China Law Practice Blog

With China’s opening of its market and recent succession into the WTO, it has undergone rapid development in the past two decades. Due in part to such growth and in combination with its massive 1.3 billion population (330 million in its middle-class alone as compared to America’s total population of 300 million), it represents the world’s largest yet ‘untapped’ consumer market. For many franchisors seeking to market reliability associated with brand recognition and systematic organizational structures to the oftentimes chaotic and fragmented consumer sector (particularly the food and personal service industries), China will be both the largest yet most challenging opportunity in the 21st century. 
Fortunately for both consumers and those in the franchising industry, 2007 arguably brought about the largest liberalization of this sector since the “Opening Up” reforms of 1979. 
That being said, however, foreign franchisors have, in the past, seen their share of successes and failures, many of whom have ‘stuck it out’ throughout China’s market changes to become a consumer household name, such as McDonald’s, KFC and Pizza Hut.    
I. Development of the franchise market in China
In 1997, China’s Ministry of Internal Trade promulgated the Administration of Commercial Franchise Procedures (Trial Implementation and hereinafter “Franchise Procedures”) representing the first set of regulations directed at specifically addressing issues pertaining to the franchise sector. The Franchise Procedures introduced two types of franchises: i) direct franchising and ii) sub-franchising. The Franchise Procedures provided for the basic structure of current franchising laws, which requires the disclosure of material information to prospective franchisees and includes the following: basic information about the franchisor; operational results of the franchisor; financial results of its franchise outlets; fees and payment obligations; and, terms and conditions for goods and services provided to franchisees. The Franchise Procedures also established the quasi-governmental China Chain Store and Franchise Association (“CCFA”). (Note that the Franchise Procedures were interpreted as not being applicable to cross-border franchise operations.)
In 2004, as part of China’s accession into the World Trade Organization (WTO) and  commitment to the principles therein, the Ministry of Commerce issued the Measures for the Administration of Franchise Operations (“Franchise Measures”) effective February 1st, 2005.  The Franchise Measures were promulgated shortly after the Measures on the Administration of Foreign Investment in the Commercial Sector, which liberalized foreign investment in the retail and wholesale distribution industry. Unlike the Franchise Procedures, the Franchise Measures not only permit foreign investment in the franchising sector but also contain an entire chapter drafted exclusively for this purpose. 
Much like the Franchise Procedures, the Franchise Measures focused largely on franchisor disclosure, but also included the “two-plus-one” requirement, which mandated franchisors to operate two company-owned stores in China prior to commencing franchising activities. Obviously, this has prevented many start-up franchisors from immediately commencing operations in China and was a disincentive for market entry. Moreover, the promulgation of the Franchise Measures and the requirement that all franchising operations be conducted only by PRC entities has effectively removed the alternative measures being used by foreign franchisors for many years, including licensing arrangements and international franchising agreements.  
There have, however, been recent modifications to the franchising framework with the promulgation of a number of new laws in 2007 which will be further discussed below.

