Asia Media Relations Update March 2010

Transcription

1 Asia Media Relations Update March 2010 In the News People and places Asia IP, February 2010 Deals of the year Asian Counsel, February 2010 Deals of the year: Honourable mentions Asian Counsel, February 2010 People and firms International Financial Law Review, March 2010 Tengzhong loses Hummer: Plenty of lessons for foreign companies China Law & Practice, March 2010 New litigation partner for Orrick in Hong Kong China Law & Practice, March 2010 Orrick hires Baker's Shyu as lawyers target China finance boom Bloomberg, March 3, 2010 Orrick, Herrington & Sutcliffe LLP has bolstered its China practice with the appointment of US securities expert Allen Shyu Asian Counsel Weekly Briefing, March 4, 2010 People The Lawyer, March 8, 2010 Ajinomoto's lysine patents invalid: Fed. Circ. Appellate Law360, March 8, 2010 Asia awards: M&A International Financial Law Review, March 9, 2010 Asia awards: Structured finance International Financial Law Review, March 9, 2010 Orrick hires U.S. securities partner for China corporate group 奥 睿 为 中 国 团 队 增 加 证 券 合 伙 人 Legalweek.cn, March 9, 2010 Partner moves & promotions Asia Legal Blog, March 10, 2010 Orrick hires in Hong Kong International Financial Law Review, March 12,

2 Business sours on China - Foreign executives say Beijing creates fresh barriers; broadsides, patent rules The Wall Street Journal, March 14, 2010 On the move South China Morning Post, March 15, 2010 US securities hire fortifies Orrick s China team China Law & Practice, March 17, 2010 Redirection of users 'just a little trick' Financial Times, March 24, Placed Articles IP Owners Cheer Changes to China Customs' Enforcement By Neal Stender, Xiang Wang, Carol Yan, Joel Stark Asia IP, February 2010 Labour and Employment Law Basics for Doing Business in China By Elizabeth Cole, Michael Delikat IBA's Employment & Industrial Relations Law, February

3 People and places Asia IP February

4 Deals of the year Asian Counsel February

5 5

6 Deals of the year: Honourable mentions Asian Counsel February

7 People and firms International Financial Law Review March

8 Tengzhong loses Hummer: Plenty of lessons for foreign companies China Law & Practice March

9 9

10 New litigation partner for Orrick in Hong Kong China Law & Practice March

11 Orrick hires Baker's Shyu as lawyers target China finance boom Bloomberg March 3, 2010 By Andrea Tan and Debra Mao Orrick, Herrington & Sutcliffe LLP, a U.S. law firm that advised on eight Hong Kong initial share sales last year, hired Baker & McKenzie LLP's Allen Shyu to tap what it called one of the world's "leading financial markets." Shyu joins Orrick's capital markets group in Hong Kong as the fifth partner in a 32-member team, said Michelle Taylor, the head of the firm's Hong Kong, Shanghai and Beijing offices. The San Francisco-based firm has hired 12 other lawyers for China since August. International law firms are expanding in Hong Kong, where companies last year raised HK$248.2 billion ($32 billion) through IPOs, the most of any exchange. New York-based Shearman & Sterling LLP and Weil Gotshal & Manges LLP are starting Hong Kong practices to target merger and private equity work. "Hong Kong, because of the Chinese companies listing here, has become an essential part of a viable global financial markets practice," said Christopher Stephens, Orrick's Asia managing partner. "You need London and New York, but they're not sufficient without China." The firm's other recent hires include Niping Wu in Beijing from Cleary Gottlieb Steen & Hamilton LLP, and Phoebus Chu from Paul, Hastings, Janofsky & Walker LLP. Hong Kong Hiring Law firms opened new offices in Hong Kong last year even as some fired staff members at the height of the global financial crisis. Boston-based Goodwin Procter LLP added Loretta Lau as corporate finance partner last month. Chicago-based Baker & McKenzie, which cut 11 percent of its China staff in 2009, said last month it's now encouraged by business in the region. David Fleming, the firm's managing partner for China, said today its capital markets team is one of the largest in Hong Kong. Shyu was part of the team at Baker & McKenzie that advised Sinopharm Group Co., China's biggest drug distributor, in its HK$8.73 billion initial public offering in September, according to the law firm's Web site. He earned a political science degree from the National Taiwan University and started his law career with Taipei-based Lee & Li. He has more than a decade of experience advising issuers from Taiwan, China and Hong Kong in their share sales, according to Orrick. China was the world's second-largest IPO market after Hong Kong last year, with about $27.5 billion raised, according to Bloomberg data. It was followed by NYSE Euronext. Record IPOs 11

