Summer 2008

CHINESE ANTI-MONOPOLY LAW
TAKES EFFECT IN AUGUST

August will be an eventful month for the People’s Republic of China. Not only will Beijing host the 2008 Summer Olympic Games, but its first comprehensive antitrust law will go into effect. China’s antitrust law, titled the Anti-Monopoly Law of the People’s Republic of China, becomes effective August 1. With this looming deadline, companies should already be making preparations to ensure that they are in compliance.

China, with its population exceeding 1.2 billion people, has the second largest and fastest growing economy in the world. For any international company, China provides a high ceiling for growth and a plethora of business opportunities. Given the sheer size of the country’s economy and the rate of economic growth, it is surprising that China enacted its first comprehensive antitrust law only recently, in August 2007. The Anti-Monopoly Law, as written, has been applauded by the international community.

For our readers, we have prepared a brief summary of the recent developments that will affect the way this new law will be implemented and enforced. Please read it here.

Working with Cheng Liu of our Beijing office, Mr. Hittinger and Mr. Huh also have prepared a comprehensive review of the new law, which may be
found here.

An unofficial translation of the law, prepared by Mr. Liu, may be found here.

An earlier version of this article appeared in the Philadelphia Legal Intelligencer in May 2008.

CAN YOU AFFORD TO BE DIRTY?


CHINA’S NEW WATER POLLUTION POLICY TO PUNISH COMPANY OFFICIALS WITH HEFTY FINES

China’s revised Water Pollution Prevention and Control Law (the
New Law) is now in effect.

The New Law, passed by the National People’s Congress this spring, is a major development in the country’s battle against water pollution. It is designed to tackle the increasingly critical problems posed by water pollution, which are threatening not only public health but also the country’s social stability and economic growth.

The law introduces new provisions for governmental supervision and a system of severe penalties. The law also establishes an accountability system for government environmental officials.

For our readers, we have prepared an overview of the New Law and the major changes it implements. Please read it here.

TEN TIPS FOR BUYING HOTELS IN CHINA

Hotels in China’s booming cities have been snapped up by hundreds of investors. What are the most important things you need to know if you want to buy a hotel in China?

Mark R. Williams is based in Beijing and is the managing partner of our Beijing office. He has over 15 years of experience practicing law, including in the hotel and hospitality industries. For readers interested in purchasing hotels in China, he has prepared ten essential tips to understand before beginning the process. Find information about these and other essential points here.

FOREIGN ENTERPRISES WITH CROSS-DISTRICT BRANCHES NOTE

NEW CHINESE RULES ON FILING INCOME TAX

Significantly changing tax filing rules applicable to foreign investment enterprises (FIEs), China’s State Administration of Taxation (SAT) recently issued the Provisional Rules of Income Tax Collection and Administration on Consolidated Filing for Enterprise with Cross-District Operations (Guo Shui Fa [2008] No. 28) (Notice 28).

Notice 28 was released on March 10, going into effect retroactively to January 1, 2008. Intended to address the allocation of tax revenues among central and local governments, it provides enterprises with operational tax filing guidance.

For our readers, we have prepared a summary of the major points of Notice 28 and the potential impact it may have on FIEs.

Please read it here.

This article originally appeared in DLA Piper’s International Tax Newsletter.

DLA PIPER IN THE NEWS


UPCOMING EVENTS

China’s New Business Income Tax, plus other topics

Alan Granwell, partner, and Peng Tao, Of Counsel, will be among the speakers at this live teleconference Thursday, August 7 from 1 PM to 2:40 PM EST, which will cover several topics critical to companies doing business—or considering doing business—in China. Topics include the terms of the Chinese enterprise income tax and its associated circulars; particular dispute resolution issues; and the impact of the IRS proposed contract manufacturing regulations for US companies in China.

For more information and to sign up, please click here.

DEALS

* DLA Piper provided legal counsel to the Heckmann Corporation, based in Palm Desert, California, in its $625 million acquisition of China Water and Drinks Inc. The deal was the first large SPAC (special purpose acquisition company) acquisition of a Chinese target. SPACs are investment vehicles with no operations, which go public with the intention of merging with or acquiring a company.

The deal was led by Steven Pidgeon (Phoenix) and the team included David Lewis, Jeff Meyerson, David Pendergast (all Phoenix);
Neil Balmert (San Diego) on tax matters; and Stephen Peepels (Singapore and Hong Kong) and Keith Yuan (Hong Kong) on PRC-related matters.