II. Current Legal Framework and Franchising Structures in China
In May of 2007, MOFCOM replaced the Franchise Measures (2005) with the Regulations on the Administration of Commercial Franchises (“Franchise Regulations”). The Franchise Regulations, together with the MOFCOM-issued Administrative Measures for the Information Disclosure of Commercial Franchises (“Information Disclosure Measures”) and the Administrative Measures for Archival Filing of Commercial Franchises (“Archival Filing Measures”) currently govern franchising structures in China and set out the following requirements:
1. Definition and Applicability Scope of Commercial Franchises
Article 2 of the Franchise Regulations states that the regulations are applicable to all investors engaged in commercial franchise operations in China
“Commercial Franchise” is defined in the Franchise Regulations as “business activities whereby a franchisor, through execution of agreements, allows a franchisee to use operational resources, such as a trademark, logo, patent, know-how and others which are owned by the franchisor [refers to legal (not natural) persons], and the franchisee conducts business under the unified business model in accordance with the provisions of the contract and pays franchise fees to the franchisor .
2. Qualifications and the Two-Plus-One Rule
Franchisors must own a well-developed business model, and be capable of providing continued operational management, technical support, business training and other services to the franchisee. 
Additionally, franchisors must own at least two company-owned stores for a period of at least one year . Noticeably missing is the phrase “in China”, which allows for new foreign entrants to immediately commence franchising activities in China.
3. Filing Requirements
Within fifteen days from executing the first franchise agreement, the franchisor must file with MOFCOM , specifically i) if the franchising activities take place within a single province, autonomous region or municipality under the central government (Beijing, Shanghai, and other major cities), then with the MOFCOM of that province, autonomous region or municipality under the central government; or ii) if franchising activities take place in more than one province, autonomous region or municipality, then at the national level MOFCOM.
Thereafter, the relevant MOFCOM will have ten days to properly file all completed filings , and publish them on its website .
However, it is necessary to note that the franchisor must, within 30 days of any change potentially impacting the filing, apply for an alteration of its filings. 
Franchisors must file the following: 
1. Basic information about the commercial franchise;
2. Distribution information of franchised stores in China;
3. Franchisor’s Commercial Prospectus;
4. Copy of business license or enterprise registration;
5. Copies of certificates of trademarks, patents and other business resources related to franchise activities;
6. Sample franchise agreement;
7. Franchise operational manuals;
8. Marketing plan;
9. Written undertaking evidencing franchisor’s complies with the Qualifications and the Two-Plus-One Rule;
10. Certificate evidencing compliance with the Two-Plus-One rule, issued by the city level in China and, for franchisors using space outside of China, business certificates translated, notarized and authenticated by the Chinese embassy; and,
11. Other documents as required .
Completed filings may be cancelled in the event of any of the following occurrences:
1. Franchisor’s business license was cancelled by the competent registration authority because of illegal operations;
2. MOFCOM receives a court order regarding the cancellation of the filing due to illegal operations of the franchisor;
3. Franchisor was discovered to have failed to disclose material information or provided false information; and,
4. Franchisor itself cancels the filing.  
4. Disclosure of Information
The following materials must be provided to the prospective franchisee  a minimum of thirty days prior to the signing of the Franchise Agreement :
1. Basic information on the franchisor and franchise activities:
a. Franchisor’s name, address, contacts, legal representative, general manager, registered capital, scope of business, and the number of regular chains including their addresses and phone numbers;
b. A brief introduction to the commercial franchise activities of the franchisor;
c. Basic information on the archival filing of the franchisor;
d. If the franchisor’s associated company provides products and services to the franchisee, the associated company’s basic information must also be disclosed; and,
e. Information on any bankruptcy and/or application for bankruptcy of the franchisor or of its associated company in the preceding five years.
2. Basic information on the business resources of the franchisor
a. Information available on registered trademarks, company logos, patents, proprietary technologies, and business methods, etc;
b. If the owner of any of the above-mentioned business resources is the associated company of the franchisor, then the basic information of the associated company must also be disclosed (the franchisor is also required to explain how to manage the franchise system upon termination fo the license contract); and,
c. Information on the business resources of the franchisor (or its associated company) in relation to litigation or arbitration. 
3. Basic information on franchise expenses:
a. If the type, amount, criteria and payment method of fees collected by the franchisor or on behalf of a third party cannot be disclosed, then the franchisor must explain the reason for the non-disclosure; if the fee collection standards are inconsistent, then the franchisor is required to disclose both the maximum and minimum standards, and explain the reason thereto;
b. The collection thereof, return conditions, return time, and return on investment; and,,
c. If the franchisee is required to pay a fee before the Franchise Agreement is concluded, then the franchisor must explain in writing the use of the fee and the conditions and method of return. 
4. Information on the prices and conditions of the products, services and equipment provided to the franchisee.
a. Whether the franchisee must purchase products, services or equipment from the franchisor (or its associated company), including the prices and conditions thereof;
b. Whether the franchisee must purchase products, services or equipment from the suppliers appointed or approved by the franchisor; and,
c. Whether the franchisee has the discretion to choose its own suppliers and the standards for the selection of its suppliers. 
5. Information on the continuous provision of services to the franchisee.
a. Detailed content, manner of provision and implementation plans for professional training, including the training location, approach and duration; and,
b. Details regarding technical support and a catalogue of the operation manual of the franchise including the number of pages therein. 