12 Initial sales in Hong Kong may raise a record HK$370 billion this year, according to a December projection by Ernst & Young LLP. The previous peak was HK$319.5 billion in 2006, according to Bloomberg data. The market slowed this year, with three of the six companies that went public in 2010 trading below their IPO prices as the benchmark Hang Seng Index slipped 4.2 percent, according to data compiled by Bloomberg. United Co. Rusal Plc, the world's largest aluminum producer, slumped 18 percent since its debut. Rusal, controlled by Russian billionaire Oleg Deripaska, raised $2.2 billion in January, selling shares at HK$10.80 each. At least three companies -- including a Chinese unit of Wilmar International Ltd., the world's biggest palm oil trader; Chinese automobile maker Zhongsheng Group Holdings Ltd.; and Sijia Group Co. -- shelved plans for their initial share sales in Hong Kong this year. "Will the Hong Kong IPO window close in the next few months or pick up?" Stephens said. "It's hard to predict but that is a less important issue for us because this is a long- term investment and we're committed to this market." 12

13 Orrick, Herrington & Sutcliffe LLP has bolstered its China practice with the appointment of US securities expert Allen Shyu Asian Counsel Weekly Briefing March 4, 2010 Orrick, Herrington & Sutcliffe LLP has bolstered its China practice with the appointment of US securities expert Allen Shyu as partner in the firm s China Corporate Group. Residing in Hong Kong, Shyu s practice will continue to focus on international securities offerings including debt and equity securities, US and Hong Kong IPOs, private placements and cross-border M&A transactions. Having began his legal career with Taiwanese law firm Lee & Li in its Financing & Capital Markets department, he moved to Baker & McKenzie in Hong Kong in 2000, where he worked in that firm's US Securities Group covering the Asia Pacific region and became a partner in With more than one decade of experience in representing issuers from Taiwan, China and Hong Kong in their US and global offerings, Shyu also holds a Masters in Political Science and a JD from the University of Detroit Mercy in Michigan. He is qualified to practice in the US and has been a member of the Illinois a nd Indiana states bar associations since

14 People The Lawyer March 8, 2010 Orrick Herrington & Sutcliffe has announced the appointment of partner Michelle Taylor as the firm's office leader in China. Based in Hong Kong, Taylor has assumed responsibility for overseeing the management and administration of the firm's three offices in the country in Beijing, Hong Kong and Shanghai. Taylor joined Orrick's Hong Kong office as a partner and head of the firm's Asia financial markets practice in

15 Ajinomoto's lysine patents invalid: Fed. Circ. Appellate Law360 March 08, 2010 By Leigh Kamping-Carder Ajinomoto Co. Inc. has lost an appeal of a U.S. International Trade Commission decision finding the Japanese food additives company failed to disclose key information related to its method for making a dietary supplement for livestock, rendering two of its patents invalid. The U.S. Court of Appeals for the Federal Circuit decided Monday that Ajinomoto had violated the best mode requirement of U.S. patent law, which requires inventors to disclose the preferred embodiment, as well as important properties, of their inventions. The ruling is an unfortunate result for Ajinomoto, which had petitioned the ITC for a Section 337 investigation in 2006, claiming the sale of certain feed products in the U.S. infringed U.S. Patent Numbers 5,827,698 and 6,040,160. The ITC launched an inquiry into imports of feed products containing lysine, an essential amino acid that has spawned a "billion-dollar, worldwide market," but the commission ultimately determined that no Section 337 violations had taken place due to the invalidity of the patents, the opinion said. In a unanimous opinion, Judges Alan D. Lourie, Pauline Newman and Richard Linn affirmed the ITC determination. "Infringement requires all claim limitations to be present, not just those that distinguish the claim from the prior art," the ruling said. "So too with the best mode requirement, which applies to the invention claimed, with all its limitations, not just the novel ones." The patents cover an improved method for producing L-lysine, an essential amino acid, through genetically engineered Escherichia bacteria. According to the opinion, Ajinomoto's scientists introduced two mutant genes into strains of E. coli that inhibit the bacteria from breaking down its lysine and cause it to produce more lysine than it naturally would. Although both patents disclose E. coli host strains on which to practice the invention, they fail to reveal the exact or best strains for lysine production, the ruling said. Ajinomoto did not dispute that it had withheld the best host strains, but the company argued that the ITC had mistakenly expanded the best mode requirement to cover innovations beyond the scope of the patents, the opinion said. The Federal Circuit, however, found that the patents cover a method for producing lysine including a culture medium, the genetically modified E. coli bacteria and a carbon source. This means that the optimal host strains are part of the invention and must be made public, the court ruled. "Ajinomoto s undisputed preference for cultivating a particular bacterium constituted a best mode of carrying out the claimed invention, regardless whether the mutations could be used in other bacteria, and thus that preferred bacterium had to be disclosed," the opinion said. 15

