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Business&Legal news and stories about China. Legalmall offers a free online China-related legal advice. We also offer China Sourcing services. www.legalmall.net

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how to consult a company in shandong

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We offer legal services such as company verification and factory audit.

We only ask you to provide the chinese name of the company or any other details that can help us to identify the company.

Please refer to the following link to check our services: http://www.legalmall.net/static-pages/our-services

Kind regards.

Lorenza Mastrorocco 

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how to consult a company in shandong

what do you mean?

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Legalmall’s team is proud to announce that the new version of its website is under construction and will be online by January 2015. It will turn into a one stop legal shop, where all the legal services for foreign companies willing to establish a business in China Mainland and Hong Kong will be...

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Chinese Company Verification

Legalmall’s team is proud to announce that the new version of its website is under construction and will be online by January 2015. It will turn into a one stop legal shop, where all the legal services for foreign companies willing to establish a business in China Mainland and Hong Kong will be provided: Chinese companies search, factory audit, legal documents’ translation, contracts’ negotiation, business registration, certificate verification and much more. 

So far, our activity has focused on checking out our international clients’ business partners in China and some of them turned out to be scammers or not honest (real) suppliers.

Your activity cannot legally protected by Chinese government authorities if you're dealing with illegal Chinese companies. This is the reason why it is fundamental to verify the Chinese company that you are going to work with before starting the cooperation. Following there are my tips for you to verify a Chinese company. The best way to check out a supplier in China is to visit them in person, but due to the geography dislocation, language barriers and a different legal system, it is strongly recommended to book a third-party company verification service like Legalmall (www.legalmall.net).

UNHONEST CHINESE COMPANIES

The Chinese company you chose as your business partner may not be a proper scam but, still, it may happen that it provides with low quality products, it delivers late or it ships different quantity of goods respect to the order you placed…

Following there are some tips for you to avoid such risks while doing business in China:

1. Do your Due Diligence before placing any orders

Every factory or trade company has their own Business License in China and from their business license you will be able to find out all their registered information like full company name, registered capital, registration date, legal representative, business scope, company type etc. There are lot of fake business licenses online in China, this is why you have to contact local officials for verification before placing any orders, if you know nothing about Chinese, you can also book a Basic or Comprehensive Verification service from a third-party service company like Legalmall.

  2. Factory Audit

If your order is very large or if you’re looking for a long term or OEM factory in China, you’d better visit the company first. Legalmall offers a service of Factory Audit, whose purpose is to disclose following information: management level, facilities, export experience or qualifications, staff, labour conditions, quality control measures, R &D, after-sale service measures, bank credit details…Legalmall is entitled to inform the company that it is going to visit it only 20 minutes before, so that the Chinese company doesn’t have to time to hide or modify anything.

 SCAM CHINESE COMPANIES

Following are listed some tips for you to make a first check on your Chinese partner even if you don't know Chinese:

1. Registered corporate number

In China, companies of any kind are required to register themselves with Chinese government authorities in order to obtain a unique company number, the so-called registration number. If your Chinese business partner cannot offer you it, definitely he is a scammer. There is always the risk that he submits you a fake number, so you have to double-check it out with local administrative government organs. There is an official organ, called Bureau of Industry & Commerce, with local offices in any Provinces, which is the only government organ responsible for the registration of legitimate enterprises in China. The only problem that you might face is that you have to report your case in Chinese because most of the local officials do not speak any or very little English. Therefore, it is always better to use the services of a Chinese legal firm with international and English-speaking lawyers like Legalmall.

  2. Contact information

Most of the scammers don't offer real contact details (address, telephone and fax numbers). Hence, we suggest you to try to call them, write an email or send a fax and if the numbers are empty or don’t exist, then it is a clear sign that the company is not real.

3. Incredibly low prices Most of Chinese scammers usually attract foreign companies with low price. Therefore, it is wise, if the prices they offered are too low to believe, to consider to investigate further on your partner. Most of the scammers in China earn their profits by selling bad quality products or fakes of some branded goods to the overseas market. These activities are very risky for you, because the goods shall be confiscated or detained by Chinese customs houses when they are considered illegal in China. Never forget that the price for authentic /original brands (like Samsung, Apple, Nokia, Dell…) should be almost the same at anywhere in the world. So, if the price of such brands is much lower, it means that they are fake and of bad quality.

4. Payment and shipment terms Usually scammers don’t accept L/C as their payment terms, they prefer Western Union, Paypal and T/T etc. Also they never deliver goods through formal channels in China, they prefer to deliver samples by Express like Fedex, TNT, EMS to avoid more examinations from Chinese customs house. Consequently, if your Chinese supplier insist to use such payment and shipping methods, you should contact a company search service provider like Legalmall.

