LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link

What kinds of opportunities and challenges do enterprises face in China’s current regulatory and market environments? China Business Law Journal interviewed corporate counsel and senior executives from different industries to get some observations

Media beyond imagining

Deng Qingxu, Senior Vice President, SINA.com

corporate
Deng Qingxu

The many changes that have recently arisen in the new media sector are beyond anything previously imagined by anyone, and development has not followed any rhyme or reason, making it impossible to borrow from past rules to understand it; the only rule that can possibly be drawn upon is the legal regime.

For internet companies, the most marked change is the appreciable increase in infringement and rights protection cases in the past few years. Our perception of the law has also continuously strengthened. For example, in the past, when using an internet font, one would use whichever one was convenient; but now everyone is aware that each font is copyrighted, this concept having taken root deep in each basic-level employee.

My personal experience is that the importance that China attaches to intellectual property has rapidly increased in the past two years. This improvement is comprehensive, with commercial entities, lawyers and judges all in agreement, namely, whenever an intellectual property infringement case occurs, the judgment always favours the intellectual property rights holder.


Know your markets

Hope Hang, General Counsel, JuneYao Group

corporate
Hope Hang

The economic situation that enterprises face is extremely varied. Regardless of whether it is within one industry or between industries, they harbour manifold operating philosophies and value points. When looked at from the perspectives of economic formation, industry features, project operational methods, etc., Chinese capital markets are similarly flexible and variable.

As corporate counsel, if much of the work covers such industries as capital markets, etc. – the regulatory requirements in respect of which are relatively stringent – then it is necessary to have an in-depth understanding of the historical evolution of the entire industry, the features of the industry at the current stage, and the profit model of the company for which the counsel works, while keeping a close eye on legal matters.

As a corporate counsel’s ultimate duty is to provide a recommendation to shareholders and decision makers, multiple factors must be taken into account before presenting such a recommendation.

Legal risks spring from business activities. On the one hand, the objective of a business activity determines the extent, breadth and type of legal risk that could arise; but on the other hand, legal and regulatory requirements will influence the judgment as to whether the specific business act complies with procedures and rules.

Specifically, with respect to legal compliance work, it is necessary to first look at the whole, seeing whether the business activity complies with economic laws, industrial orientation and universal commercial value.

If a business activity runs counter to the above-mentioned general orientation, there is no need to doubt that it poses a problem, even if the specific article of a law or regulation that is being violated cannot be found. Once the condition that the general orientation is correct is satisfied, it is still necessary to return to the specific law, statute and regulatory level, to scrutinize whether the entire transaction structure and procedure needs to be corrected or rectified.


Education roadblocks

Chen Yingying, Legal Director and Securities, Affairs Representative, Meten International Education Group

corporate
Chen Yingying

One of the difficulties that in-house counsel of educational enterprises face in their work is an excessive changeability in policies. How to rapidly meet the regulatory requirements of the regulators and seek a suitable operating model during these transition periods for various policies is a major challenge. Compliance rectification is extremely costly in energy and time, requiring efforts to secure the assistance of other departments of the company.

Second is how to flexibly combine the enterprise’s business and strategic requirements to do the work. For example, in the course of negotiations on an acquisition, we have to design the transaction structure, review the contracts, and understand and control the risks.

In some instances, these may stand in opposition to business requirements, or even hamper the rapid realization of the business. However, considered from the strategic requirements of the enterprise, in-house counsel have to act with determination and focus, and cannot do things simply by holding the ruler of risk control.

In recent years, educational enterprises have become the darlings of capital, as they have rushed to list on domestic and foreign capital markets. However, the road to an A-share IPO for educational enterprises remains rocky, with the great majority of A-share educational enterprises achieving their listings through the back door.

Accordingly, in contrast to A shares, domestic educational enterprises show a preference for listing abroad. Where do the difficulties in an A-share IPO lie? There are three major factors:

(1) The industry. The China Securities Regulatory Commission (CSRC) has an internal list of strategic industries that are supported, a list that excludes the tutoring, education and training industry. Accordingly, the education industry is not one that has drawn the special favour of the regulators.

(2) Significant policy uncertainty. Until the issuance of the Law on Promoting Private Education in September 2017, the Education Law expressly specified that, “the establishment of schools and other educational institutions with the objective of a making a profit is not permitted”, effectively choking off the road to capital securitization for education companies. With the issuance of the Law on Promoting Private Education, enterprises are permitted to register either as for-profit or non-profit institutions, but in the actual process, as the educational bureaus in many regions lack implementing rules on how to change a registration to a for-profit training institution, the process for educational institutions to convert into for-profit institutions presents difficulty upon difficulty. Furthermore, until the conversion into a for-profit training institution, the original private non-profit enterprise cannot be included on the consolidated financial statements.

Furthermore, the relatively significant regulatory policy uncertainty can affect an issuer’s conditions as a going concern. For example, the opinions on reforming pre-school education issued not too long ago prohibit all private kindergartens from listing individually or as part of a bundle of assets. For an educational enterprise that runs private kindergartens, this is a material obstacle that affects its operation as a going concern.

(3) Stringent compliance requirements. Education and training fall into a relatively special service industry, with the establishment conditions, education recipients, educational content and even the sites subject to relatively stringent regulation. To operate lawfully, the securing of a school permit and business licence – in the case of for-profit training institutions – is required. The instructors that are engaged are required to have a teaching certificate or other teaching qualifications. To engage a foreign instructor, qualifications to engage foreigners are required, and the procedures for a residence permit and work visa need to be carried out for such foreign instructors. A site is required to satisfy area, fire safety, number of floors and other such requirements. A title certificate is required for property, and an internet education company is required to secure an ICP certificate, online culture operation permit, online transmission permit, etc. In essence, very few educational enterprises can fully comply with the above-mentioned series of compliance requirements, and the rectification costs are prohibitive.

You must be a subscribersubscribersubscribersubscriber to read this content, please subscribesubscribesubscribesubscribe today.

For group subscribers, please click here to access.
Interested in group subscription? Please contact us.

你需要登录去解锁本文内容。欢迎注册账号。如果想阅读月刊所有文章,欢迎成为我们的订阅会员成为我们的订阅会员

已有集团订阅,可点击此处继续浏览。
如对集团订阅感兴趣,请联络我们

LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link