16 In April 2006, Ajinomoto filed its complaint in the ITC, accusing Global Bio-Chem Technology Group Co. Ltd., Changchun Baocheng Bio-Chem Development Co. Ltd. and various affiliates of infringing the patents-in-suit. The ITC's administrative law judge determined that Ajinomoto's omissions invalidated the patents' asserted claims. The ALJ also concluded that "fictitious data" the inventors submitted established both the materiality and intent to deceive required for a finding of inequitable conduct. Ajinomoto brought its appeal under the Administrative Procedure Act but did not specifically challenge the ruling on inequitable conduct, the opinion said. Neither an attorney for Ajinomoto nor a representative for the ITC returned calls seeking comment Monday afternoon. The patents-in-suit are U.S. Patent Numbers 5,827,698, issued in October 1998 and titled "Lysine decarboxylase gene and method of producing l-lysine"; and 6,040,160, issued in March 2000 and titled "Method of producing L-lysine by fermentation." Ajinomoto is represented in the matter by Orrick Herrington & Sutcliffe LLP. Attorneys at the ITC represented the commission. The respondents, who appeared as intervenors in the appeal, are represented in the matter by Foley Hoag LLP, Adduci Mastriani & Schaumberg LLP and East Associates Law Firm. The case is Ajinomoto Co. Inc. et al. v. International Trade Commission, case number , in the U.S. Court of Appeals for the Federal Circuit. The 337 investigation is Certain L-Lysine Feed Products, Their Methods of Production and Genetic Constructs for Production, case number 337-TA-571, in the U.S. International Trade Commission. 16

17 Asia awards: M&A International Financial Law Review March 9, 2010 Nominated: ebay/gmarket This transaction saw consolidation in the online market space with ebay buying Korean Gmarket for $1.2 billion in June Although Gmarket has American Depositary Shares listed in the US and is not listed in Korea, the deal raised some interesting conflicts between US and Korean law. ebay's tender offer was not subject to Korean takeover rules but some holders of Gmarket's shares were in Korea so there needed to be a separate tender offer in Korea. Disclosure had to be translated into Korean to ensure that all shareholder were provided with the same information. The companies also had to convince Korea's fair trade regulator that the transaction would be anti-competitive. Despite a combined market share of over 90%, the merger was approved prior to signing after the regulators were convinced that the market in which the companies operate is so flexible that market entry was not limited. Cooley Godward Kronish ebay Kim & Chang ebay Orrick Herrington & Sutcliffe Gmarket Hwang Mok Park PC Gmarket, special committee of independent directors Pillsbury Winthrop Shaw Pittman - Gmarket, special committee of independent directors DLA Piper Cowen & Co. Bae Kim & Lee Interpark Corporation Wilson Sonsini Goodrich & Rosati Interpark Corporation O'Melveny & Myers Yahoo! 17