  In conclusion, if you are dealing either with a scam or a not reliable Chinese business partner, in order to avoid the risk to loose your money and waste your time (not to mention the fact of having a really bad experience) we advice you to contact a Chinese legal firm, specialized in international trade, intellectual property and company verification. Visit www.legalmall.net for a free legal consultation, we will be delighted to offer you a tailor-made solution for your problems, in order for you to take conscious business decisions.

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Chinese investors are splurging! Part 3: conclusions

So we finally come to the end of this series and there are some comments I would like to mention that would help sum up my previous post.

Eric Meyer a Société Générale banker who has advised Chinese clients mentioned, “In the past, Chinese companies tended to take longer than Western groups to make decisions on acquisitions, and would not live up to the price expectations they raised . . .It’s no longer the case. They are truly motivated buyers.”

  While Europe is still struggling to get out of the financial crisis, this seems to be a, “one in a century” opportunity for the Chinese to acquire world-class bands, and important infrastructure assets. Establishing a foothold in the UK will be important in the long run for Chinese investors to venture out in the other European countries. This is the same in Portugal where investors are using Portugal as a ‘staging ground’ if you can say then expanding in its former colonies. However I would have to say that while we will see a steady increase in Chinese investment in Europe we aren’t going to see any real huge breakthroughs. Because Europeans are still in debt right now (it’s improving but will take time), they don’t sell their top technologies amongst other goods that China may want, which hopefully should still given them an edge in the market.

At the same time for the Chinese, they will benefit even without the top tier goods, because by acquiring the experience, and expertise they can still bring this back to China. From here that can use that knowledge in their development programs. Now, of course, for foreign companies in China it only means there is a much greater need to increase our own leadership programs and retain top Chinese talent. In Africa while it’s clear the states still need a clear direction in development for their country. What they can take with dealing with China is exploring new possibilities, to become more global which can be achieved with foreign investors. In the future we could possibly see African states making a transition from exporting raw materials to building manufacturing industries! 

But, yes, while the Chinese maybe lacking in experience abroad, they can definitely make up for it with the amount of capital, materials, and equipment they can bring into a project. 

Are you a foreign company willing to START A BUSINESS

 in China or to cooperate with a Chinese partner? Legalmall.net in an online platform that provides with Chinese companies verification’s reports, free legal consultation, legal documents and legal solutions tailored for your needs. Don’t risk to waste your time and loose your money, take a conscious business decision!

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Chinese investors are splurging! Part 2: Africa

For the second part of this article, I will focus on how China is now outsourcing manufacturing to Africa. Again in my previous article I discussed China’s future work force problem as they move out of cheap China which means there will be less blue collared workers operating in the factories. So how do they fix this problem? It turns out they have setting up shop in Africa to do just that.

Manufacturing plants in Ethiopia

Chinese footwear manufacture Huajian Group has set up a manufacturing plant in Ethiopia. The vice president Helen Hai made a comment that they want Ethiopia to become a global hub for the shoe industry, supplying Asian, European, and American market. "We are not coming all the way here just to reduce our costs by 10 to 20%," Hai says, "Our aim is in 10 years' time to have a new cluster of shoe making here. We want to build a whole supply chain … I want everything to be produced here." In 2012 Huajian had set up a company near Addis Abba with 600 employees. Within the next decade the company hopes to create employment for around 100,000 Ethiopians.

What also stands out to me from this investment is how the Chinese are hoping to reduce the amount of expats they have placed in Ethiopia and hope to see more localization especially in managerial positions. Currently the factory has 130 Chinese works all of which are in supervisory roles from the initial 200. Hai believes that, “localization is so important. I don't see myself managing this factory in five to eight years' time. I see someone local standing here talking to you.” As part of the leadership development program, the company has selected 130 university candidates from Southern Ethiopia to spend a year in their training facility in China from where they will return back to be placed in higher positions.

In China they have around 25,000 workers, but are expected to have around 30,000 in Ethiopia by 2022. The company prioritizes the welfare of their workers as many back in China come from the poor rural areas; so they accommodations, meals, clothing and laundry services, and important free childcare; which is also in a similar package is offered to its Ethiopian workers, on top of 10% above the local average wage. This is a bold plan indeed with a joint investment of $2bn. But so far it has also been benefiting the country with a joint China-Africa Development Fund project (CADFund). The CADFUN is a private equity promoting Chinese investment in the continent, so far, “focuses on funding agriculture, infrastructure, natural resources and industrial park projects like that planned by Huajian, and has invested in a diverse range of ventures including a power plant in Ghana, a port in Nigeria, cotton farms in Malawi and a $100m car plant in South Africa.”

