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A ‘wake-up call’ on operating in China

Posted by Author on March 31, 2010

Sarah-Jane Tasker and Jennifer Hewett, The Australian, March 31, 2010-

AUSTRALIAN companies are deeply concerned about the impact of the Stern Hu case on normal commercial business practices in China.

Because of the vagueness of the laws, the greatest concern is uncertainty about what constitutes a commercial secret in China and how rigorously — or arbitrarily — Chinese authorities will pursue cases.

Under Chinese law, a China-based lawyer said, a trade secret was something that gave an individual or company an advantage in the market, and had been unfairly obtained.

“That could cover information that is publicly available, because by obtaining that information, if you gain an unfair advantage, then that information in itself could be deemed to be a commercial secret,” he said.

That issue becomes even more complicated because access to market information through methods common in Western countries is extremely controlled in China.

“You cannot just do surveys by yourself and gain information that way,” the lawyer said.

“The movement of information is strictly regulated, so the idea of commercial secrets, state secrets and obtaining survey information are all interlocked, and there are different entities that regulate” each of those things.

Nicolas Groffman, a Beijing-based partner at Mallesons Stephen Jaques, said the perception of doing business in China would have changed for many foreign companies.

“Because they are now more aware of the fact China has a strict criminal justice system, it may make people reconsider their corporate governance and how to structure that, as they didn’t envisage this type of prosecution happening,” Mr Groffman said.

Linda Liu Bearne, an investment consultant whose clients include China International Capital Corporation, the country’s largest investment bank, said the outcome of the Rio Tinto case would have a big impact on how Australian companies did business in China.

It was a “good wake-up call”, she said, and would force some companies to improve their understanding of the rules and regulations in China.

“It will affect the representation companies have in China,” she said. “They will have to be careful how they train their staff.

“Companies will be very careful how they deal with Chinese companies.”

The secrecy surrounding the case and the basis of the convictions of the four Rio employees for stealing commercial secrets meant no company could be confident knowing the rules and how they would be enforced.

Nathan Backhouse, from the Australian Chamber of Commerce and Industry, said Australian businesses would need to seek “clarity from Chinese authorities on the unanswered questions that arise about foreign nationals doing business with state-owned enterprises in China”……. (more details from The Australian)

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