18 Asia awards: Structured finance International Financial Law Review March 9, 2010 Nominated: Asiana Airlines Ticket Receivables As global demand for structured projects ground to a halt last year, issuance in Korea continued, albeit at a slower rate. New deals continued to innovate as Asiana Airlines' $86 million securitization showed in June. This transaction securitized the airline's ticket receivables through a complicated structure under which the receivables were transferred to a trust that then issued two investor certificates and one seller certificate. Each investor certificate was sold to an onshore SPV, which then issued a bond to an offshore SPV and entered into a loan-esque contract with investors, instead of issuing two common asset-backed notes. This attracted a different class of investors that was happy to trade through transfers rather than a tangible piece of paper. Anderson Mori & Tomotsune Deutsche Bank Blake Cassels & Graydon Deutsche Bank O'Melveny & Myers Deutsche Bank and DB Trustees Shin & Kim Deutsche Bank Horizon Law Group Industrial Bank of Korea Orrick Herrington & Sutcliffe Industrial Bank of Korea Walkers Deutsche Bank Nominated: Structured Finance Team of the Year Orrick Herrington & Sutcliffe Orrick has one of the most active securitization teams in Asia-Pacific. This year the firm picked up work from Korea, getting mandates from Industrial Bank of Korea the credit facility provider on the securitization of Asiana Airlines' ticket receivables, for example, in June. The firm also represented the arrangers on Shinhan Bank's RMBS deal in September. This was the only RMBS deal out of Korea in

19 Orrick hires U.S. Securities Partner for China Corporate Group 奥睿为中国团队增加证券合伙人 Legalweek.cn March 9, 2010 奥 睿.宣布 合伙人 Allen Shyu 将加入事务所中国业务团队 Shyu 的擅长领域是国际证券发 行 包括债券和股票的发行 美国和香港的 IPO 私募股权和跨境并购等 Shyu 在证券领域有超过十年的执业经验 曾经为台湾 大陆和香港的企业以及投资银行 券 商 风投和私募在美国上市和全球发行中提供法律服务 他将于事务所的美国 香港团队以及 资本市场和公司业务团队紧密合作 Shyu 本人如 是说 奥睿. 的美国证券和并购业务与奥睿. 仔中国公司业务市场的领导地位相 互协调 事务所对于中国和亚洲业务一如既往的投入也是我加入这个团队的原因之一 有关 Allen Shyu 教育背景 法学博士 University of Detroit Mercy School of Law, 1997 政治学硕士 University of Detroit Mercy 政治学学士 台湾国立 大学, 1990 职业资格 伊利诺伊州 印第安纳州 19

20 Partner moves & promotions Asia Legal Blog March 10, 2010 By Shunkou Kinoshita Orrick, Herrington & Sutcliffe LLP has appointed US securities expert Allen Shyu as Hong Kong partner in the firm s China Corporate Group. Shyu will still focus on international securities offerings including debt and equity securities, US and Hong Kong IPOs, private placements and cross-border M&A transactions. He started off his law career at a Taiwanese local firm and then moved to Baker & McKenzie s Hong Kong office in 2000 where he was an associate in the firm s US Securities Group covering the Asia Pacific region. He became a partner at Baker & McKenzie in 2006 before moving to Orrick. 20

21 Orrick hires in Hong Kong International Financial Law Review March 12, 2010 By Rachel Evans Orrick, Herrington & Sutcliffe has boosted its Asian corporate team with a new partner in Hong Kong. Allen Shyu joins the firm from Baker & McKenzie where he specialized in international securities offerings, Hong Kong and US initial public offerings, and cross-border M&A work. 21