Railway in Kenya

Also in East Africa another company [a subsidiary] of China Communications Construction Co became the main contractor for a major railway project. Funding the project China’s Eximbank is providing 90% of the cost in the first phase of the line where Kenya with the remaining 10%. The railway is go from Mombasa to Nairobi and will eventually extend to neighbouring areas such as Uganda, Rwanda, Burundi and South Sudan.

Kenyan President Uhuru Kenyatta said in a news conference, “The costs of moving our people and our goods... across our borders will fall sharply.” Chinese Prime Minister Li Kegiang further adds, "This project demonstrates that there is equal co-operation and mutual benefit between China and the East African countries, and the railway is a very important part of transport infrastructure development.” Personally I find this a very big deal in the long term with a railway that will boost not only transport but as well trade between neighbouring states. 

Africans economy development or colonialism? 

I should make note that there has definitely been some controversy [from the west] of China’s massive expansion into the continent. Some feel that they are trying to be colonialist and pulling out resources for their own benefit and by exploiting previously established patterns of inequality. However many Africans have disagreed and welcomed Chinese investors to Africa. Those who support Chinese investors claim they have benefited by “unprecedented investment, dynamism, and confidence into local markets, generating important gains for local economies.”

While it is clear the Chinese are definitely helping to develop the African states we have to admit that to an extent there are some problems. To quote from a BBC article, “"China" does not operate as a bloc."China" in fact is composed of a myriad of private investors, state agencies and hybrid actors that spend more time in Africa competing with one another than worrying about Communist Party slogans . . . The Chinese in Africa are not a homogenous and cohesive community organised along nationalistic lines as is commonly perceived by outsiders.” So what we have here is a mix of both state and private corporations along with individuals coming to China setting up shop. We have had some stories from local Zambians about how individual men and women have moved to Africa to try and start a business becoming competitors in the local market, where some locals have expressed their anger that they should be helping invest and not competing.

Pretty interesting? Check back next week to for my follow up!

Are you a foreign company willing to start a business in China or to cooperate with a Chinese partner? Legalmall.net in an online platform that provides with Chinese companies verification’s reports, free legal consultation, legal documents and legal solutions tailored for your needs. Don’t risk to waste your time and loose your money, take a conscious business decision!

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Chinese investors are splurging! Part 1: Europe

This week I thought it would be interesting to step away from investments into China and instead look at China’s outbound investments.

In recent years we have a seen a significant growth in Chinese outbound investments across the globe. I’ll be discussing some highlights across Europe, in this article, and Africa, in the next one.

A big area of investment talk in China is their change of policy because of China’s high population and shrinking labour force as they move away from the blue collared work force to providing services. China needs to start producing higher-value exports but their current problem is the lack of creative entrepreneurs (I made a point about this in my previous article). As part of this change in policy, China has moved away from investing in developing countries and obtaining technology and expertise.

This new policy has taken effect since late 2009 as the European Union (EU) has been suffering from the ongoing financial crisis. A group of 10 central European banks and a few Eastern banks asked for a bail out which sent the Union into turmoil as countries sunk into debt. Naturally this would seem about the time when investors would leave Europe; China, however, has taken the initiative to cash in. From here they have been splurging on European companies and assets through overseas acquisitions. According to the Deutsche Bank in 2010, the total stock of Chinese foreign direct investment (FDI) was over $7.7bn; by the end of 2012 the stock has quadrupled to $35bn.

Stronghold in England

The chart below makes clear that the Chinese have invested a total of $23.6bn in Britain; $7.1bn of this has gone into real estate. Earlier this year state-owned Shanghai based Greenland Holding plans to invest $2 billion on two property projects in London. In a press conference with Greenland Chairman Zhang Yuilang he stated, “London is at the economic center of Europe, so investment here will have global influence on where we plan to invest further -- next in office, hotels and retail.” It’s clear that China is taking advantage of the current market and prices.  

A highlight of Q3 of this year was the privately-owned Beijing-based Hony Capital in July purchasing PizzaExpress, a popular UK restaurant chain, for $1.54bn. For those who have yet to try their food, PizzaExpress operates in 13 international markets with a total of 504 restaurants. John Zhao chief executive officer of Hony mentioned in a statement, “With PizzaExpress, we have the opportunity to leverage our local expertise to accelerate its growth in the Chinese market, as well as to continue to drive its business forward in the U.K.”

