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China Laws Every Start-up Should Know About

China Laws Every Start-up Should Know About

China is the new hotspot for businesses and Beijing is its shiniest jewel to date. It’s no wonder, too. After all, the government has been hard at work wooing foreign firms with tax cuts and incentives.

As a result, small companies reportedly saved 48.6 billion yuan in the first half of 2015 alone. 

 

If the draw is too good to resist and you want to take your start-up to China, here are a few rules and regulations to take note of. 

 

Business registration

 

Foreign companies in China need to register under a China entity: Wholly Foreign Owned Entity (WFOE), Joint Venture or Rep Office. This involves government approval. Without the entities, you cannot have access to the Chinese market, can be fined heavily and may even have to cease operations.


Intellectual Property protection

 

When doing business in China (or anywhere), file your Intellectual Property (IP). Without that, you have no formal protection for your ideas. Conduct an audit to determine your IP assets and their risks, and assign appropriate levels of protection to them.

 

Once the audit is completed, draw up a China-centric Non-disclosure, Non-use and Non-circumvention (NNN) agreement to protect your IP. The typical US Non-disclosure Agreement (NDA) is not valid in China. The China NNN agreement needs to specify the amount of compensation for every breach to make it enforceable.


Manufacturing contracts

 

If you are manufacturing products in a Chinese company, you need a Chinese-language manufacturing contract that clearly defines a defect and states how much compensation is expected from the manufacturer. Defect rates in China tend to be very high. So, state everything clearly to ensure you get compensated. 


Labour laws

 

In recent years, China has made many changes to its labour laws to protect its workers. Here are six things about the labour laws you need to be aware of:

 

1. China is not an employment-at-will jurisdiction. Termination of a China-based employee requires a cause.

 

The only time you can terminate without cause is if it is a mass layoff. This is defined as firing 20 employees or more, or over 10% of your workforce. There are strict guidelines ensuring that this provision is not abused including notifying former employees and giving them preference in hiring if you want to bring in new employees within six months of the mass layoff.

 

2. Probation periods are illegal for part-time employees. For full-time employees, they are allowed only if the term of employment is three years or longer. The maximum probation period is six months. Termination during probation also requires cause.

 

3. Employees can only work eight hours a day, 40 hours a week. Anything beyond this is considered overtime under Chinese laws. Even if an employee works nine hours on a particular day, but within the 40-hour-a-week maximum, the company still needs to pay overtime. In addition, it’s illegal to make an employee work more than five additional hours per work day.

 

4. Every worker needs a written employment contract within the first month of his employment. Fail to do that and you have to pay him twice his month’s pay for every month he works without a contract until he’s given one. The contract also needs to be in Chinese.

 

5. Part-time employees are under a 15-day payment cycle. Pay your part-timer late and you open yourself up to administrative fines and other litigation risks.

 

6. The new work permit system for foreigners now combines the foreign expert work license and the foreigner employment license in a single document called the foreigner work license notice. Under this new online system, foreign workers are divided into three categories: A for high level talent, B for professional personnel, and C for foreigners who are non-technical or service workers. "A" category, high-level talents no longer need to submit hard copies of their documents and have a longer permissible working period of five years.


There are, of course, more rules and regulations but these basics are what you need to get right to get started in China. If it helps, think SPEW:
Specificity is important for all contracts
Protect your intellectual property
register for a business Entity and
put your Workers first.
 

 

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