22 Business sours on China - Foreign executives say Beijing creates fresh barriers; broadsides, patent rules The Wall Street Journal March 14, 2010 By Andrew Browne and Jason Dean China's relationship with foreign companies is starting to sour, as tougher government policies and intensifying domestic competition combine to make one of the world's most important markets less friendly to multinationals. Interviews with executives, lawyers, and consultants with long experience in China point to developments they say are making it much harder for many foreign companies to succeed. They say the changes suggest Beijing is reassessing China's long-standing emphasis on opening its economy to foreign business epitomized by the changes it made to join the World Trade Organization in 2001 and tilting toward promoting dominant state companies. In the latest broadside against foreign firms, authorities in a wealthy province near Shanghai on Tuesday assailed the quality of luxury clothing brands from the West, including Hermès, Hugo Boss, Tommy Hilfiger, Versace and Dolce & Gabbana. AFP/Getty Images The Chinese BYD E6 electric car on display in Detroit in January; China aims to lift its share of the domestic car market above 50% by Next week, the American Chamber of Commerce in China is coming out with a new survey of its members that is expected to document a downturn in sentiment. Technology executives say they are highly concerned about government procurement rules issued late last year that would favor local suppliers who have "indigenous innovation." The rules, if implemented, could limit foreign access to tens of billions of dollars in contracts for computers, telecommunications gear, office equipment and other goods. Patent rules imposed Feb. 1 threaten to increase costs in China for foreign innovators in industries such as pharmaceuticals, and let authorities force foreign drug companies to license production to local companies at state-set prices. "There are louder voices pushing China to be more protectionist and to be more nationalist." Lester Ross, managing partner in Beijing for WilmerHale law firm Executives in several industries say the liberalization spurred by China's WTO entry is stalling. Foreign makers of wind turbines and solar panels say they are being shut out of big renewable-energy projects. Regulatory barriers effectively cap participation in insurance: Foreign companies had just 4.7% of China's lifeinsurance market as of June, and 1% of its property and casualty market, according to PricewaterhouseCoopers. "I am pro-china and I am in favor of doing business in China, but I have some serious concerns about what has been happening in the last year," says Fraser Mendel, an attorney with U.S. law firm Schwabe, Williamson & Wyatt. Chinese officials dismiss complaints that the environment for foreigners has worsened, but there are signs top leaders are noting their concerns. 22

23 Commerce Minister Chen Deming called top China executives from more than 20 multinationals to a meeting this month billed as "a chance to listen and hear issues of concern," said one participant. Mr. Chen pledged China would "resolutely continue" to open its markets, but he also criticized protectionism in the West. On Sunday, Premier Wen Jiabao vowed China will "unswervingly implement its opening-up policy." He conceded that his "contacts with foreign investors haven't been close enough," and pledged to increase interaction. Many foreign executives say they see an upsurge in economic nationalism, accelerated by China's world-beating performance during the recession and a new disdain for Western economic management. "The economic crisis and downturn emboldened those who had been pushing back" against efforts to liberalize markets, says Duncan Clark, chairman of BDA, a Beijing-based consulting company. "Recent events, specifically the well-publicized Google incident, have reminded us of the continued challenges faced by foreign and U.S. companies operating in China." U.S. Commerce Secretary Gary Locke in a January speech to the U.S.China Business Council. Signs of nationalism are evident in the grooming of state-owned companies to dominate their industries as "national champions," often at the expense of private Chinese companies as well as foreign firms. From airlines to coal mining to dairy products, government policies are expanding the state's role. A year ago, in a move foreign critics called protectionist, Chinese regulators rejected a bid by Coca-Cola Co. for China Huiyuan Juice Group Ltd., saying it could crowd out smaller companies and raise consumer prices. The two combined held just a fifth of China's juice market. In July, four executives of Anglo-Australian mining giant Rio Tinto were detained, initially accused of stealing "state secrets," amid tense negotiations between global miners and China's steel industry over iron ore prices. Rio Tinto denies wrongdoing by the men, who await trial on reduced charges of bribery and theft of commercial secrets. Google Inc.'s woes highlight the angst. The search company, long troubled by Chinese censorship rules, threatened Jan. 12 to depart China after it said a Chinese hacking attack penetrated its computer network. Related attacks hit dozens of other multinationals. Google is expected soon to close its Chinese site, Google.cn., leaving local companies dominating an Internet market of 400 million users. "The Google issue has had a crystallizing effect," says Lester Ross, managing partner in Beijing for U.S. law firm Wilmer Cutler Pickering Hale and Dorr. "It 23