Strategic assets in Italy

China in recent years has taken particular in Italy as well. According to Heritage Foundation, Italy this year has brought in an estimated $4.8bn in large-scale contracts. In 2008, Huawei, a maker of Chinese telecoms equipment, opened a microwave research and development centre in Milan. This year the company announced its plans to double the R&D staff in Europe to 1,700 by 2017!

When Chinese President Xi Jinping came to Italy to meet with with Italian Prime Minister Matteo Renzi to sign their 10 agreements that would open Italy up to Chinese foreign investors, “Many people think efficiency [in Italy] is not so good and China has grown very fast, so we need to study China,” Renzi said after a meeting at which he and Li signed 10 agreements, including a deal for Shanghai Electric to buy a 40% stake in Italian power engineering company Ansaldo Energia.

Chinese investors in particular have invested strongly in Italy’s energy; in May Shanghai Electric Group bought a 40% stake in power engineering company Ansaldo Engergia from the Italian state. And in July China’s State Grid purchased 35% stake in CDP Reti, which is a subsidiary of Italy’s state financing agency which controls the electricity grid operator and gas distribution.

Portugal’s Success

In similar fashion to other European states in crisis the Portuguese have sold stakes to their infrastructure and utility operations to Chinese companies. The chart on the left provided by Financial Times depicts Chinese investments in Portugal have amounted up to an estimated $12.6bn. This massive sum can be traced back to Three Gorges Corporations big spend of $3.7billion for a 21% in Portugal’s dominant power utility Energias de Portugal. Within the same year China’s State Grid invested $1.77bn to acquire 25% of Ren, the National Grid operator.

I can conclude that Chinese investors see Portugal as a stronghold to later expand into other former Portuguese colonies such as Brazil where in 2011 Sinopec China’s state oil company purchased a 30% stake for $4.8bn in Brazil’s subsidiary of Galp Energia (Portugal’s main operator of oil and gas utility.)

Outside of energy Portugal this year has given 80% of their property investor visas to Chinese whom (as they have done in Britain) have been buying real estate hoping for a turn around. Huawei as well is wasting no time by investing 40m Euros across former Portuguese colonies and establishing a technology centre in Portugal’s capital Lisbon. 

As this ends part 1, check in again later in the week for the next segment!

In need of legal aid or help with conducting due diligence over a Chinese company? Check out our website www.legalmall.net! We provide company verification's reports, free legal consultation, the most essential legal documents and legal solutions tailored for your needs. Don't risk to waste your time and loose your money, take a conscious business decision!

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Is China losing young talents?

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Is China losing young talent?

After writing about Alibaba’s breakthrough into the US and global market; this may be a good time to talk a little about China’s younger generation. Because while Alibaba certainly has the West interested, is the Chinese youth still interested in the West?

Are we losing young talent?

Currently there is an ongoing study in the Chinese private sector and especially foreign corporations that they are having difficulties attracting the young Chinese talent. In the past working for the private sector or foreign company was considered to be very honourable with a high salary included. In contrast working for the state was looked down negatively with descriptions such as: repetitive, menial, unchallenging with low pay. As such the young ambitious graduates looked away from this. However the 2008 Financial Crisis forced the private sector to make big personnel and salary cuts; which tarnished their image of high salaries and excellent reputation. The crisis revealed the fragility that the private sector has in China and in today’s world where job security is important the 2008 crisis had a big impact for foreign corporations in China. 

This was a major setback for the private sector and as a result many of the young Chinese felt it would be safer for them to work for the state bringing back the old Chinese idiom, “Iron Rice Bowl.” The Iron Rice Bowl refers to the Chinese system of guaranteed lifetime employment in state enterprises. In the past this idea of ‘Officialdom’ was seen as the natural outlet for good scholars. It became evident through a recent poll conducted by CHINAHR.com that many recent and upcoming graduates by 53% hoped to land a job in SOE’s. Why would working for the state which was characterized negatively be much more appealing? The answer is “security”. State enterprises dominate the strategically significant sectors that include: infrastructure, defence, telecoms, and various areas in finance. So it is assumed that during bad economic times the government would keep the SOE’s operating meaning state employees would be the last to lose their jobs ensuring a pay check. But there are also other reasons such as the youth wanting the live and work in first and second tier city where they have access to top quality healthcare and education services available.

Local or Foreign?

