Date: September 2008
Source: China Law & Practice
Articles Link
The National People’s Congress has announced the first reading of the proposed amendments to the Patent Law.

The draft amendments have raised the threshold for invention applications and placed harsher penalties for breach of piracy acts.

Shirley Kwok, partner at Bird & Bird, said that the amendments appear to be relatively soft in their approach and they “primarily codify a lot of well-accepted existing practices.”

Many of the controversial measures on parallel imports were removed. Under the draft, applicants can apply for foreign patents even before obtaining Chinese patents.

The draft also requires applicants of an invention to go through a secrecy examination before a foreign patent application can be filed, which Kwok says could deter multinational companies from investing in R&D in China.

As the draft amendment has not yet been approved by the People’s Congress, Kwok said it remains unclear just what the final amendments will be.

The amendments are expected to become law in early 2009, according to Paul Jones, barrister, solicitor and trade-mark agent at Jones & Co. The public are invited to offer comments on the amendments through until October 10 2008.

By LI JING (China Daily)
2008-09-01

In its battle against environmental woes, China has added an additional green law to its expanding arsenal of legal weapons.

Last Friday, the Circular Economy Promotion Law passed the third and final review by the Standing Committee of the National People’s Congress (NPC), China’s top legislature, and will take effect beginning next year.

The law will provide a framework for promoting a new model for economic growth, which requires that resources be used with higher efficiency and reused and recycled when possible.

The alteration of the law’s name features the biggest change in the third review by the lawmakers: “promotion” is inserted after the circular economy, as experts suggest this economic model is still at the initial stage in the country.

Cheng Jinpei, vice-minister of Science and Technology, says that it is urgent for China to switch to a circular economy, and to have a legal norm to guide the change. As a result, the bill at the moment will mainly focus on basic principles, rather than concrete restrictive rules.

Wang Jianzeng, deputy director at the China Association of Resource Comprehensive Utilization (CARCU), denies that the change of the law’s name suggests reluctance by the central government to promote the circular economy, because “the content remains the same”.

But Wang admits that it is difficult for the country to realize the new development model in a short term.

“China has been focusing its attention on economic development through massive exploitation of natural resources in the past decades. It will take time to change, ” Wang tells China Business Weekly.

The Circular Economy Promotion Law is expected to push the change, as the country is now legally bound to saving resources and protecting the environment.

The law stipulates that governments at all levels should make plans on the development of the circular economy, establish systems to control energy use and pollutant emissions, strengthen management of companies with high energy and water consumption, and make policies to divert capital into environmentally friendly industries.

It also introduces reward and punishment systems for companies, encouraging them to develop a recycling economy and making them responsible for the recycling of their products.

The law requires the government to allocate special funds for supporting technological research, key projects, education, capacity building and the establishment of an information network.

Incentives, such as favorable tax and investment policies, will also be offered to organizations that take an active role in China’s circular economy.

But the new green law has missed the chance to integrate a market-oriented measure to optimize the utilization of resources.

During the second reading of the draft law in June, a progressive pricing system for household use of water, electricity and gas in urban areas was deleted from the draft.

The progressive pricing method regulates that people pay higher bills when they consume over a government quota.

However, after researches and pilot projects, members from the Standing Committee’s Legal Affairs Commission decided that it is still too early to implement progressive pricing nationwide.

This is because it is difficult to determine a reasonable and fair quota for each household, especially for some large families. Low-income families, which are sensitive for the price fluctuations, may face pressures from the increased bills, according to the lawmakers.

Currently prepaid-card meters for water, electricity and gas have been installed in many cities. It will require a large amount of investment, as well as technology support to alter the meters to fit with the new pricing system, which is also considered a major obstacle.

The Circular Economy Promotion Law retains the market-based idea, which says, “the country will adopt a pricing policy conducive to save resources, and guide the whole society and individuals to make better use of resource products such as water, electricity and gas.”

The draft law was submitted for the first reading one-year ago, but China’s efforts to develop a circular economy was much earlier than that.

Inspired by Japan and Germany’s recycle economies, China designed its own version based on the widely accepted 3R principle – “reduction, reuse, and recycle” in late 1990s.

The average energy consumption per unit product for energy intensive industries, such as steel, electric power and cement in China is 20 percent higher than in the developed countries, according to Feng Zhijun, vice-chairman of the Environmental and Resources Protection Committee of the NPC.

“But the overall recycling rate of mineral resources is 20 percent lower than the international level,” Feng says.

The country’s top leaders have realized that continuing this unsustainable model of development is simply not possible.

The concept of the circular economy was officially raised as a target for China’s future growth in 2004. The State Council, or China’s cabinet, issued a file about promoting it in July 2005, making it a key guideline in the 11th Five-Year Plan (2006-2010).

Since 2004, the country started to sponsor a series of pilot projects of the new economic model in specific sectors, such as coal and chemical production, electricity generation, building materials and recycling of household appliances.

A total of 10 cities and provinces, such as Beijing, Shanghai, Shandong, Guiyang, also experimented with building a circular economy.

Lessons and experiences drew from such practices have provided useful references to the legislators when drawing up the draft law on circular economy.