24 raised the consciousness of government and of the boardrooms and other stakeholders" about the difficulties of doing business in China, he says. Foreign investors have long complained about China's haphazard legal system and regulation. These were mere annoyances when China was an emerging market. Today, the huge Chinese market is increasingly fundamental to the health of large Western multinationals. Lose here, say Western executives, and multinationals are weakened globally. The new patent regulations providing for what is called compulsory licensing aren't unique to China. But China's pharmaceuticals industry is dominated by state-owned companies, and Western lawyers worry the rules will favor them. One provision requires companies to pay Chinese employees at least 2% of profit derived from their inventions in China unless the employees explicitly waive that right. The law "imposes significant new requirements on multinationals operating in China," says Mr. Mendel, the attorney. "You no longer have absolute control over what comes out of your R&D facility." Western executives interviewed for this article declined to comment publicly. But in December, a group of 34 business organizations from North America, Europe and Asia sent a letter to three Chinese government ministers blasting the indigenous-innovation preferences for procurement as "discriminatory" against foreigners. Chinese officials deny the rules are discriminatory. Others are more sanguine. A U.S.-China Business Council survey of members last year showed 93% either "optimistic" or "somewhat optimistic" about their future in China over five years. Robert Poole, who heads the council in China, says it "is really concerned about some of these policies," but "the broad themes of continued openness and reform continue to be there." "There's a risk that the whole Rio Tinto imbroglio affects inbound and outbound investment." Christopher Stephens, managing partner for Asia at Orrick, Herrington & Sutcliffe LLP, on China's arrest of four employees of an AngloAustralian mining company. Some sectors haven't been significantly hindered. Car makers like Volkswagen AG and General Motors Co. benefited hugely from China's booming market last year. But state-run media have reported government plans to increase domestic brands' share to over 50% of passenger vehicles by 2015, from 44% last year. For many multinationals in China, today's profits follow years of investment, much of it encouraged by government policies designed to lure capital. Now, at the point when their dream of access to a giant market is becoming reality, China is so prosperous that it has less need for foreign funds. Foreign investment has grown much slower than the rest of China's economy, amounting to 1.8% of gross domestic product in 2009, down from a peak of 6% in Beijing has long harbored suspicions the West wants to hobble its economic rise. Analysts say that lately, such insecurities have strengthened the hand of leaders who want to limit foreign presence in the economy. 24

25 While there are still proponents of openness, says Mr. Ross of WilmerHale, "there are louder voices pushing China to be more protectionist and to be more nationalist." 25

26 On the move South China Morning Post March 15,

27 US securities hire fortifies Orrick s China team China Law & Practice March 17, 2010 Orrick Herrington & Sutcliffe has added partner Allen Shyu to its expanding China corporate roster. Shyu s practice focuses on international securities offerings, US and Hong Kong initial public offerings, private placements and cross-border M&As. Among other clients, Shyu has worked with numerous Taiwanese issuers. Notable transactions in his portfolio include acting for China National Pharmaceutical Group, China South Locomotive and Rolling Stock Corporation, and China Construction Railway Corporation on their global offerings and listings on the Hong Kong Stock Exchange. He joins from Baker & McKenzie Hong Kong where he was a member of its Asia-Pacific US securities group. 27

28 Redirection of users 'just a little trick' Financial Times March 24,

29 IP Owners Cheer Changes to China Customs' Enforcement By Neal Stender, Xiang Wang, Carol Yan, Joel Stark Asia IP February

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31 Labour and Employment Law Basics for Doing Business in China By Elizabeth Cole, Michael Delikat IBA's Employment & Industrial Relations Law February 2010 Overview The Chinese labour regulatory environment has undergone a major change since 1 January 2008 when the new Labour Contract Law of the PRC (Labour Contract Law) came into force. It has been followed by numerous employment-related national and local level laws and implementing regulations, including the Employment Promotion Law and the Labour Dispute Mediation and Arbitration Law. The effect of these new laws has been to create a more comprehensive national system of employment regulation which has, in general, resulted in increased protection for employees, particularly those on a low income and disadvantaged workers. However, as is commonly the case in China, implementation at a local level in terms of regulation and practice has been inconsistent and uncertainty remains over the interpretation of many provisions. Recruiting and hiring Foreign investment enterprises (FIEs) may hire local employees either directly in the labour market or through a labour service company or a foreign investment enterprise service company. A representative office (RO) of a foreign company in China does not have the right to directly hire PRC citizens as it does not have legal-person status under Chinese law. It must hire all its local Chinese employees through qualified labour service company which serves as the technical legal employers of local employees hired by the RO. Mandatory labour contract The Labour Contract Law requires all employers to enter into a written labour contract with their employees upon commencement of employment. If an employer fails to do so within a month of employment, the employer is liable to pay to the employee a penalty of double salary commencing from the second month of employment until a written labour contract is established. Collective contracts A collective contract passed by the employee representative meeting or all the employees and approved by the relevant labour authority, will bind the employees and the employers in terms of basic labour compensations and conditions, and so on. The Labour Contract Law The Labour Contract Law requires that a labour contract should set out at a minimum the name, address, legal representative or person in charge of the employer, the name, address, number of identity card or its equivalent of the employee, the term of the labour contract, description and location of the job, working hours and rest periods, remuneration, social security, labour protection and conditions and professional damage protection. The parties may also agree on additional terms and conditions for the contract such as a probationary period, training, confidentiality, supplemental insurance and welfare. The Labour Contract Law imposes a national standard for the permissible length of probationary periods based on the term of the labour contract. This period may 31