* China Exim Bank has retained DLA Piper regarding the proposed construction financing of the Chicago Shangri-La Hotel complex. The bank, which is owned by China’s central government, has been a client for five years, and this is the first project for the bank involving a US office. The team includes Roy Chan (Shanghai), Adam Berkoff, Jeff Owen (both Chicago) and Mark Williams (Beijing).

* DLA Piper has assisted online advertising network AdChina with international tax matters, in particular an anti-inversion analysis and structuring for a Delaware company that is being reincorporated to the Cayman Islands. Sibel Owji (San Francisco), Ben Olivas and
Alison Maxwell (both East Palo Alto) worked on this project. Steven Liu (Beijing) heads the representation of the client

* Advised by DLA Piper, Hong Kong and Shanghai-listed China Merchants Bank has acquired a 53.12 percent controlling stake in Hong Kong-listed Wing Lung Bank for HK$19.3 billion. The deal includes a potential general offer for the remaining shares in Wing Lung Bank for an additional HK$17 billion. China Merchants Bank succeeded in sealing the deal after a three-month bidding process involving bidders that included the Insurance Corporation of British Columbia, the Bank of Communications and a multitude of leading investment banks and professional advisers. Liu Wei and Mabel Lui assisted by Jeffrey Mak and Peter Kwon (all Hong Kong) led the team.

* Bank of Beijing has opened a branch in Hong Kong–the first time a PRC city bank has applied to set up a branch outside Mainland China–and DLA Piper advised the bank in the opening. Liu Wei, assisted by Peter Kwon (both Hong Kong), led the team and advised on the application procedures and documents to the Hong Kong Monetary Authority. Liu Wei, Esther Leung, Jeffrey Mak (all Hong Kong) and Henry Wang (Beijing) advised it on its proposed A+H share listing and completed the A share listing last year. Because of an outstanding relationship with the bank, the firm was appointed the bank’s annual retained legal advisor this year.

* DLA Piper represented Matrix Partners China as its counsel in a Series A financing of Yuanpei Language Service, a leading translation service based in Beijing. DLA Piper designed the deal structure (both onshore and offshore) and prepared all documents, including SPA, SHA, restated M&A, convertible note, warrant, restructuring documents and other ancillary documents for the transaction. Steven Liu, He Wei and Zhang Lin Lin (all Beijing) handled the work.

* DLA Piper represented the principal shareholder in the sale of
4.5 percent of China Distance Education Holdings Limited, a pre-IPO company with one of the largest distance learning business operations in the PRC. Steven Liu and He Wei (both Beijing) handled the work.

* DLA Piper represented Baird Capital Partners Asia, a China-focused growth equity fund that provides capital to companies with substantial operations and growth opportunities in Greater China, in its investment in Series A preferred stock of Frontage Laboratories, a contract research organization with facilities outside Philadelphia and in Shanghai. The investment was the fund’s first transaction. Andrew McCune and Leah Brownlee (both Chicago) represented Baird in drafting and negotiating the transaction documentation; Knox Bell
(San Diego) assisted with CRO-related issues; Louis Meng and Luanne Lu (both Shanghai) assisted in China.

* DLA Piper is representing AIG investments, AIG’s private equity arm, in its investment matters in China, including Passive Foreign Investment Company taxation, Controlled Foreign Corporation rules and ERISA concerns. Providing representation are Rocky Lee (Beijing) and Tony Hugg (Boston).

HONORS AND RECOGNITIONS

* For the first half of 2008, DLA Piper’s China practice ranked 1st in the mergermarket league tables, by volume of transactions.

* DLA Piper has been named 2008 Best Counselor of the Year by TopCapital, China’s leading investment and venture capital publication. TopCapital also honored the firm for its Capital Markets and Private Equity/Venture Capital practices in China.

* DLA Piper was named Asia Best Legal Firm, Corporate Practice 2008 at the Corporate Governance Asia Recognition Awards. This is the third year in a row that DLA Piper has won this award. Corporate Governance Asia, published quarterly, is the region’s most authoritative journal on corporate governance.

* At the Asia Pacific Real Estate Awards and Asia Trends 2008 conference in Shanghai, DLA Piper was named Asia Pacific Real Estate Law Firm of the Year. The honor recognizes DLA Piper’s real estate experience as unsurpassed in the region. DLA Piper’s Real Estate group is the world’s largest and is consistently top-ranked globally, with over 600 lawyers.

