Table of Contents
1. Challenge to be Managed by Management
Many company management teams are actively considering downsizing/ relocating their China businesses out of China due to deteriorated market conditions such as increasing operating costs, tariff pressure, structural barriers and inefficiencies, corruption and other factors.
This article summarizes key best practice considerations for general counsels and executives in planning your China downsizings.
2. Comprehensive Approach to Managing China Company Liquidation and Downsizing Transitions
When transitioning the China business, an organized and systematic approach, across the entire company operational spectrum should be planned and organized.
There are literally dozens of tasks that need to be executed to successfully wind-up a China operation, and most tasks require interaction with multiple government agencies and internal cross-functional coordination. Below we provide a sample of the required tasks different departments will have to complete.
2.1 Corporate Preparation
- Branches/Subsidiaries Liquidation
- Shareholders’ Resolution on Company Liquidation
- Board’s Resolution on Company Liquidation
- Governance Requirements
- Reporting Requirements
- Chop Control and Documents Maintenance
- Company Liquidation Committee Formation
- Insurance and Risk Management
Related Government Agencies of China：
- Ministry of Commerce (中华人民共和国商务部)
- National Development and Reform and Commission (中华人民共和国国家发展和改革委员会)
- Ministry of Ecology and Environment (中华人民共和国生态环境部)
- State Administration for Market Regulation (中华人民共和国国家市场监督管理局)
- State Taxation Administration (国家税务总局)
- State Administration for Foreign Exchange (外汇管理局)
- Ministry of Finance (中华人民共和国财政部)
- General Administration of Customs (中华人民共和国海关总署)
- State Administration of Press, Publication, Radio, Film, and Television (中华人民共和国新闻出版广电总局)
- Ministry of Housing and Urban-Rural Development (中华人民共和国住房和城乡建设部)
- Ministry of Transport (中华人民共和国交通运输部)
- Ministry of Industry and Information Technology (中华人民共和国工业和信息化部)
- National Energy Administration (国家能源局)
- Ministry of Education (中华人民共和国教育部)
Downsizing businesses could involve different agencies depending on the industry. Obviously, in certain industries, the number of government stakeholders is even greater.
2.2 Finance and Banking for Company Liquidation and Downsizing
- Tax Audit and Clearance
- Accounts Receivable (A/R) and Accounts Payable (A/P) Management
- Valuation and Disposal of Company Assets
- Reporting Requirements Management
- Distribution of Company Liquidation Proceeds
- Formalities to Close Bank Accounts with Different Banks
Related Government Agencies of China:
- Ministry of Finance (中华人民共和国财政部)
- State Taxation Administration (国家税务总局)
- State Administration of Foreign Exchange (外汇管理局)
- People’s Bank of China (中国人民银行)
2.3 Regulatory Approvals
- Integrate Global, Regional and Local Compliance
- Approvals, Licenses, Permits
- Industry Sector and Product Level
- Antitrust, Anti-Monopoly, Unfair Trade Practices
- Product and Consumer Safety
- Policies, Guidelines, and Procedures
- Anti-Corruption
- Occupational Health and Safety
- Tax Compliance
- Environmental Compliance
- Customs/Draw-Backs
Related Government Agencies of China:
- Ministry of Commerce (中华人民共和国商务部)
- Ministry of Ecology and Environment (中华人民共和国生态环境部)
- State Administration for Market Regulation (中华人民共和国国家市场监督管理局)
- Ministry of Public Security (中华人民共和国公安部)
- State Administration of Tax (国家税务总局)
- China Securities Regulatory Committee (中国证券监督管理委员会)
- China Food and Drug Administration Bureau (国家食品药品监督管理总局)
- Ministry of Human Resource and Social Security Administration (中华人民共和国人力资源和社会保障部)
- State Labor Union (中华全国总工会)
- Ministry of Justice (中华人民共和国司法部)
- Ministry of Housing and Urban and Rural Development (中华人民共和国住房和城乡建设部)
- Ministry of Transportation (中华人民共和国交通运输部)
- Ministry of Industry and Information (中华人民共和国工业和信息化部)
- National Energy Administration Bureau (国家能源局)
- State Administration of State Assets Committee (国务院国有资产监督管理委员会)
- Ministry Of Education (中华人民共和国教育部)
2.4 Government Relations
- Country Risk Management
- Industry Sector and Product Level
- Local Labor Impact
- Relationship Management
Related Government Agencies of China:
- Ministry of Commerce (中华人民共和国商务部)
- Ministry of Ecology and Environment (中华人民共和国生态环境部）
- State Administration for Market Regulation (中华人民共和国国家市场监督管理局)
- Ministry of Public Security (中华人民共和国公安部)
- State Administration of Tax (国家税务总局)
- China Securities Regulatory Committee (中国证券监督管理委员会)
- China Food and Drug Administration Bureau (国家食品药品监督管理总局)
- Ministry of Human Resource and Social Security Administration (中华人民共和国人力资源和社会保障部)
