Review of the first Global Member Salon of Swiss-Chinese Law Association: Belt and Road and New Opportunities and Challenges
The first Swiss-Chinese Law Association Global Online Salon was held on January 31, 2020, from 20.00-21.30 BST. The Global Online Salon was mainly based around the Belt and Road and new opportunities, with more than 20 members and 10 external professional lawyers from more than 5 countries and regions participating to discuss the opportunities and challenges for Chinese lawyers in 2020 under the wave of internationalization.
“A Global Community of Central European Lawyers, Global Vision and Global Voice”
On January 31, 2020, at 8:00 pm BST, the Global Salon started with Laura Devin, Zhang Tianze, and Huang Rue, directors of the Swiss-Chinese Law Association (SCLA), who introduced the background of SCLA to all participants. The goal of SCLA is to become a global community of Chinese Swiss, and Chinese and European lawyers with a global vision and a global voice. The Swiss-Chinese Law Association comprises members representing different professions from four countries, including law firms, international organizations, and the private sector. SCLA is also committed to advocating and building a more transparent and high-standard legal market and legal services system.
Ms. Lindemann said that she is now promoting friendly exchanges between Switzerland and China through conferences and other forms. She hopes to lead a Swiss delegation to China this year to improve mutual exchanges and communication between the two countries. Ms. Lindemann also introduced the members of the Swiss-Chinese Law Association Board of Directors. She expressed her hope that the Swiss-Chinese Law Association could hold a global meeting once a month on a specific topic. Board member Huang Yue hoped that the Swiss-Chinese Law Association could explore the issues facing the country on an international platform, for example, by involving Chinese lawyers in the development of international rules and treaties. She also emphasized that it is now a critical time for the world to work together because of the unrestricted spread of the epidemic coronavirus. The World Health Organization has declared coronavirus a global health emergency, and China and all countries should strengthen mutual communication.
Compliance issues that Chinese companies may encounter when going to Belt and Road countries and regions
Gao Jun, Partner, Beijing Zhong Lun Law Firm
Mr. Gao’s presentation focused on the compliance and regulatory issues of “One Belt, One Road.” To better understand the topic, he began by reviewing the history of Belt and Road. “The Belt and Road is a government-driven project, and understanding its history can provide a better understanding of the extent to which political factors influence business. President Xi Jinping announced the Belt and Road Initiative during his visit to Kazakhstan in September 2013. The Silk Road Economic Belt construction requires strengthening the “five links,” namely policy communication, facility connection, trade flow, financial integration, and people-to-people contact. In the same year, he visited Indonesia and announced the 21st Century Maritime Silk Road building.
In 2014, the Central Leading Group of Finance and Economics began implementing the Belt and Road Initiative. China established the Asian Infrastructure Investment Bank (AIIB) in 2013, and the inauguration ceremony was held in Beijing in October 2014. In 2015, seeing the release of the official outline and blueprint of the Belt and Road by the National Development and Reform Commission, the Ministry of Foreign Affairs, and the Ministry of Commerce, with the approval of the State Council. The high lawyer illustrated by numbers a large amount of investment in countries along the Belt and Road in 2019. For example, China has signed various cooperation agreements with as many as 132 countries, of which 90 memorandums of understanding have already been implemented. “Belt and Road M&A accounted for 56.5 percent of global M&A projects.
However, corruption and bribery still exist in many of the Belt and Road’s large infrastructure projects. “The Belt and Road Initiative has gradually changed China’s traditional relations with other countries. Legal risks are serious problems for Chinese companies investing in host countries, so a stable legal environment is crucial for OFDI from home countries. Culture clash is another risk that cannot be ignored. Chinese companies are very concerned about labor risks in business operations. As more and more locals are employed, labor disputes increase, and local people are sometimes too demanding human rights protection, putting Chinese companies in a difficult situation.