6. Methods and content of guidance and supervision over the franchise activities of the franchisee:
a. The franchisor’s methods and content of guidance and supervision over the franchise activities of the franchisee, the franchisee’s obligations and consequences for failing to fulfill them.
b. Whether the franchisor is jointly liabile with the franchisee for complaints by and compensation to consumers, and how to share such liability. 
7. Information on the investment budget of the franchise:
a. The expenditure fpr the investment budget may include the following: initial fee; training fee; real estate and decoration fee, procurement fee fpr equipment, office supplies, furniture, etc; initial inventory; water, electricity and gas fees; fees needed to obtain licenses and other governmental approvals; and working capital; and,
b. The statistical source and estimation basis for the above-mentioned fees.
8. Information on franchisees within China:
a. Information on the present and estimated number of franchisees, geographical distribution, scope of license, and as to whether or not they are subject to an exclusive regional license (if so, details of the scope thereof must also be explained)
b. Information on the evaluation of the performance of the franchisee, the actual or estimated average sales volume, costs, gross and net profits of the franchisee, the source of the above-mentioned informationduration of and franchise networks involved (if the information is speculative, then the franchisor shall explain the basis for its speculation, and specify that the actual performance of the franchisee may differ from its speculation. 
9. Abstracts of the franchisor’s financial and accounting reports and of the audit reports in the last two years audited by the accounting or auditing firms.
10. Information on any major litigation or arbitration involving any franchises of the franchisor in the last five years.
a. Major litigation or arbitration refers to litigation and arbitration involving litigation fees of more than RMB 500, 000; and,
b. Basic information as to the location of the litigation or arbitration and the judgment or award must also be disclosed. 
11. Information on any record of major illegal operations of the franchisor and its legal representative.
a. Where either the franchisor or its legal representative has been imposed with a fine, by the competent administrative law enforcement authorities, exceeding not less than 300, 000 but more than 500, 000; and,
b. Where the franchisor and its legal representative have been subject to criminal penalization. 
12. Franchise Contract
a. Sample franchise contract; and
b. If the franchisor requires its franchisee to sign with the franchisor (or its associated company), other franchise contracts (sample contract shall be provided at the time of contracting). 
Note that where the franchisor is found to have concealed or provided false information, the franchisee may rescind the Franchise Agreement. 
5. Franchise Agreement
Although franchise contracts are in practice comprehensive and lengthy, the Franchise Regulations require certain clauses be provided in the relevant franchise agreement:
1. basic information on the franchisor and franchisee;
2. content and term of the franchise;
3. types, amounts and payments of franchise fees;
4. specific content and manner of provision of operational guidance, business training, technical and other services to franchisee;
5. quality standards, quality control measures for the provision of products and services by franchise operations;
6. promotions and advertisements of products and services of franchise operations;
7. arrangements for consumer rights, and assignment of liability in franchise operations;
8. amendment, rescission and termination of the franchise agreement;
9. liability for breach;
10. dispute resolution; and
11. other matters as agreed upon between the franchisor and franchisee .  
The Franchise Regulations also require the contract contain a clause setting out the time period during which the franchisee may rescind the agreement (post- execution of the contract) .  Unless otherwise specified, the initial term of the contract must not be less than two years. 
Further, where deposits or other fees are required prior to execution of the franchising agreement, provisions for the use and refund of the same must be expressly stated therein .
Advertising and promotional fees collected by the franchisor must be used specifically for such stated purposes and accounting thereof should be provided to the franchisee within a timely basis .
The franchisor is required to report annually, by March 31, the status of each franchise agreement.
6. International/Cross-Border Franchising
International or cross-border franchisors must file, in accordance with the Archival Filing Measures.
7. Penalties
Penalties for the violation of the Regulations are as follows:
1. Failure to meet Qualifications (see Item 2): confiscation of illegal income, and fine of RMB 100,000 to RMB 500,000;
2. Franchising by individuals (natural person): confiscation of illegal income, and fine of RMB 100,000 to RMB 500,000;
3. Failure to complete Filing Requirements: order time limit for rectification and fine of RMB 10,000 to RMB 50,000, and where franchisor fails to file within the time limit a fine of RMB 50,000 to RMB 100,000 and public announcement; and,
4. Failure to provide Franchise Agreement thirty days prior to the signing or failure to disclose or concealing information relevant to the franchisee: fine of RMB 10,000 to RMB 50,000, or where serious RMB 50,000 to RMB 100,000 and public announcement thereof.
8. ‘Grandfathering’ Provisions
Companies already conducting franchising activities have one year to file according to the Franchise Regulation. 

