1. Vivien Chan JP Justice of the Peace Managing Partner of Vivien Chan & Co. CEITAC Arbitrator Notary Public China Appointed Attesting Officer Practical guide for doing business in China Vivien Chan JP Justice of the Peace Managing Partner of Vivien Chan & Co. CEITAC Arbitrator Notary Public China Appointed Attesting Officer VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS HONG KONG BEIJING SHANGHAI

2. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Classic business issues How to deal with :- Core values adjustment Training – Code of Ethics Bureaucratic minefield Lack of Transparency in laws, administrative practices Protectionism

3. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Values Background: Confucianism Cultural Revolution No mainstream religious following Market Economy – the pursuit of material success Sudden relaxation of closed doer policy bring about abundance of opportunities for :education exposure material pursuits

4. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Adjustment of expectations from your work force in China Two true reflections:- The theft law H.K. definition vs. PRC definitions of theft The corporate embezzler vs the petty finger in the till

5. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Solutions Training Corporate Code of Ethnics – a must Check & Balances in financial controls

6. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Bureaucratic Minefields Due process Transparency in laws Administrative practices Tendency of protectionist rulings and decisions

7. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS How to combat protectionism in enforcement Protectionism rife at local government levels Court system, SAIC : controlled by local government Use of provincial/central government enforcement machineries Do no adopt “ the more, the merrier” policy in raids and enforcement strategy

8. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Solutions Given the choice : A) enforce at a superior authority e.g. provincial authority to help in local authority enforcement e.g. Guangdong provincial SAIC vs Hu zhou SAIC or B) an authority of stature e.g. sue in place of sale rather than place of manufacture of counterfeit goods - former can be in larger cities - latter usually in remote provinces/villages

9. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS How can Hong Kong help you in China Post CEPA Hong Kong How does CEPA Hong Kong compare with 1)PRC Free Trade Zones 2)WFOE as a business vehicles in China ? How can you make all or any of the above options work for you ?

10. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Major reason for choosing FTZs To be able to import and distribute within China through : 1.Direct dealings with wholesalers – who can visit your own WFOE offices in Free Trade Zone 2.To better manage your local distributor Therefore FTZs are for distributing & trading of IMPORTED goods from home countries of foreign investors into PRC domestic market

11. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS FTZ not relevant for FIE’S manufacturers 1. Selling into the domestic market or 2.Exporting to a foreign market /other markets(as products of a global brand.)

12. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Major reasons for choosing post-CEPA Hong Kong Existence of favourable business environment -  Strong emphasize on intellectual properties protection  Strong quality control  Free flow of foreign exchange  Attractive tax system: dividend and capital gains are not taxed  Credible legal system

13. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS post CEPA Hong Kong: Easy access to PRC market  ‘Goods of Hong Kong origin’ can be exported to PRC tariff free. tariff free. For goods from FTZ to non-FTZ parts of China, customs For goods from FTZ to non-FTZ parts of China, customs duties have to be paid. duties have to be paid.  ‘Hong Kong service suppliers’ will be allowed to provide wholesale trade services in any part of PRC and retailing services on regional and county city level in Guangdong province. They are also permitted to set up wholly owned external trading companies. They are also permitted to set up wholly owned external trading companies.

14. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Post CEPA Hong Kong : 1.Use Hong Kong as a profit centre (low and simple taxation structure, rule of law) to manufacture and import into PRC but beware of transfer pricing rules in PRC 2.Use of a Hong Kong legal corporate entity for entry into service industries which until now is not open to a WFOE e.g. securities and insurance

15. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS If sole purpose is to use PRC as a source of low cost labour manufacturing base for eventual export of goods : - you can a) use a EJV, CJV or WFOE inside PRC b) Post CEPA Hong Kong will NOT be of use as labour costs is not competitive with Mainland China c) FTZs of no use as your EJV, CJV and WFOE may have right of domestic sale within PRC

16. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Protection of your intellectual property rights in China What is the state of the laws and effectiveness of its enforcement regime ?

17. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Which is a better option ? The IP specialised courts/People’s court or The SAIC – if so : district or provincial or central ? or Public Security Bureau or The Technical Supervision Bureau or The Hong Kong Customs or The Hong Kong Courts

18. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS The IP specialised court or People’s court 1.Judicial review from appeal boards of National Patent and Trademark office,Technical Supervision Bureau,Public bureau, Chinese customs 2. Infringement cases

19. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS SAIC National Provincial District Administrative raids

20. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Public Security Bureau For “serious” cases “serious”ness is not defined in the law

21. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS The Technical Supervision Bureau For inferior and sub standard goods Product Quality Law Unfair Competition Law

22. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS The Hong Kong Customs Transhipment of counterfeit goods can be raided by Hong Kong Customs in Hong Kong : Affidavit and evidence of infringement required Swift low cost and efficient administrative remedy No damages awarded Confiscation of counterfeit goods OKI case

23. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Use of Hong Kong Courts Injunction ex-parte Interim and effective remedy nexus

24. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Strategy : 1. Do not practice “ The more the merrier “ in enforcement raids 2. Timely housekeeping registration of your trademarks/patent/ copyright

25. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Perspective in context of operating in a developing country Counterfeit goods are to be expected in a developing country and must be taken in its perspective A “minor irritant” as people who buy counterfeit goods are not and should not be target consumer

26. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS Solutions Retain the same price point as in other major markets impressing the consumer that “what we offer to you is the same”, therefore there must be : - (a) minimum price arrangement (b) anti-dumping provisions upon terminations and/or breach

27. VIVIEN CHAN & CO. SOLICITORS & NOTARIES, AGENTS FOR TRADE MARKS & PATENTS THANK YOU