A sound Belt and Road legal environment are necessary for developing the Belt and Road. Therefore, measures should include: The Chinese government and countries along the Belt and Road should work together to ensure a sound legal system conducive to Chinese outbound direct investment. Furthermore, the host country should ensure fair and reasonable competition between domestic and foreign enterprises in all aspects. In addition, all parties concerned should optimize dispute resolution procedures. For example, they could use arbitration and mediation in their broader practice.
Belt and Road and Corporate Social Responsibility
Kolja Roman Targan Professor, University of Science and Technology of China
Targum Law began by talking about China’s relatively unified policy. He emphasized that China and Africa are partners in many ways, including trade and investment. One of the themes at the upcoming 2020 summit is actively unifying positions with China. There are three main issues currently: investment agreements with China, cooperation between Africa and China, and corporate social responsibility (“CSR”).
In terms of compliance with CSR, CSR is a collective agreement with partners through which a positive impact on society can be achieved. The minimum requirement for companies is to comply with social norms and related responsibilities, which cover a wide range of areas that are not limited to environmental protection, consumer protection, human rights, public health, etc. Companies should focus on profits and maximize stakeholders’ value in society as a whole through corporate social responsibility. Germany has suffered from corruption, bribery, and unfair competition. But over the past two decades, the understanding of CSR has changed dramatically.
The key to CSR is reaching compliance with legal contracts, and relevant entities should advocate active shareholder participation in the board decision-making process on key issues, including director compensation and related party transactions, and understanding shareholders and directors. In addition, transparency should be promoted by registering legal ownership and beneficial ownership, as the actual recipients of benefits are not always the legal owners.
Chinese M&A in Switzerland: Transaction challenges and legal advice
Jacques Bonvin, Partner at Tavernier Tschanz
Jacques Bonvin, Esq. began by sharing his thoughts on the M&A backdrop. Despite the economic slowdown last year, many deals still confirm the upward trend of cross-border M&A transactions. However, global regulatory frameworks like US-China and EU-China have become so stringent that many rules and regulations run counter to China in China’s development. This makes it difficult for China to engage in cross-border M&A. Thus, the current restrictions on China have been shaped by the current M&A market dynamics.
Switzerland has its unique appeal to Chinese investors, he said. The host country has economic and political stability and government security, a favorable legal and regulatory framework compared to other countries. It welcomes Chinese buyers to freely enter and exit their investments. As a result, Switzerland is an important location for Chinese investors looking for Swiss brands, Swiss technology, and Swiss teams (local employees). Moreover, through Switzerland, Chinese buyers have a great potential to increase the value of their outbound investments.
Although many deals have been completed between China and Switzerland, a relatively standardized approach to transactions has not yet been developed. For example, there is no proper M&A process. This may be due to different cultural backgrounds, different approaches (relationships, the form of meetings held, the transaction process, and the terms and conditions of the agreement), and the ongoing trust-building approach. However, all of the above M&A issues are subject to perceptions and realities.
There are many challenges in conducting an M&A transaction. First, M&A transactions follow different approaches and interpersonal relationships as far as trust and respect are concerned. Parties need to adapt to different approaches, such as meeting styles and negotiation processes. They must also pay sufficient attention to respectful behavior such as “losing face. To avoid any unnecessary conflicts, parties may consider appointing trusted advisors for cross-border M&A transactions. Second, “knowing the buyer” is another challenge. In other words, parties need to know whom they are dealing with. Identifying counterparties and counterparty decision-makers can be difficult, especially in complex corporate structures. Language is another issue. Trust and regulatory issues are also major problems due to different cultural backgrounds.
Third, parties with different backgrounds use different risk perceptions and due diligence approaches. Negotiation methods then present a fourth challenge, where parties must adapt to a variety of issues, which include negotiating teams with different structures, negotiation attitudes, meeting handling (direct/indirect approach), action plans/timeliness (timelines are sometimes subject to other concerns), advisory roles and “terms of the agreement.” The parties must adapt to a variety of issues, which include negotiation teams with different structures, negotiation attitudes, meeting handling (direct/indirect approach), action plans/timeliness (timelines sometimes receive other concerns as well), consulting roles; and “terms of the agreement.”