In recent years there has been a progression back into the private sector as China moves away from “Cheap China” to providing more services. Bill Adams, a senior international economist at PNC Financial Services, said in an interview, “China's private sector generates most of the country's employment opportunities. . .Even more than its direct contribution to job and GDP growth, China's private sector has been instrumental in making China's economy more productive, more efficient, and more responsive to market forces.” According to official data from 2013, private firms create more than 90% of new jobs in China. Well that’s great! But where exactly where are they applying to?

I reviewed a very detailed and informative survey conducted by Manpower in 2010 titled, “2010 Foreign and Chinese Private-Owned Companies Talent Competitiveness Survey”. They concluded that young talent looking to enter at management level are more inclined to join a Chinese private firm than a foreign. We can conclude that all firms in China have similar demands for top talent: those who can manage business, leadership, and innovation both local and foreign are trying to retain those. However, Chinese companies have been making great efforts to match foreign salary packages, but more by focusing on benefits and attractive career paths to senior management which is very appealing to young Chinese talent. Some foreign companies have also been known for tedious and long work hours and schedules, for some who calculated this found working for the state a better choice. Another is a disadvantage for foreign corporations who have created this ‘glass ceiling’ that senior roles are reserved only for expats. With local Chinese companies such as Huawei increasing numbers of returning Chinese graduates are weighing the options of working at a China subsidiary of a foreign company when they could work at the global headquarters of a Chinese company. The recent breakthrough of Alibaba on the global market only strengthens the idea of working for a China-based company.

I suggest if foreign companies want to retain top talent they have to start creating and implementing leadership development programs to attract and retain in order to grow. We should be particularly focused on the future Gen Y employees and design a strategy to attract and retain from the state and local private. For graduates, however, working within the system means political connections that can come in useful further down the line where in this year [2014] we have seen almost triple the growth of start-ups from Gen Y. Political connections gained from working in the state is one of the biggest attractions that draw talent away from foreign corporations.

Companies such as German BASF, The Chemical Company, annually select potential Chinese managers on a 2-year international assignment in their German headquarters. They also actively recruit Chinese graduates from German universities into management trainee programs that start in Germany, rotate through Asia and end up in roles in their China operations. Paula Green who is vice president of human resources services at Qiagen, a biotechnology company from Germany made a comment that, “Until a year ago, we did not have to worry much about competition in China . . . now we do. We need to establish our HR brand, including top notch training and leadership development programs, to attract and retain the talent we want.” Foreign companies currently still have an advantage where Chinese private-owned companies still face challenges in modernizing their internal management systems; they must still invest in their human capital, for them to be competitive with foreign companies.

Although the Chinese economy had slowed down in the recent years; foreign direct investment is still strong. And so there is still a demand for talented professionals in a range of fields from human resource, research and development, and sales and marketing.  If foreign companies can make the changes and implement long term development programs in leadership for the young talent I believe that we can still be competitive in the market! 

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Instagram blocked in Chinese mainland

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Alibaba sells the largest IPO in History

In June, we posted an article on Alibaba going public with its IPO listing in the US making it the biggest in history. As the US markets will be opening up hours away let’s take a closer look at the e-commerce giant.

Should you buy?

Here are a few of my personal reasons why you should look into buying Alibaba shares now listed as ($BABA). If you buy Alibaba, you actually buy a holding company - Alibaba Group Holding Ltd. - based in the Cayman Islands that has certain rights to the Chinese company. As a buyer you are taking a big risk where there is nothing really typing you as a share holder to the assets and the entity itself . . . I know what you’re thinking, “Hey that doesn’t sound like a very good deal.” You’re not alone on that thought as for those who have and haven’t dealt with companies having VIE structures. If I was to give you some reassurance is that Jack Ma at the helm (Alibaba’s structure puts Jack Ma in control with an 80% control as executive chairman), and he knows what he is doing.  If Jack Ma and the original 18 that founded Alibaba started from where they were to now, I think it’s safe to assume that Jack Ma is going to continue to bring Alibaba on the global stage. At the recent road show in the US Jack Ma announced their plans to the few hundred in attendance (some amongst them were big names such as Tepper – Appaloosa- , Loeb - Third Point -, and Cooperman - Founder of Omega Advisors-) all of whom are very keen on investing. In a survey conducted after the road show the results concluded out of 160 potential investors who attended, 90% of those were still planning to buy; this increased the number of investors willing to buy by 7% from a July survey. A hedge fund employee from Morgan Stanley made a comment that, “The books are building” where there is a large demand from around the globe. So we could most likely see some more heavyweights wanting to cash in. Some sources also say that because of the demand Alibaba received enough orders to cover its entire IPO just two days before the road show!

