 — Hong Kong

The International PIPEs Conference 2008 takes place in Hong Kong April 9 and a number of DLA Piper lawyers will speak and serve as moderators.

Matt Adler (Seattle), the editor of this publication, will moderate a panel entitled “Going Public in Hong Kong, Singapore, London and Other International Exchanges.” Among the participants in that panel will be Dr. Charlie Chan, Hong Kong Small & Medium Enterprise Development Association; Inga Han, NYSE Euronext; Yulanda Tang, PricewaterhouseCoopers; Guang Xun Xu, Nasdaq China; and Jane Zhu, London Stock Exchange.

Rob Weber (Los Angeles) will moderate a panel entitled “Legal and Regulatory Pitfalls of Cross-border Investing: Structuring Agreements to Avoid Them.” Participants in that panel will include Edward Totino
(Los Angeles). Steven Dewhurst (Hong Kong), Stephen Peepels (Singapore), and Mitch Truelock of Roth Capital Partners

The International PIPEs Conference covers finance and law pertaining to going public and raising capital. This year’s conference will focus on China and investing in Asia-based companies.

RECENT EVENTS

International Tax Update: Contract Manufacturing, Cost Sharing, and Chinese Tax and Transfer Pricing

The United States Council Foundation’s “International Tax Update: Contract Manufacturing, Cost Sharing, and Chinese Tax and Transfer Pricing,” a full-day program, was held in late February in DLA Piper’s Silicon Valley offices. The program featured speakers from the private sector and government discussing the latest developments in these areas of law. DLA Piper partner Alan W. Granwell was among the co-chairs of the event.