In a recent interview with Kang Yingjie, a partner at Fangda Partners and lead author of the “China Enterprises Overseas Rights Protection Blue Paper (2023-2024)”, key insights were shared regarding the pressing overseas risks faced by Chinese companies. This report was jointly released on October 18 during the 12th Annual Corporate Legal Conference in Beijing, organized by the China Company Law Research Institute, the China Council for the Promotion of International Trade, and Fangda Partners.
Kang highlighted four primary categories of risks that Chinese firms are currently grappling with: the arrest of executives, seizure of exported goods, searches and confiscation of company equipment, and substantial fines alongside procurement limitations.
According to the blue paper, administrative investigations have emerged as the most common type of enforcement encountered by Chinese companies abroad over the past two years, with the real estate sector identified as particularly vulnerable to foreign scrutiny.
The data revealed a worrying trend: the rate at which surveyed companies experienced overseas law enforcement has been rising. The United States remains the leading country for such actions against Chinese businesses, with economic sanctions and export controls cited as the primary enforcement mechanisms.
Kang elaborated on the three main scenarios in which Chinese companies face international law enforcement. Many are penalized for engaging in transactions with sanctioned entities, while others fall afoul of cybersecurity and data protection regulations due to insufficient protective measures. Additionally, intellectual property enforcement issues, particularly concerning trade secrets, were also outlined.
Surprisingly, nearly 60% of the Chinese enterprises facing foreign enforcement actions did so under the jurisdiction of long-arm laws, with some incidents occurring within China itself.
The blue paper also discusses the root causes behind the escalating overseas risks, attributing them to the complexity of unfamiliar legal environments, geopolitical tensions, and intensified global competition.
The four types of risks identified include:
1. **The Arrest of Executives**: An example is the arrest of a Chinese executive during a layover, charged by the U.S. Justice Department with violations of U.S. sanctions and false statements.
2. **Seizure of Exported Goods**: Since June 2022, U.S. Customs and Border Protection has handled numerous cases involving exported goods in sectors like chemicals and pharmaceuticals, resulting in the rejection of many shipments.
3. **Search and Seizure of Company Equipment**: Instances have arisen where Chinese employees traveling abroad are interrogated by foreign officials, leading to the search of their electronic devices.
4. **Severe Fines and Procurement Restrictions**: Businesses are facing hefty fines, alongside limitations on their ability to procure materials and services.
Moreover, the rising risks related to extraterritorial supply chain legislation were emphasized. Kang explained that violations of such laws could result in detrimental repercussions for companies, including import restrictions and unfavorable tax policy adjustments.
As these developments unfold, Kang advises that Chinese enterprises familiarize themselves with the enforcement processes and timelines related to U.S. legislation and similar regulations in the EU, which has introduced various directives that could impact Chinese firms significantly.
The newly enacted EU Foreign Subsidies Regulation exemplifies this trend, providing a comprehensive framework for reviewing subsidies from non-EU governments. In the first 100 days of its implementation, there were multiple inquiries involving Chinese companies.
Overall, the blue paper stresses the importance of continuous monitoring of relevant overseas enforcement trends and preparing proactive strategies to mitigate potential risks.