 Jack Ma is low balling the price of the IPO at the moment and so far it is working by where their value of $60-66 per share has now increased to $66-68 because of the increasing demand! This increased price would bring Alibaba to a market value of more than $170 billion. If we were to compare, that it is three times the size of General Motors, or Costco, and five times the size of Delta Air Lines. Some would’ve predicted that the shares would be valued higher. Henry Guo a senior research analyst at JG capital says, "The valuation here is really below what we had expected. We are expecting [a valuation of around] $200 billion, which would translate into $90-100 per share." Sagework's Brian Hamilton added that the company’s sales growth and its net profit margin of 44% are “amazing.” Hamilton in an interview with CNBC’s show “Closing Bell” further added that, "This Company’s got positive cash flow, net profits, good growth, and big market."

Thinking twice to invest

Now that we got the good out of the way let’s also get into why investors might think twice about investing in this e-commerce giant. First make note that this is a Chinese company whom is part of a regulatory market so at any point it is possible that the government can shut the whole operation down. The companies unusual structure of the VIE,  one could call it, “Its hot potato” because this is based on the idea of trust because as long as this platform of conducting foreign business holds and no one tries to break any of the contracts aren’t violated and shareholders don’t sue. But if there is a loss of trust and the whole thing falls apart. In an extreme scenario Chinese companies could simply walk away with foreign investor’s money, and that is a big scare for many.

 Is Alibaba going to make the same mistake of making the price too high as Facebook had done before? Facebook’s at the time it was considered one of the most hyped-up start ups from Silicon Valley, however its IPO launch was a disaster Which a high demand for stock Facebook released more shares than they should have with a price of $38 per share. As a result the stock couldn’t sustain and underwriters have to jump in so the stock didn’t fall below the opening price on its trading day. Later on Facebook stocks could be sold for half the price than its initial offer. So is Alibaba at risk of falling down the same path as facebook with its price? Jack Ma has emphasized he hopes the majority of the sales go to long term investors than those looking for the short term quick cash. In my opinion I am doubtful Alibaba will make the same mistake when we look at the heavyweights coming into this deal. Alibaba is currently focusing on the big boys right now making sure most are staying on the same page and seeing his vision while leaving out the smaller clients; this is a contrasts  compared to some of Facebook’s smaller investors whom got tangled with their IPO and could sell resulting in big losses for those.

Investors might also have difficulties with Jack Ma’s statement that shareholders come third [last] on his list. For Jack Ma he is focusing on consumers first so that in turn investors can benefit from them. This is a different approach where in the west executives treat shareholders first. But what this means for Jack Ma is that he is trying to manage expectations for American investors, doing so by not going to go quarter to quarter looking for the quick cash, but rather going for the long term. And so what this means is he will is going to make acquisitions that shareholders may not like or where are the synergies going to be? There are also other factors that affect views. There are allegations of corporate fraud (fake products being sold on the market) to questionable accounting to maddeningly cumbersome government rules (hindered ability to do due diligence).

What is the future of Alibaba in the West?

After cover most of the material I think is important towards the coming days. Alibaba is opening sales on Friday, September 17. We can only speculate what will happen after. As we mentioned Jack Ma is looking towards the longer term investments in the US, and hopefully if all goes well we can see some great ventures in the future. “What Jack Ma is really trying to say is that he will not succumb to short-term investor pressure,” said Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong. “His logic is that if he treats his customers and employees right, at the end of the day he will have a good company, which will be good for the investors.” At the same time you won’t see $BABA on any of the major index’s such S&P 500 because they are not a US company, this may go as well for the other index’s which could mean less buying from institutional shareholders.  You also will not be seeing much action from the retail market i.e mom-and-pop crowd. For now the best thing for retail to do is be patience and wait where eventually some of the stocks may trickle down.

Alibaba doesn’t really need to venture out of China (this year alone in Q2 2014, Alibaba reported $2.5 billion in revenue). Clearly, Alibaba will face tougher competition in the U.S., not just form eBay and Amazon, but from such powerful merchants as Wal-Mart, Best Buy, Macy’s and others that are now taking the web seriously. It would be very difficult to dislodge such heavily entrenched companies, but as well Alibaba doesn’t aim to be a main competitor against such heavyweights on home turfs.  Even if Ma were to dramatically lower commissions—as he’s done on the modest 11Main.com marketplace Alibaba launched in June—Amazon and eBay could match his prices if needed.