In the past several years, China has strengthened its efforts to further improve its environmental and ecological situation through the adoption of more forceful green legislation.

The enacting of Energy Conservation Law on April 1 this year, and Law on the Promotion of Cleaner Production in 2003, as well as other environment related laws and regulations, established a legal framework for China’s green measures aimed at sustainable development.

“Although these laws share the same goal, their contents have a different emphasis, for example, on recycling of resources through a new model of economic development and on energy conservation in all walks of life,” says Wang Jianzeng from CARCU.

“Together they make a sound legal system to guide the green efforts,” says Wang.

By WANG LAN (China Daily)
2008-09-01

Slowing exports in China is pushing many low-cost manufacturers out of business and forcing others to either merge or restructure.

Although the process may seem painful, especially at a time of tightening bank credit, economists and industry experts say it can help the economy achieve a more balanced, and therefore, more sustainable growth in the longer term.

“The slowdown in export growth may mount pressure on the industrial sector to expedite its restructuring, with more emphasis on quality and marketing,” says Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce. This, he says, would represent a slow but significant shift in focus of China’s massive industrial machine from exports to domestic sales.

“Of course, China could move toward a balanced economic growth without a slowdown in exports as well, but the process could take much longer,” Mei adds.

Growth of merchandise exports in the first six months of this year dropped by 5.7 percentage points from a year earlier to 21.9 percent, latest trade figures show. Total imports of goods in the first half, by contrast, jumped 30.6 percent, up 12.4 percentage points from a year earlier, narrowing the nation’s trade surplus by 11.8 percent to $111.9 billion.

Despite moderate export growth, China’s GDP growth is still largely driven by overseas shipment. Economists and experts say an excessively heavy reliance on exports to fuel economic growth is unsustainable because a rapidly expanding trade surplus could not only increase trade frictions with importing countries but also requires constant government intervention to moderate the expansion of domestic money supply and, more importantly, bank credit.

Mei and other economists say it is high time the domestic industry upgraded and moved up the value chain to high-profit segments. This, they say, can only be accomplished by developing an internal market large enough for domestic enterprises to establish a track record of quality in design and manufacturing.

Economists say that after many years of persistent increase in exports, the prospect of the overseas marketplace expanding even further is seriously constricted, especially at a time of declining global demand. Instead of increasing export volume, Chinese enterprises should make greater efforts to narrow the gap between the prices of exports from China and retail prices in the global markets by adding more value to the traditionally low-cost goods, experts say.

“For a long time, we have achieved export growth by increasing volume rather than value,” says Mei. “But the real way to sustain exporters’ growth is to improve production efficiency and profit margins, which will, in turn, add greater value to the products.”

Mei suggests exporters establish their own brands and develop high-value-added products to gain international competitiveness and increase their capabilities to withstand risks resulting from uncertainties in international markets. “Export enterprises need to move up the value chain by establishing their own brands, marketing, research and development capacity and distribution networks.”

Economists and industry analysts say a more convenient way for Chinese exporters to climb the value chain is through acquisition of assets from established global brands. Because of the renminbi’s appreciation against the dollar and many other major world currencies in the past two years, foreign assets have become a lot cheaper and hence easier for Chinese businesses to pick them up.

The experts also say the government should make it easier and provide more incentives for domestic companies to expand overseas. Hard times are testing the will and capability of Chinese enterprises to wean themselves from the comfort of being “the factory of the world” to become one of the major innovators, economists say.

Since late last year, a combination of factors including falling overseas demand, renminbi appreciation and rising material and labor costs have squeezed profit margins of low-end manufacturers, many of whom have been forced out of business.

Take toy exporters for example. In the first seven months of 2008, toy exports totaled $4.18 billion, with the growth rate dropping 22.4 percentage points to 2.1 percent. In Guangdong province alone, toy exports during the same period totaled $2.91 billion, with the growth rate slowing 39 percentage points to 4.8 percent. An estimated 3,618 toy manufacturers in Guangdong were put out of business in these first seven months.

It’s the same story in Zhejiang province, home to many textile and garment exporters. In the first five months of 2008, there were 10,700 enterprises above a prescribed scale of operation running at a loss, accounting for 19.6 percent of the total.

Wang Jianying, general manager of a toy manufacturer in Yiwu city of Zhejiang, tells China Business Weekly: “More and more exporters find that without a better designed and highly innovated product range, it is difficult to survive the current situation, when the yuan’s rise against US dollar and other major currencies is eating into our revenue as labor and raw material costs are also increasing. In the past, like most toy exporters, our USP (unique selling proposition) was low price, but now we have to turn to high-value-added orders, which can generate much higher profit and sustain our business.”

In addition to the efforts of enterprises to restructure their products and improve profit margins, the central government and some local governments have also taken measures to address the problem of insufficient funding for enterprises hit by the credit curbs to combat inflation.

In early August, the National Development and Reform Commission said it was considering establishing a bank specializing in lending to SMEs to broaden their sources of finance. A week later, the People’s Bank of China, the central bank, increased the annual loan quota by 5 percent for national commercial banks and by 10 percent for local commercial banks, taking into consideration that SMEs make up the larger proportion of their clients. The increase in lending as a result of the increase in loan quota is expected to go to SMEs, which have a stronger demand for loans than the large State-owned enterprises, economists say.