III. Conclusion
China represents a tremendous opportunity for international franchise operations. Although there are numerous challenges and complexities in establishment and operations, the recent legal changes have largely liberalized the franchising market for foreign investors. In combination with the current rates of economic growth, the timing is ideal for foreign franchisors to explore opportunities in the Chinese market.

Needless to say, China has become the world’s leading manufacturing base. However, with the recent product safety scares and the constant media attention, “Made in China” has become a high-profile issue for consumers and retailers. So how does a foreign company minimize the risks of tainted/substandard products manufactured in China? In this article, we discuss contract terms which foreign companies should consider when entering into OEM relationships with Chinese suppliers. (While we highlight some of what we feel are the main issues to be covered by the agreement, we recognize that each case is unique and there is no such thing as a ‘typical’ OEM arrangement.)

Standard Form Agreements

Generally, an OEM will have a standard form agreement which they are more than willing to provide to foreign companies who wish to use their services. While this may lower costs at the outset and allow the foreign company to ‘build favor’ with their Chinese counterpart, using such an agreement is almost never advisable, and foreign companies would be wise to consult counsel, who will assist the foreign company to properly negotiate and prepare agreements.

Note that we often advise that the written agreement is preceded by preparation and negotiation on the basis of a business term sheet, which will outline the major terms of cooperation. The agreed points in the term sheet then serve as the basis for the written agreement.

Major Terms of Agreement

Below, we highlight several major (though non-exhaustive) terms which should be included in an OEM Agreement:

1. Products and Specifications: The products to be manufactured should be well-defined in the agreement, along with product specifications which should be described in detail in appendix(es).

2. Forecasts and Binding Purchase/Supply Commitments: As OEM Agreements often require that firm orders are placed through Purchase Orders, in order to ensure that there is a binding supply/purchase commitment in the agreement itself, the parties will often designate a certain minimum commitment on both sides, to produce and purchase a certain amount of product within a given time period. Aside from the minimum requirement, the buyer will often provide a non-binding forecast to supplier, such that supplier can plan and allocate adequate resources (often 6-, 12-, 18-, 24- month terms).

3. Price: For those products designated as described previously, the parties should determine firm prices, which will either be effective throughout the term of the agreement, or at least a portion thereof, subject to (we recommend) maximum periodic price increases. Further, it is beneficial to include for discounts upon meeting certain pre-determined purchase volumes.

4. Quality Control: Buyer and supplier will agree on certain terms afforded to buyer/required of seller for conducting quality control on production. Typical terms include i) access (often on short or no notice) to production sites, and ii) random testing of each batch of products. Further, the parties may, depending on the value of the contract, provide for a representative of the buyer to be on-site on a full-time/regular basis, for the purpose of assisting in quality control. (The buyer’s representative may also monitor supplier’s use of intellectual property and other improper dealings, though their effectiveness will invariably depend on his/her loyalty to the buyer.)
 