32 not exceed one month for contract lasting between three months and one year. The probationary period for a contracts lasting for at least a year but less than three years may not exceed two months. The probation period for a contract with a minimum three-year term, or an openended contract, may not exceed six months. Labour compensation A variety of laws and regulations with respect to wages collectively create a number of basic standards in relation to the payment of salaries, which are designed to prevent abuse in all enterprises, including FIEs. These regulations include that: wages must be paid in currency payments in kind are not permitted; payments must be made to the employee or to his or her representative; payment must be made in accordance with the agreed period and at least monthly; on termination, all payments due to the employee must be made in a lump sum; on bankruptcy of an enterprise, employees have a priority to recover wages due to them; an enterprise cannot make deductions from wage payments due to employees except in certain narrowly defined circumstances, which include payments of withholding tax, payments of the employee s own contribution to the various social security funds and court ordered payments; and overtime must be paid in accordance with the Labour Law, ie, one-and-a-half times the base wage for an extension of working hours, double pay on a rest day and triple pay on a public holiday. Working hours China has a working hour system of eight hours per day and a 40-hour week. If, due to the nature of work or production requirements, standard working hours are not practical, the employer must obtain approval from the local labour authority for an alternative arrangement, unless there is any special local regulation that provides otherwise. Overtime is permitted up to a maximum of three hours per day and 36 hours per month, subject to exceptions for emergency and other similar situations. Confidentiality and non-competition The Labour Contract Law specifically allows for inclusion in the labour contract or a separate confidentiality agreement of provisions for the protection of confidential information and intellectual property of the employer without additional consideration. An employer may also impose a post-employment non-competition restraint on senior management, highly skilled technicians and those with confidentiality obligations. The duration of the non-competition period must not exceed two years. The Labour Contract Law makes it clear that separate compensation must be paid for a non-competition undertaking monthly after the employee s termination, but does not impose any minimum consideration. Grounds for termination Under the Labour Contract Law, an employee may terminate his or her labour contract at any time, giving 30 days notice or during the probation period after 32

33 giving three days notice to the employer. An employer may terminate a labour contract with an employee if any of the following circumstances occur: the employee mutually agrees with the employer to do so; the employee has failed to satisfy the employment criteria for the position during the probationary period; the employee has committed a serious breach of the employer s rules and procedures; the employee is guilty of serious dereliction of duty or engages in malpractice for personal gain and causes the employer to suffer significant damages; the employee holds an employment relationship with another employer, where such a relationship has a serious effect on his/her ability to complete the tasks assigned by the employer; the employee by deception coercion, or taking advantage of the employer s difficulties forces the employer to establish or amend the labour contract against the employer s will; the employee is prosecuted in criminal proceedings; the employee is unable to perform the originally assigned work or work rearranged after the end of medical treatment for non work-related illness or injuries; the employee is incompetent at the job and remains so after receiving training or being transferred to a new position; the objective circumstances on which the labour contract was based have changed significantly, making it impossible to perform the labour contract and the parties fail to reach an agreement to amend the labour contract; or the grounds for redundancy or a mass layoff as outlined below are met. The above grounds for termination are the only bases on which an employer may terminate the labour contract of an employee. Redundancy If the termination involves at least 20 employees or ten per cent of the employer s workforce, then one of the following conditions for termination must be satisfied: the employer s business is undergoing restructuring in accordance with the bankruptcy law; the employer is experiencing serious difficulties in its production and operations; the employer is going to change production, undergo a technological makeover or adjust its mode of operations and still needs to cut back personnel after amendment of employment contracts; or a material change in the objective economic circumstances relied upon at the time of conclusion of the employment contract occurs, making performance thereof impossible. In addition, the employer must provide an explanation to either the labour union of the employee or, if there is no union, to all of the employees and provide documents or information to support the grounds for redundancy at least 30 days before the redundancy is implemented. Severance and termination payments With the exception of employees who resign, reach retirement or are terminated for cause as outlined in Grounds for Termination above, all employees whose employment is terminated are entitled to receive statutory severance payments under the Labour Contract Law. 33