Some local governments have also encouraged the establishment of microcredit firms to provide more loans to local enterprises. The first batch of such microcredit lenders, mainly in Zhejiang, will start providing loans from this month after getting the go-ahead. Other provinces such as Guangdong, Jiangsu, Anhui and Inner Mongolia are also preparing for the launch of microcredit lenders.

By Han Lei and Zuo Likun (chinadaily.com.cn)
2008-09-05

Chinese enterprises, especially small and medium ones, are facing a harder time because of the combined effects of the global slowdown, tight domestic credit, rising costs and an appreciating yuan.

About 67,000 small and medium-sized enterprises (SMEs) went bankrupt throughout China in the first half of the year, according to National Development and Reform Commission (NDRC), the country’s top economic planner.

Many of those that managed to stay afloat are desperate to cut costs, mainly through worker layoffs.

“Business is poor this year, especially since May,” said Liu Yongcheng, a senior executive of the Zhejiang Adwin Furniture Co Ltd in east China’s coastal province of Zhejiang. His company’s exports to the United States have plunged, as American consumers tighten their belt amid the deepening housing and credit crisis there. Liu had to cut his workforce by one-fifth to 400, well below the factory’s full capacity.

Large firms fared better, but only by a little. In the first six months, firms listed in the domestic stock market reported a 16.3 percent growth in profits year-on-year, a sharp drop from the 80 percent for the same period last year.

A look at Gross Domestic Product (GDP), the most important gauge of a country’s economic performance, tells a similar story. In the April-June period, China’s GDP growth slowed to 10.1 percent from almost 12 percent growth achieved last year.

As China’s economic growth has declined for four consecutive quarters, many have predicted that growth may drop further in the second half of 2008, as the European Union, the largest destination for Chinese exports, draws closer to a recession.

Traditional wisdom has it that China has to maintain its growth rate above eight percent to keep its workforce employed.
Actually, SMEs employed 75 percent of the country’s workforce and created 85 percent of new jobs each year, contributing substantially to the country’s economic well-being.

That’s why decision makers are coming to the rescue with a host of measures, including encouraging commercial banks to make loans to SMEs by raising their credit quota.

China issued revised regulations on the management of foreign exchange on Wednesday night that provide heavy penalties for improper currency transfer and conversion, among other moves.

The revised regulations took effect immediately. They are intended as a response to the swift growth in the country’s foreign reserves, which have soared to $1.8 trillion, and rising cross-border flows.

Unauthorized inward or outward transfers of foreign exchange will face penalties of up to 30 percent of the capital, under the regulations.

The revised regulations state that relevant government departments should simplify the administrative examination and approval procedure on foreign direct investment exchange management.

Departments were given the right to crack down on illegal foreign exchange inflows, illegal exchange settlement and other improper activities.

The regulation also said that the currency, Renminbi yuan, should be traded among government-approved banks.

It also stated that exchange rate fluctuations should be based on the supply and demand in the market. China lifted the official peg of yuan to the US dollar in 2005, but it still manages the trading range within a daily limit.

The regulation also asked relevant departments to create a fair competitive environment by abolishing the differential policies that applied to domestic and foreign companies, State-owned and private ones, and organizations and individuals.

“The inflow of hot money has had some negative impact on the economy. It is hoped that the regulation can enhance monitoring and control some speculative investment and foreign capital inflows,” said Zhang Ming of the Chinese Academy of Social Sciences, a research organization

Yang Liwei, China’s first astronaut, will run the opening leg of the Olympic torch relay in Beijing, which starts at 8 am today at the Meridian Gate of the Forbidden City.

Basketball star Yao Ming, who some media said would run the first leg, will be the ninth torchbearer.

“Yang helped China realize its dream to travel in space, and now we are living another dream of hosting the Games,” Sun Xuecai, deputy director of the Beijing sports administration, told a news conference Tuesday.

China became the third country – after the former Soviet Union and the United States – to put a man in space, when in 2003, Yang orbited the Earth in a module of the Shenzhou V spacecraft.

Today’s relay will involve 433 torchbearers, including 29 foreigners and one representative of each of Hong Kong, Macao and Taiwan.

Australian Colin Giles, president of Nokia China, told China Daily Tuesday: “I was born into a sporting family, and participating in the torch relay will be one of the most memorable and important moments of my life.”

The Olympic torch relay is a bridge that connects different countries and cultures, and that, in true Olympic tradition, can help us foster a spirit of peace and friendship, he said.

“My wife is from Taiwan and my two daughters were born in Taipei and Beijing, so our family contains both Western and Asian cultural influences,” Giles said.

Another of today’s runners will be CCTV anchorman Bai Yansong.

“The power of an individual torchbearer is limited, but we are just like matches, and we can light people’s passion for the Games,” he said.

Li Furong, vice-chairman of the Chinese Olympic Committee, will run the final leg and perform the ritual lighting of the cauldron at the Hall of Prayer for Good Harvest in the Temple of Heaven.