5. Term: The parties will determine an appropriate term for their contract, and may make the agreement renewable on request by buyer. This term should be sufficiently long so as to ensure that buyer’s initial investment can be adequately recovered.

6. Termination: Termination events, as in most agreements, will include those events which give rise to immediate termination rights (for example, unauthorized use of buyer’s intellectual property and violation of non-compete terms), and those which require a notice period and the breaching party’s right to remedy the breach (failure to supply products meeting specifications).

7. Consequences of Termination: In the event of termination, it is important for buyer specify those procedures necessary to protect its rights in the event of such occurrence. Often terms will include: sale of completed products to buyer, allowance for completion of partially completed products and sale to buyer, destruction or return of confidential information, and destruction or return of trademarks, logos, brochures, and other advertising materials.

8. Examination and Acceptance: Upon delivery of the products to buyer, it will be afforded a certain period to conduct inspection, subject to deemed acceptance in the event that a claim is not made within a certain period. Further, it is common for suppliers to require that upon buyer’s acceptance of the products, they will be absolved of all further liabilities. Note that we do not recommend that buyers wholly accept such terms (and provide a minimum carve-out and continued warranty), as buyer, after acceptance, will have little grounds for a claim (even for the use of sub-standard materials which are often difficult to visually detect).

9. Raw Materials/Components: As part of the quality control process, buyer should require that supplier provide a list of its suppliers along with purchase orders over a pre-set period to ensure that the agreed upon raw materials/components are being used.

10. Insurance: Due to the relatively unsophisticated nature of manufacturers/insurance industry in China, factories are often severely underinsured from risks. As a result, it is advisable for buyer to require that supplier obtain a minimum level of insurance.
 
11. Intellectual Property: All intellectual property used to manufacture the product, including trademarks, patents, copyrights, and other business secrets should be licensed to supplier, for the limited purposes of complying with its obligations under the agreement. Further, buyer should carefully draft related terms so as to restrict supplier from exercising any rights of ownership to the licensed IP.

12. Non-compete: As an OEM relationship necessarily involves substantial transfer of intellectual property and confidential information, buyer must not only be careful to ensure that additional products are not produced by the supplier, but also by its affiliated companies and senior directors and management. (Note that the implications of failing to adequately provide for such terms may result in not only the product being sold in China but more importantly in the same markets as buyer, and at significantly lower costs.)

13. Arbitration: As manufacturing tends to be concentrated in lesser-developed regions in China in addition to cost/time/reliability benefits often associated with arbitration, we advise clients to select arbitration for dispute resolution. Arbitration can be conducted in China or internationally (in any New York Convention signatory state), though domestic arbitration allows buyer access to Chinese courts for injunctive relief.

Arguably more or at least equally important as negotiating and concluding a strong contract, buyer must be carefully monitor and enforce of its terms when necessary.

Finally, although long-term relations are often desirable and we encourage buyers to find and work with reliable suppliers, as a practical matter it is imperative that buyers ensure that they have one or more alternative suppliers, in the event of required termination of the primary OEM supply arrangement.

China Legal Daily reported on June 16^th that China’s Supreme Court released its first set of judicial interpretations on the PRC Real Property Law for public comment on June 15^th, 2008 – namely, the “Interpretation by the Supreme People’s Court of Several Issues Relating to Application of Law to Trial Disputes on Building (property) Ownership Division” and the “Interpretation by the Supreme People’s Court of Several Issues Relating to Application of Law to Trial Disputes on real property services”. The released Supreme Court Interpretations regarding property disputes are the first of its kind.

