Boosting bilateral investment: a legal perspective
The interest of Spanish companies and individuals in China has increased significantly in the past few years.
At the same time, Spain is also beginning to receive heightened attention from China, albeit at a lower scale, evidenced by the number of Chinese multinationals that have started business operations there.
In keeping with this trend, Garrigues, the largest Spanish law firm with offices in four continents, opened its Shanghai office in 2005, giving us the opportunity to experience, very directly, this substantial increase of economic relationships between the two countries and realize the importance accorded by foreign investors to the legal system of their host country.
When thinking of investing abroad, one of the bigger concerns of businesses from both China and Spain is the legal framework in the other country. And for China and Spain, these legal frameworks are not so different.
This is due to the fact that both systems are based on civil law - the Spanish Civil Code published in 1889 (based on Napoleon's Civil Code) and the Chinese Contract Law published in 1999 (also influenced by European civil codes).
As a result, from a contractual point of view, which is the basis of commercial exchange, there are a lot of principles that both systems have in common.
Further, due to globalization of both economies with respect to international contracts affecting foreign investment, both Chinese and Spanish legal systems (as well as many others) are currently experiencing a high level of influence of the common law (or case law) practice originating from Anglo-Saxon countries, leading to the same academic and practical discussions in both China and Spain.
The Chinese legal system is currently more regulated than the Spanish one. Incorporation and acquisition of companies in China by foreign investors are still subject to the supervision and approval of the authorities.
However, the Chinese economy is becoming more and more open and the Chinese legal framework is providing increasing opportunities for foreign investors.
Meanwhile, over the past years, Spanish foreign investment regulations have also experienced a process of simplification. Nowadays, basically the only requirement applicable to foreign investors in these types of transactions is an after-completion notification to the foreign investment authorities, for statistical purposes only.
There are, however, some very limited exceptions, such as investments affecting national defense or coming from tax havens.
Another positive factor for foreign investment in China, from a legal point of view, is the publication of China's Property Law on March 16, 2007.
Although some of the principles included therein had already been in force since long before, this is the first time that it has been expressly stated in law that all forms of property rights - private, public or collective - are subject to the same level of protection.
Regarding private property, barring land ownership, individuals and companies can fully own all kind of assets, shares, vehicles, and companies.
As for land, private individuals or entities may be entitled to land use right as an alternative, which is not a perpetual right but one that comes with a time limit during which the holder of the right is at liberty to dispose of the land, through transfer, lease, mortgage or other means.
Further, the significant simplification and lowering of customs duties and taxes by both nations have facilitated bilateral trade.
In addition, China and Spain have signed several international treaties to protect and promote reciprocal investments, like the treaty to avoid double taxation.
We hope this trend of cooperation will be intensified during and after the Year of Spain in China this year.
Just as in the Spanish legal system, there are still some aspects that need to be improved in the Chinese legal system as well, like enforcement of intellectual property rights (IPR) protection and court resolutions, or the process of regulation implementation.
However, it is a pleasant surprise to note how quickly the new legal system has been developed and implemented. In many respects, this atmosphere of change and openness is a reminder of what Spain went through not long ago, during the late 1970s and early 1980s.
Chinese and Spanish companies can be reasonably comfortable about operating in each other's countries, since both legal systems have more in common than what one would initially expect.
The efforts being made to implement a more stable and developed legal system are on the right track. As our president, Antonio Garrigues, likes to say: "Our globalized society requires a global legal system based on universally acknowledged common principles."
The author is chief representative of Garrigues in Shanghai
(China Daily 06/27/2007 page27)
