Caution pays


June is the month of exams in China, with millions of high school graduates striving to minimize imprudent mistakes on their university entrance examination answer sheets. Investors face a parallel situation – one careless decision could ruin a promising future. This issue of China Business Law Journal explores some investment pitfalls to heed.

Investors beware notes that private equity and venture capital (PE/VC) investment in China has been fueled by new developments, including China’s current state-owned enterprise (SOE) ownership reform, outbound investors’ cravings for PE funds’ overseas experience, new exit chances arising from China’s rapidly growing New Third Board and the climbing trend of Chinese companies delisting from overseas markets.

PrologueHowever, experts warn that PE institutions must overcome legal obstacles when investing into SOEs, and that exit channels provided by the New Third Board may be overshadowed by regulatory uncertainty. Further, the on-going revision of the Foreign Investment Law may cause serious headaches for funds investing via variable interest entities structures. In the end, many new developments in China’s PE/VC market suffer from discrepancy with the current regulatory system. It’s worth exercising caution before the tempting opportunities ripen for picking.

Gateway to experience looks at risks and rewards of doing business in western and southern Europe. Chinese investment into Europe hit a record high in 2014. In addition to the usual targets – technology, innovative workers and reputable brands – safe food and luxury alcohol are also working up Chinese buyers’ appetites. The prospect of aircraft leasing has spurred many large Chinese banks to set up aircraft finance and leasing businesses in Ireland. Golden visa programmes launched in some European countries are also boosting Chinese investment in real estate that may entitle buyers to permanent residency.

However, lawyers alert Chinese investors to unexpected compliance risks and yawning cultural gaps. A proper deal structure is also important given the tightened tax rules in Europe. Particular risks in certain industries should also be on investors’ checklists.

For those aiming to promote their business in China, New pitch is a must-read. The first overhaul of China’s Advertising Law in more than 20 years responds to new promotion strategies in this smartphone and internet age. The new law lays out some key principles for online advertisements. Lawmakers are also endeavouring to suppress false and misleading ads by clearly defining their scope and regulation. Untruthful boasts will now risk breaching the law.

The law also includes specific controls on ads related to health food, education, real estate, agricultural products and financial investment products. Hefty fines can be avoided by upgrading your knowledge of these new ad rules.