In recent years, China’s reforms regarding its residential system have continued to develop in response to China’s continuing improvement of the people’s living standards. As such, disputes on the division on the ownership of property and real property services have also increased in number and the problems have become more serious. The judicial interpretations allow for the correct and accurate implementation of relevant provisions of the Real Property Law. It also provides for the equal protection of the parties in accordance with their respective legitimate rights and interests.

China’s 2007 Real Property Law set forth a comprehensive framework for the protection of real and movable property rights, giving rights of private individuals to own property. With such a major shift in the notion of property ownership in China, ambiguities in ownership rights are inevitable. With the release of the Supreme Court’s first set of judicial interpretations, further clarifications will be made regarding individual ownership rights; namely, the division of ownership of property.

The public is open to express their views online or in writing, and put forward specific amendment proposals to the judicial interpretation until July 16.

I recently came across an article on The State Intellectual Property Office (SIPO) website that reported on China’s State Council’s 5-year IPR protection plan. Below I provide an excerpt of the article that was written in Chinese and graciously translated by my intern Elva:

China’s State Council recently released the National Intellectual Property Right Strategic Program (Program), outlining China’s 5-year plan to promote independent intellectual property (IP) rights. By strengthening the application of IP rights and significantly improving IP protections, by 2020, China will have developed into a country with a high level of IP innovation, application, protection and management.

The Program focuses on: (1) improving IP systems, promoting IP law enforcement and administration systems; (2) accelerating IP innovation and application, and employing policies of finance, investment and government procurement as well as industrial, energy and environmental protection policies to guide and support market entities to create and apply IP, and help enterprises to become major entities in IP creation and application; (3) strengthening IP protection, imposing heavier punishment, lowering IP protection costs and increasing IP infringement costs to effectively prevent IP infringements; and (4) preventing abuse of IP rights, providing related laws and regulations and properly defining IP to protect the fair-competition market order and legal rights and interests of the public.

Again, not to harp on my usual “China is really taking IP seriously” plug, I have to say that I do see much tighter enforcement of IPR protection in terms of pirated movies sold in Beijing. Speaking with a local DVD store owner near my home, I was told that he could no longer continue to run his business because his DVD suppliers could no longer supply him due to recent raids and much stricter fines. The shop owner himself had also recently gotten into trouble by the authorities. Instead of the usual closing temporarily and the paying of fines that he considers as part of the cost of his business, this time he was closing for good.

Perhaps cracking down on DVD shops is but a small and insignificant example of China’s increasing enforcement of IPR. It however is quite significant in that the State Council is showing its stance on IPR violations at even the most basic levels. This sends a message to people who otherwise would not traditionally consider IP to be tangible protected property, that IP violations is to be taken seriously.

For the full Chinese text , you can visit the SIPO website linked here.

New York Times reported on June 6:

The city’s chief crane inspector was arrested Friday and charged with taking bribes to pass cranes under his review and for taking money from a crane company who sought to ensure that their employees would pass the required licensing exam, the authorities said. The man, James Delayo, the acting chief inspector for the Cranes and Derricks Unit at the city Department of Buildings, was in charge of overseeing the issuance of city licenses for crane operators.

Apparently Delayo was also providing a copy of the answers to the crane operator’s exam to crane companies for cash. The article does mention that at this point there is not necessarily a link between Delayo’s arrests to the crane deaths last week.

It seems last weeks crane deaths have not been an isolated incident:

The case marks another blemish on a Buildings Department that has been reeling from construction deaths and inspection lapses, and for which the deadly crane accidents have been just part of a lingering series of problems.

Amid reports of the collapse of the middle schools during the Sichuan earthquakes, the blame of corruption and bad government officials have been focused on China. Here, we are reminded that such corrupt practices are present in our own backyard as well. A few bad seeds, poor funding, under paid staff and no oversight can cause the same problems in any country.

It is unfortunate that in both cases, lives had to be lost and disaster stuck before any serious arrests, and investigations were made. My heart goes out to the families of innocent victims who have lost their lives due to those few bad seeds and poor government oversight and funding.