In the meantime before Friday, the company has been busy buying. So far the company has invested heavily in mobile messaging, online video, and bought a 50% stake at the Guangzhou Evergrande Football Club. Some could speculate that the company is looking beyond e-commerce by willing to branch out and see where the next big thing in consumer adoption of technology. Alibaba would most likely to be a big player in other markets (such as gaming, and entertainment) where competition is less intense, and in whatever new consumer-oriented services emerge in the next few years. With Alibaba coming to the US we can speculate that those who are not familiar in the Chinese markets or business may want to venture out and see what opportunities are available. 

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New amendment to the AIC annual examination process

In China, companies are required to report to the AIC (Administration for Industry and Commerce) for annual examination and submit relevant documents such as audit reports. More recently in 2013-14 after a series of exposures towards the Chinese had created a change in policy. The new amendments for the annual examination changed to a more relaxed process of an annual report. The AIC as well have started a more aggressive venture into anti-corruption practices, in particular, appearing to holding foreign firms more accountable.

What is the AIC?

The AIC is the Administration for Industry and Commerce. It is the body responsible for the protection of trade marks in the administrative strand of the system. It is wide-ranging arm of the government; its overall responsibilities include the supervision of commerce and markets such as: Law of Companies; Unfair Competition; Advertising; Trade Marks.

AIC for Foreign Investors

So what does the AIC mean for the foreign investors? It’s obvious that the AIC has an impact in all business dealings in China. Prior to 2014 the AIC required a annual examination process in which it was mandatory for companies to provide details of a company's shareholding structure, directorship, capital payment and annual inspection status, a qualified Chinese lawyer needed to do an on-site search (visit to the site) at the relevant AIC which they might withhold such information (In some cases, the government now only grants company record access to Chinese lawyers involved in litigation against a company or when the company gives its permission in writing).

Amendment Changes

There was a breakdown of trust in 2011-13 when a series of allegations caused the government to create changes to the amendment and the role of the AIC. One of the early incidents that occurred in 2011-2012 when short-seller Muddy Waters shorted Chinese stocks that they believe were fraudulent. Their released reports consequentially were viewed as Anti-Chinese by the authorities. This would then lead to Bloomberg running exposures on the web that not only covered Chinese Politburo member Mr. Bo Xi Lai and his wife, but as well  and then gave the family of China’s soon to be (now current) President Mr. Xi Jinping. The New York Times would provide more fire to the increased tension when they released a detailed piece about the wealth of Premier Wen Jiabao’s family. These instances caused a rift in Chinese business and Beijing responded by clamping down on information further adding that “Some lawyers have abused the data by selling it.” 

It would be in fall 2013 where Beijing passed a new amendment to the annual examination process which became in effect March 1, 2014. The new process is now called the annual report process which requires the company to disclose their documents voluntarily, and the AIC will randomly select company to see if they have followed the requirements; but at the same time there will no longer be any site visits. Companies would have to file their reports in the first half of the year and then at the end of the year the local AICS will transfer that information to the SAIC to be uploaded on their database through the newly issued “Enterprise Credit Information Disclosure System.”  Whether the information companies provide is accurate is truly uncertain.

 AIC targets Microsoft

More recently AIC probed Microsoft on the suspicion of “monopolistic behaviour.” The AIC launched the probe saying that the company may have broken anti-monopoly laws regarding compatibility, bundling and document authentication for its Windows operating system and Office suite of applications, "problems like incompatibility and other issues caused by a lack of released information about its Windows and Office software," according to a statement on the agencies website.

This would not be the first time that Microsoft has had anti-monopoly accusations. In 2008 the AIC launched a similar investigation when the company bundled its piracy software with its operating systems. 100 officials from China's State Administration for Industry and Commerce suddenly and unexpectedly visited Microsoft offices in Beijing, Chengdu, Guangzhou and Shanghai on Monday, according to one report. The officials—referred to as "investigators" in a separate report—questioned employees at each location aside from the SAIC teams of investigators going to the four Microsoft office. However as the investigation continues Microsoft says this is disrupting their business in China as they are trying to break into Chinas market.

What can we take from this?

 “A survey of 164 members showed 49% of respondents felt foreign companies were being singled out in recent pricing and anti-corruption campaigns, compared to 40% in a late 2013 survey of 365 members. 25% said they were uncertain, or did not know, and 26% said no.” The AIC databases of the Chinese Corporations are the first steps that investors, lawyer, and or private equity funds look for when searching for companies in China.  An equity analyst may try to find the value of a company partly using these files. A manufacturer looking for a partner to buy parts from in China would also want to get the AIC files of companies to see whether they were viable operations.  If there is no proper method of obtaining these documents this could mean big issues and problems later on and it will affect potential and or current business deals because companies that want to do work in China maybe looking at old or outdated information, because the AIC only picks companies at random.

