Consider local courts and IP protection when deciding where to set up
October 13, 2010 | BY
clpstaff &clp articles &Southeastern coast reigns as preferred destination for FDI
With a growing focus on technology components, the efficiency of the local court system and intellectual property protection should be key factors investors consider when determining where to locate their operations, say counsel.
Despite rising labour costs on the Mainland, industrial relocations from the eastern shore to neighbouring provinces or countries are not likely to occur. It was recently reported that China's southeastern coastal region remains a preferred destination for foreign direct investment (FDI).
Factors such as the quality of the local court system and intellectual property protection are becoming more important for foreign investors, says Weiheng Chen, the co-head of Wilson Sonsini Goodrich & Rosati's China practice. He has noticed a clear trend of transition from the traditional labour intensive model to the “engineer” intensive model, which contains an “increasingly important technology component in FDI and joint venture transactions”.
Chen suggests investors think ahead and thoroughly during the contracting stage. “It's better to spend more time to agree on the detailed intellectual property arrangements, including the implementation mechanism, which will help to ensure there is a real meeting of the minds,” he said.
In terms of litigation, Chen explains one of the reasons why foreign investment keeps flowing into coastal cities. “Enforcement through the local court remains an issue,” he said. “Major cities in the coastal region are generally more transparent, which is a competitive advantage.”
Commentators also say that foreign investors have increasingly realised the cost and quantity advantages of the quality Chinese engineering work force and therefore are moving higher value-added manufacturing, and research and development centres to China.
To maintain a balanced economic restructuring, coastal cities are adopting preferential policies to attract labour-intensive companies. These include local tax packages, offering discounts on utility charges and other monetary benefits to lower the operation costs.
Other competitive advantages of coastal cities include supply chain integrity, logistics infrastructure, and a lower cost of industrial materials and transportation.
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