Just came across this China Daily article today. Despite projections of a slow down in the Chinese economy, it appears that China (as surveyed) is looked at to be the most attractive destination for foreign direct investments. Seems reasonable. The entire article below:

China has been ranked the most attractive destination for foreign direct investment (FDI), according to a survey of business leaders released by Ernst & Young Thursday.

The survey of 834 international business decision makers showed that 47 percent of respondents ranked China as the most attractive investment destination, followed by India with 30 percent.

The third-placed Russia scored this year’s sharpest climb up the attractiveness ladder, rising 9 points to a 21 percent rating.

“China, India and Russia are on the rise,” said Peter English who led the survey. “These countries offer what investors are looking for: large untapped markets and considerable growth potential. The incumbent major industrialized nations like the United States and Germany simply cannot keep up in this respect.”

The US appeal for investors, meanwhile, has been damaged by the subprime crisis and the threat of recession this year. While 33 percent of respondents ranked the US as top location for FDI in 2007, the percentage dropped to only 18 percent in 2008.

The survey also showed that 50 percent of respondents described the United States as the most innovative country, followed by China with 34 percent and Germany with 31 percent.

China’s ban on the distribution and manufacture on the ultra thin plastic bags took effect last week on June 1. Retailers will also be banned from giving out free regular plastic bags.

Chinadaily.com reported:

Retailers who continue to offer free plastic bags will be fined between 5,000 and 10,000 yuan.

Supermarkets now charge 0.2 to 0.5 yuan for each plastic bag and sell cloth bags priced between 3 and 10 yuan.

For those who have lived in China and have purchased anything from a tailored suit to street food (including hot soup) know the see-through plastic bags that can barely be used once.

Scientic American reported that:

The Chinese government is banning production and distribution of the thinnest plastic bags in a bid to curb the white pollution that is taking over the countryside. The bags are also banned from all forms of public transportation and “scenic locations.” The move may save as much as 37 million barrels of oil currently used to produce the plastic totes.

It is said that 3 billion of the plastic bags are used a day in China. .

Cnn.com reported in January 2008 that:

Environmental organizations, including Greenpeace, praised China’s move, and Christopher Flavin, president of Worldwatch Institute, an independent research organization in Washington, said “China is ahead of the U.S. with this policy,”

However, Australian Broadcasting Corporation’s (ABC) interview of Sze Pang Chung, communications director of Greenpeace China, noted that:

While the news is good for the environment, it’s not for the tens of thousands of people employed in China’s plastic bag manufacturing industry.

SZE added that we have already heard some factories will be shutting down because of the reduction in consumption.

ABC: When the planned ban was announced last January, the Huaqing Plastic Factory - what used to be China’s biggest plastic bag manufacturer - sacked 20,000 workers.

Chinadaily.com reported that:

While the new government policy has forced some plastic bag producers to shut down their businesses, others like Shi Jingdong see the move as a chance to boost business.

“Our business grew at least 50 percent during the past two months,” said Shi, sales manager of Beijing Color Printing Packaging Material Co. The company can produce 100,000 non-woven bags a month.

I won’t be missing the orphaned plastic bags waving in the wind that are stuck to trees, in rivers, puddles, and the bottom of my shoe. I will also not miss being handed a bag of soup or any of the piping hot items one buys off the street, served in the barely surviving bags. Have you ever wondered, the amount of toxic material we are ingesting which the bag likely emits when in direct contact at such high temperatures?

After seeing the video feed of Sharon Stone’s slurred “Bad Karma” comments earlier this week I had originally decided not to post yet another “You’re an Idiot Sharon Stone” article. I thought it was not worth commenting on yet another Hollywood star who appears to be an expert on some cause or another and has made a thoughtless comment. Of course, its a bit shocking to see the ignorance when viewing the video, but all in all, no real harm done as no one appears to be hanging on to her words as the authority on Buddhist philosophy.

