China Sewage, Beijing, Barcelona, Catalonia, and Brexit

During the first years of this blog (mostly from 2006 to 2010) we wrote often about the power dynamic between Beijing and China’s provinces and we also wrote constantly about China’s second tier cities. Since 2010, and especially in the last few years, we barely touch upon these subjects. What has changed? A lot.

In our early days, we were big believers in foreign investment going into China’s second tier cities and we were also witnessing China devolving power to its provinces. Back then, when people would ask us in what cities we did most of our work, we would usually estimate about 30% n Shanghai, 20% in Beijing, and the other half throughout China (but mostly in Shenzhen, Guangzhou, Xi’an, Nanjing, Tianjin, Xiamen, Qingdao, Dalian, Suzhou, Chongqing and Chengdu). Now, our answer would be more like 30% Shenzhen (China’s technology and Internet of Things center), 30% Beijing (China’s software and media center), 30% Shanghai (China’s center for corporate locations) and maybe 10% “other.” When I ask other China lawyers outside my firm about the geography of their China legal work, they report much the same.

So it is now mostly Beijing and Shanghai and Shenzhen, but really only Shanghai and Beijing are true “centers” in the sense that it is almost exclusively in those two cities where one will find the best lawyers and the best accountants and the judges and the best consultants and the best. . . . Shenzhen is mostly for manufacturing, not services. If a client of our firm seeks a recommendation for high level assistance, we virtually always refer them to someone in Shanghai (if they are located there or nearby) or in Beijing (if they are located there or nearby or maybe not so nearby.

And when it comes to government, Beijing is obviously the lead city, and that is truer today than five years ago. There was a period where Beijing was increasing the authority of jurisdictions outside the capital, but in the last few years — at least with respect to the sort of China legal work in which our firm gets involved — we are seeing authority shift back to Beijing. I thought about that today after reading a Guardian article, entitled, China punishes officials over sewage in first environmental case of its kind. This article highlights how Beijing is more strongly enforcing its laws/positions as against the provinces:

Chinese prosecutors have successfully sued a county environmental agency for inadequately punishing a sewage firm that produced dye without appropriate safeguards – the first such public interest case against a government department.

The Supreme People’s Procuratorate, China’s top prosecutor, said prosecutors had successfully proved that an environmental protection department in Shandong province had committed “illegal acts” in its dealings with the Qingshun Chemical Technology Company.

I have little doubt that this lawsuit was driven by Beijing or, at the very minimum, approved from there. It very much reminds me of what we have been seeing on the WFOE front for the last few years. What we are seeing is an increase in WFOEs being shut down after audits from Beijing reveal that they should never have been registered in the first place. We are learning about these via calls and emails from some of the companies that years ago chose not to use our law firm for their WFOE formations because we told them that what they were proposing for their WFOE would not work. In pretty much every one of these cases, the foreign company assured us that the Chinese company which with they were working had the “power” to get their WFOE approved, to which our response was and still is always: “great, then you should use them for the WFOE formation. But just as a warning, just because a WFOE gets formed does not mean it cannot and will not be shut down when Beijing or a new government sees that it should never have been formed in the first place.

A couple months ago, my firm opened an office in Barcelona, headed up by Nadja Vietz, who joined our firm (in Seattle) way back in 2004. Nadja is licensed to practice law in Spain, Germany and the United States (Washington State) and she oversees a Spain lawyer and a Spain business professional. Truth be told, we chose Barcelona as our European beachhead not after having analyzed a slew of other city options, but simply because Nadja had chosen to live there. But ex post facto, I have come to realize that it may just be the perfect city for us. It is well-located as within Europe, it is moderately priced (at least as compared to London or Brussels or Paris or Luxembourg or even Munich) and it is incredibly international.

I mention Barcelona because before we opened an office there and before I started communicating so often with all sorts of professionals there, I failed to realize how seriously Catalonians view their independence. I was under the mistaken impression that Catalonia’s professional class would uniformly oppose independence for economic and business reasons, but whenever I broach the subject of an independent Catalonia, one of the first arguments I hear in favor of it is the economic/business one.

England is obviously facing similar issues right now regarding Brexit. And I have to confess that after having read dozens of articles predicting either financial ruin or a financial renaissance should Britain leave the EU, I am of the view that nobody really knows and that either way the impact will likely be far less than predicted.  I am fairly certain of one thing though and that is that whether Britain stays or goes, Brussels’ power over its provinces (the EU countries) will probably never reach a level greater than today and will almost certainly decline.

So I just find it interesting that just as so much of the world is seeing power in the center being questioned and/or weakened, China seems to be moving in the opposite direction.

What are your thoughts about that?

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.