34 The amount of the statutory severance payment is calculated on the basis of one month s average wage of the employee, including guaranteed bonuses and allowances (as averaged over the preceding twelve months) multiplied by the number of years of service of the employee. Restrictions and protections on terminations Employees in the following classes cannot be terminated except for cause or in the case of a full closure of operations: employees engaged in operations exposing them to occupational disease hazards who have not undergone an occupational health check-up, are suspected of having an occupational disease and are in the process of being diagnosed or are under medical observation; employees who have contracted an occupational disease or sustained a work related injury and been confirmed as having lost all or part of their capacity to work (payments to such employees are dealt with under special rules); employees who have contracted or sustained a non-work related injury or illness and the statutory period of medical treatment leave has not expired; female employees who are pregnant, in confinement or in the nursing period (which may be up to one year after giving birth); long-term employees who have been employed by the employer continuously for at least 15 years and are less than five years away from retirement; and employees who satisfy other circumstances specified in applicable laws and regulations are present. For example, in Shanghai, union representatives are protected from termination. The following employees will have the priority right to be retained over other similarly qualified employees in the event of a redundancy: employees with longer periods of service under renewed fixed-term employment contracts; employees with non-fixed term (open term) employment contracts; and employees who are the only employed member of their family and must support elderly family members or children. Protection for women and anti-discrimination The PRC has long established rules in place which provide special protection for women workers. According to the Women s Labour Provisions, enterprises in which women may be suitably employed may not refuse their recruitment. Enterprises may not reduce the basic salary of women employees during the period of pregnancy, maternity or nursing. All women are entitled to a minimum of 90 days of leave. Additional periods of leave are mandated in most local labour regulations for women who are older, have difficult or multiple childbirths, while an entitlement to a reduced period of maternity leave is provided for in case of miscarriage. In August 2005 the law was amended to prohibit sexual harassment of women. Discrimination in the workplace was addressed for the first time in a meaningful way in the Employment Promotion Law of the PRC (Employment Promotion Law) which came into effect on 1 January Leave entitlements In 2008, employees became entitled to a minimum period annual leave ranging from five to fifteen days depending on the employee s aggregate cumulative 34

35 period of employment throughout their working life with both the employee s existing employer and all prior employers. Welfare and benefits The Labour Law requires all employers and employees to join the social security (social insurance) system and pay premiums in accordance with law. Employees enjoy the benefits of social insurance cover for retirement pensions, sickness, work-related injuries, disability, unemployment, and childbirth. Trade unions Trade unions in China are generally organized at the enterprise level. The PRC Trade Union Law states that labour unions are to be organised by employees at their own will and that enterprises with more than 25 members should establish a basic labour union. The primary function of an enterprise trade union as distilled from the Trade Union Law, the Labour Contract Law and other applicable laws and regulations is to be engaged in the democratic management and supervision of the enterprise. The primary source of funding for the union is the amount equal to two per cent of the total monthly salaries to be allocated by the company. Disputes Labour disputes in China are governed by the Labour Dispute Mediation and Arbitration Law of the People s Republic of China (the Labour Dispute Law) which came into effect on 1 May 2008 and the Labour Personnel Dispute Arbitration Rules which were issued and came into effect on 1 January The new Labour Dispute Law is intended to expedite the mediation and arbitration process and included additional protections and rights for employees to bring claims and receive payments. 35