It is because of these AIC probes that are giving foreign companies second thoughts by creating a “weak business environment” because of the lack of information available. In addition the Chinese government is concerned about the domestic consumer economy fearing the growth could stall, with severe repercussions but with its recent practices, Chinas 50 million individual investors lost an average of 40,000 Yuan last year. Fredrik Oqvist, (a Beijing-based independent consultant and analyst) made a statement that, “It’s going to be a more risky investment because you can’t double-check their figures anymore.”           

Case Story from Legal Mall

            This year Legal Mall had one client (for privacy reasons we will refer to them as “Client A”) from an investment firm in the US that approached us asking for the SAIC financial filings for three companies they listed. Problems were encountered later on when the client asked for the recent filings of their three companies from 2013. For years such as 2011-2012 were more feasible to attain with the new amendment it the process was much more difficult. After getting in touch with the Beijing Administration of Industry and Commerce (BAIC) we needed a case-filing notification issued by the course which they would not disclose any information to us until then, while in some cities the government may allow the release of financial (Client A did not have the court documents that would allow us to gather the information). As a result of the current obstacles Client A wished to postpone their project until a later time.

In need of Chinese business partner related legal aid or help with conducting Chinese due diligence? Check out our easy to use online LEGAL SERVICEwebsite www.legalmall.net ! We also provide company search service, the most essential LEGAL DOCUMENT TEMPLATES ready to be downloaded, online Q&A, legal solutions tailored for your needs and even a free legal fee calculator for estimating legal costs.

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Get Your Hands Dirty-Do Your Due Diligence in China

It should come as no surprise that there are many cases of fraud that occur between Chinese companies and foreign enterprises. Too many foreign corporations seeking a joint venture with a Chinese company find themselves in the unfortunate trap of a simple business process, followed by a couple of payments, only to find no return for their consideration and no means of recourse. These companies have failed to do their due diligence and have suffered the consequences.

Not so in a recent background check conducted by Rayyin & Partners on a Hong Kong company. An American company wisely contracted Rayyin & Partners’ services through LegalMall, and thus have saved themselves from a potentially damaging business relationship. The Chinese company in question, or rather Hong Kong company, had some very impressive credentials that would have tempted any business investor such as being incorporated in the Cayman Islands, and an investment project profile that included Chinese computer giant Lenovo, Alibaba, and Beijing Beer Group. However, Rayyin & Partners dug through the gaudy surface and found that all the information given to the American company was false. The Hong Kong company, if it ever existed, may have been incorporated in the Cayman Islands at some point but the name given was struck off the General Registry in 2003. Furthermore, the address provided for its headquarters in Hong Kong was wrong, and was actually located in a somewhat suburban and isolated area in Hong Kong, no place for an investment company of its supposed caliber. There was no record of any investments the company had supposedly been involved in, and to top it all off, even the phone number only lead straight to voicemail when called during business hours. The kicker? The voicemail message was in mainland China accented Mandarin, not Cantonese or English.

Let this case serve as a cautionary tale for those seeking to do business in China. What’s hundreds, or even thousands, of dollars spent conducting a proper background check, when it could save your company millions?

In need of Chinese business partner related legal aid or help with conducting Chinese due diligence? Check out our easy to use online legal service website www.legalmall.net ! We also provide company search service, the most essential legal document templates ready to be downloaded, online Q&A, legal solutions tailored for your needs and even a free legal fee calculator for estimating legal costs.

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Giving Back and Giving Forward to Shenzhen Lawyers

Just recently, Partner Yi Zhou of Rayying & Partners was elected as head of the International Law Section of the Shenzhen Law Society (similar to a Bar Association in the US). He accepted the position out of a desire to give back to the legal profession, and especially to serve as a mentor to other Shenzhen attorneys in the areas of international law and professionalism. Partner Zhou plans to accomplish his goal by setting up several teams within the International Law section to foster cooperation by conducting market research of Shenzhen international legal businesses as well as conducting legal research on domestic enterprises and companies investing overseas. In so doing, Partner Zhou hopes these efforts will result in a deeper understanding of the Shenzhen market and lead to the implementation of better solutions that will help with the professional development of Shenzhen attorneys.

In need of Chinese business partner related legal aid? Check out our easy to use online legal service website www.legalmall.net ! We also provide company search service, the most essential legal document templates ready to be downloaded, online Q&A, legal solutions tailored for your needs and even a free legal fee calculator for estimating legal costs.