Fourth, on the regulatory side, parties must deal with multiple types of issues, such as the complexity of the transaction, the multiple layers, and the issue of “black box” issues (the involvement of many parties in the transaction that are not explicitly disclosed). Regulation will also impact the process and timing of the transaction. Finally, the challenges include financing, external risk, and deal certainty. In terms of deal certainty, this will also have an impact on bidder selection (e.g., Huawei), price (“China premium”), and deal structure.
Belt and Road and Financial Derivatives and Legal Services
Zheng Naiquan, Partner, Chance & Bridge
Mr. Zheng first introduced the definition of financial derivatives. Generally, derivatives are financial instruments/contracts linked to certain underlying assets, including commodities, stocks, currencies, and indices. In addition, financial institutions such as insurance companies can use financial instruments to transfer risk.
China’s openness related to the financial derivatives market will become more open, and its function is to transfer financial risks and manage risks. Derivatives deal with special financial risks, including foreign exchange, price, and credit risks. There are many risks involved in international trade transactions. Some people buy insurance to hedge against various types of risks. However, this approach is also evaluated as similar to gambling or speculation.
Regardless of criticism, the functions of financial derivatives include risk management and valuation. In addition, some people use small amounts of capital to purchase large target investments. To address the nature of the speculative activity, regulators have acted to regulate the market.
There are four types of derivatives, namely forwards, futures, options, and swaps. The transactions and derivatives that occur in “One Belt, One Road” involve cross-border and people in the transactions come from different countries and are exposed to risks. These risks include foreign exchange, interest rate, price, and credit risk. People use several financial instruments to hedge their risks and transfer them to others. Because different countries have different cultures, it is difficult to build trust between parties, and building trust is an important topic.
Financial derivatives have a risk management and price discovery role and are designed to reduce the level of risk borne by all parties. In addition, investors need derivatives to hedge risk. China has adopted an open-door policy for its financial markets during opening up and the development of derivatives. The Chinese government allows direct foreign access to the Chinese domestic market, facilitating the development of new financial derivative products. The ultimate goal is to develop the Chinese financial market into an international capital market.
In providing legal services for financial derivatives and international cooperation, lawyers should advise clients on foreign policies and regulations regarding financial derivatives transactions. To use financial products to enhance investor protection from speculation, the Chinese government needs to regulate the market to ensure sustainable development. There are two types of derivative products: standard derivative products and non-standard derivative products (non-standard/customized/tailored). Parties can add some special provisions to the general terms. Lawyers also provide legal services to parties for dispute resolution, insolvency, and liquidation.
The Cultivation of Foreign Lawyers in China in the Context of ‘One Belt, One Road Initiative: The Case of Jiangsu Province
Yi Bo, Associate Professor, Southeast University Law School, China
Prof. Yi Bo pointed out that China can better develop legal cooperation with other countries through the “Belt and Road.” He pointed out that “One Belt, One Road,” where “belt” refers to the Silk Road Economic Belt and “road” refers to the 21st Century Maritime Silk Road. More than 80 countries have signed the Belt and Road Agreement with China. Under the “Belt and Road” initiative, it is expected that the demand for legal services from legal institutions, educational institutions, universities, etc., will increase. Therefore, the goal of Jiangsu Province is to integrate into the “One Belt, One Road.”
What is the establishment of a training mechanism for practicing lawyers in Jiangsu? In the training of lawyers, Prof. Yi Bo said that lawyers should study domestic laws and foreign laws so that they can exchange their experiences in legal theory and practice. In addition, relevant institutions should develop the skills of judges and lawyers and expand their horizons on a wider scale.
Recently, the Jiangsu government has begun exchange visits with the United States, Australia, and Singapore. In addition, the province encourages local law schools to hire foreigners to teach English and foreign law.
The SCLA monthly global online salons are designed to facilitate members’ professional networking and global cooperation.
Writer: Lee Ka Lok, J.D., Chinese University of Hong Kong
Translated by: Li Xiongwei, Consultant, Swiss-Chinese Law Association