Besides, it appears that other blogs (Silicon Hutong, CLB, among others) have already eloquently commented on the subject of karma, Sharon Stone etc.

I did want to to comment on the latest update that the French fashion house Christian Dior, one of the earliest brands to enter successfully into the Chinese market, has dropped Stone from all Chinese advertisements despite her May 22 apology.

China Daily reported:

According to the Chinese text of the apology sent to the Beijing News by Dior’s Shanghai branch on Wednesday, Stone said she felt “deeply sorry for my inappropriate words and acts, which have hurt the Chinese people’s feelings.”

On Wednesday evening, there was no trace of Stone to be seen at some Dior outlets in Shanghai, according to the Shanghai Youth Daily. No posters or ads, and big film and music stores had banished all copies of her work.

Films featuring Stone would be banned from any UME cinema in Hong Kong and the Chinese mainland, the Beijing Times quoted Ng See-Yuen, founder of the UME Cineplex chain, as saying on Wednesday.

The fashion house has also distanced themselves from Stones comments by stating that they “absolutely disagree” with Stone’s remarks and are “deeply sorry” for them.

So I guess I won’t be seeing the Dior watch commercial of Sharon Stone on the flat screen while waiting for the elevator each morning. Also, I know I shouldn’t say this but I know everyone cannot help but think that perhaps, according to Stone’s logic; is this karma?

Shanghai Securities News reported on May 26th that the State Taxation Administration would conduct further research to clarify the transitional preferential taxation policies for foreign-invested enterprises.

The article* mentioned that,

“enterprises enjoying the preferential tax policies are presently being taxed at a 15 percent rate. Whether the preferential tax rates will be applicable to additional investments made in 2008, will need to be resolved.”

Under the present new tax law and the transitional preferential policies published by the State Council, foreign -invested enterprises established before March 16, 2007, that have enjoyed preferential tax rates, will be allowed a gradual transition to the provisions of the tax rate over a five year period, once the new tax law has been implemented. However, China’s taxation authorities have noted that the gradual transition of preferential policies will only apply to the original investment. Any additional investment projects by the enterprises in 2008, will not be able enjoy the gradual transition tax rate.

China’s current economy has seen a rapid rise in its the consumer price index (CPI), bank credit and domestic inflation.

The article noted that the various macro-control measures are seen as a way to maintain steady and rapid economic growth in China. Watching US sub-prime mortgage market collapse, it is not surprising that China is making attempts to curb a similar fate.

In principle, it makes sense that enjoyment of the preferential tax policies should be limited to the original investment that falls before the set March 16, 2007 date. The Chinese government’s overall intent is to see steady economic growth and curb out-of- control inflation or market downturn. On the whole, it doesn’t appear that the Chinese government has changed the policy of reform and an opening up of the market.

However in practice, in many cases it will be difficult to track and distinguish pre- and post-March 17, 2007 investments to determine the tax rate. It seems the fact that the Taxation Administration’s announcement that there will be further inquiry and clarification into the taxation issues, centers not on whether or not to tax the post-3-16-07 investments, but how they will determine what is taxable, and ultimately how to implement and enforce the taxation. These are times when you’re glad that your company’s accounting and various business contracts have been clearly and properly drafted.

*The article posted on www.21our.com in Chinese.

It looks like China’s Prime Minister Wen Jiabao has even made it on the Facebook. The very popular Prime Minister, at my time of checking his profile had 13, 253 supporters and 618 Wall Posts. I can’t really see him personally online signing up for Facebook, but at least it hasn’t been taken down so perhaps it was approved by PM Wen.

Further details reported by the NYT:

The page appears to have been set up recently. It is not clear whether Mr. Wen, 65, did it himself. Perhaps another government official put it up, or, just as likely, someone with no ties to Mr. Wen.

The page offers a few bits of biographical information: His interests are Chinese literature and baseball, and his employer is the Central Government of the People.