The firm was voted first place by a jury of leading market professionals on the basis of its market contribution, quality of customer service, market innovation, commercial success, market penetration and market depth.

COMMENTARY

* Mike Pullen (London) was quoted by the Bloomberg news service commenting on China joining a global network of antitrust regulators, the International Competition Network. The ICN is comprised of 74 antitrust agencies around the world. China’s entry into the ICN may eventually make it easier for companies outside of China to acquire businesses in the Asian nation and vice-versa.

Pullen noted, “It’s useful that antitrust authorities talk to each other as you get a coordinated approach” in the scrutiny of mergers and acquisitions. But, he added, another consequence may be additional hurdles for businesses: “It’s a double-edged sword because you get coordinated investigations too.”

* Rocky Lee (Beijing) was interviewed on trends in the telecom industry, by Asia Legal Business.

* AsiaLaw quoted Christopher Clarke (Hong Kong) about sovereign wealth fund development trends in Asia.

ADVICE AND INSIGHT

* Richard Wageman (Beijing) is among the leading professionals whose advice and insight is incorporated into The Globalized Lawyer: Secrets to Managing Outsourcing, Joint Ventures and Other Cross-Border Transactions, a book by David Steiger that the ABA will publish in early August.

The ABA describes Steiger’s book as “a practical, step-by-step guide on how to prepare for, negotiate, and implement a new cross-border operation, examining both legal and business considerations... Written in an approachable style, it is an excellent tool for attorneys and executives who are new to the international arena.” For more information about The Globalized Lawyer, please click here.

RECENT EVENTS

The Rising Cost of Doing Business in China
On June 24, the Chicago office of DLA Piper and Deloitte co-hosted “The Rising Cost of Doing Business in China.” The conference addressed implications for companies doing business in China of new tax and employment legislation as well as the expected effects of pending antitrust legislation. Our Chicago-based partner Feng Xue was among the presenters at this well-attended event.

China’s New Antitrust Law
Carl Hittinger presented an overview of China’s newly enacted and first antitrust law at an Association of Corporate Counsel meeting on “Critical Developments in China that Impact United States Business: What In-House Counsel Need to Know.” (Carl and John Huh, both based in Philadelphia, also discuss the importance of the new law in this issue of China Trends.) The ACC program was held in early May in conjunction with Temple University Beasley School of Law’s China Program.

Business Law in China
Richard Wageman has been very actively discussing essential aspects of business law in China in many public forums. In April alone, he presented “A Review of China’s Administrative Structures and Laws/Regulations” to the China Advertising Forum in Shanghai and gave an overview of China’s Franchise Regulations to the China Franchise Summit 2008 in Beijing. He also was on the program faculty of an American Bar Association teleconference/webcast on “Franchising in China: How to Do It Under the New Regulations.”

Legal Environments in China and Chile
Rocky Lee spoke at the China-Chile Trade Summit, on “Differences in the Legal Environment between China and Chile.” He addressed the Chilean Foreign Trade Ministry, the Chilean Embassy, a large Chilean trade delegation, and the Chinese government, ministries, and trade delegation. The one-day summit was attended by Chilean President Michelle Bachelet Jeria and the PRC Ministry of Commerce Vice Minister (Ms) XiuHong Ma. Several trade pacts were signed at the close of the summit, which was televised nationally in China.

Real Estate Investment World China Conference
Brad Markoff (Raleigh), Richard Wageman and Maria Ma (both Beijing) presented at the Real Estate Investment World China 2008 conference in Shanghai, Greater China’s most established real estate investment and capital management forum. Mr. Markoff spoke on “Mitigating Regulatory Risks in Deal Structuring in China: Countering the Complexities of Real Estate Transactions and Getting the Best Terms.” Mr. Wageman chaired and presented at the DLA Piper Masterclass on Real Estate Issues. His presentation was on “New Real Estate Rules and Policies.” Ms. Ma discussed “Real Estate Risks and Strategies” in the Masterclass.

WANT MORE CHINA TRENDS?

Would you like to know more? Business law in China is evolving very rapidly. We explore exciting new legal developments and provide essential information in every issue of China Trends. Please read our Winter 2008 issue here, and our Spring 2008 issue here.

Questions about doing business in China? We have prepared a brochure that provides the basics about business in China. Click here to go to the PDF. And please know that any member of our editorial board is interested in receiving any comments or questions you may have about China Trends. To contact them, click on their names in the sidebar on the right.