- State Labor Union (中华全国总工会)
- Ministry of Justice (中华人民共和国司法部)
- Ministry of Housing and Urban and Rural Development (中华人民共和国住房和城乡建设部)
- Ministry of Transportation (中华人民共和国交通运输部)
- Ministry of Industry and Information (中华人民共和国工业和信息化部)
- National Energy Administration Bureau (国家能源局)
- State Administration of State Assets Committee (国务院国有资产监督管理委员会)
- Ministry Of Education (中华人民共和国教育部)
2.5 Strategic/Transactional
- Multi-Jurisdictional Events (Global Transactions, Global Crisis)
- Joint Ventures (Global, Regional, Local)
- Mergers and Acquisitions
- Unfair Competition
- Market Closing
- Cultural Challenges (Trust, Language, Culture)
- Time Zone and Distance Management
- Brand Protection and Promotion
- Key Relationships and Strategic Alliances
Related Government Agencies of China:
- Ministry of Commerce (中华人民共和国商务部)
- Ministry of Ecology and Environment (中华人民共和国生态环境部）
- State Administration for Market Regulation (中华人民共和国国家市场监督管理局)
- Ministry of Public Security (中华人民共和国公安部)
- State Administration of Tax (国家税务总局)
- China Securities Regulatory Committee (中国证券监督管理委员会)
- China Food and Drug Administration Bureau (国家食品药品监督管理总局)
- Ministry of Human Resource and Social Security Administration (中华人民共和国人力资源和社会保障部)
- State Labor Union (中华全国总工会)
- Ministry of Justice (中华人民共和国司法部)
- Ministry of Housing and Urban and Rural Development (中华人民共和国住房和城乡建设部)
- Ministry of Transportation (中华人民共和国交通运输部)
- Ministry of Industry and Information (中华人民共和国工业和信息化部)
- National Energy Administration Bureau (国家能源局)
- State Administration of State Assets Committee (国务院国有资产监督管理委员会)
- Ministry Of Education (中华人民共和国教育部)
2.6 Dispute Settlement and Enforcement
- Litigation
- Arbitration
- Mediation
- Settlements
Related Government Agencies of China:
- The People’s Courts (法院)
- Arbitration Committee (仲裁委员会)
- Labor Arbitration Committee (劳动仲裁委员会)
- Ministry Of Justice (中华人民共和国司法部)
2.7 Supply Chain: Sales
- Contracts Termination
- Sales/Marketing/Advertising/Merchandising
- Agents, Distributors, Dealerships, and Channels
- Communications Redirection
- Warranties and After Sales Service
- Branding and IP Management
- Dispute Resolution
- Compliance Management
- Inventory Management
Related Government Agencies of China:
- State Administration for Market Regulation (国家市场监督管理总局)
- Trademark Bureau (中华人民共和国商标局)
- State Intellectual Property Office (中华人民共和国知识产权局)
- China Copyright Protection Center (中国版权保护中心)
- State Administration of Tax (国家税务总局)
2.8 Supply Chain: Procurement
- Contracts Termination
- Supply Chain Management
- Inventory Management
- Manufacturing/OEM’s
- R&D/Licensing
- Quality Control, Warranty and Product Liability Protections
- Production Related M/A
- Production Facility Maintenance, Management, and Acquisition
- Third Party Vendor Compliance and Management
Related Government Agencies of China:
- State Administration for Market Regulation (国家市场监督管理总局)
- Trademark Bureau (中华人民共和国商标局)
- State Intellectual Property Office (中华人民共和国知识产权局)
- China Copyright Protection Center (中国版权保护中心)
- State Administration of Tax (国家税务总局)
2.9 Human Resources/Labor
- Labor Unions Negotiation and Reporting
- Mass Lay-Off
- Severance Calculation and Allocation
- Termination Notice
- Health Check
- Labor Bureau Filing
- Statutory and Other Benefits
Related Government Agencies of China:
- Ministry of Human Resource and Social security (中华人民共和国人力资源和社会保障部)
- Labor Arbitration Committee (劳动仲裁委员会)
- Social Security Fund Management Center (公积金管理中心)
- State Labor Union (中华全国总工会State Labor Union)
- Entry and Exit Administration Bureau of PSB (公安部门出入境管理局)
2.10 Intellectual Property Capital Management
- Contracts Termination
- Local and Global Registrations/Prosecutions
- Enforcement
- Licensing and Revenue Management
- Negotiations for Related/Infringing IP
- Dispositions and Expiration Management
- Brand Protection and Promotion
Related Government Agencies of China:
- Trademark Bureau (中华人民共和国商标局)
- State Intellectual Property Office (中华人民共和国知识产权局)
- China Copyright Protection Center (中国版权保护中心)
- State Administration for Market Regulation (中华人民共和国国家市场监督管理局)
- Ministry of Public Security (中华人民共和国公安部)
2.11 Legal Team Management
- Reputation of Company, Leaders and Legal Team
- Industry Expertise/Knowledge Management
- Cost and Budget Management
- Right Fit External Service Providers
- Contracts Termination
- Relationship Management (historic and future)
- Metrics and Evaluation
3. Recommended Best Practices: What Is To Be Done
- Make a comprehensive plan with specific goals and action plans to achieve each goal.
- Goals might include: smoothly transition business and operations overseas, decide to downsize, mothball or close down; protect company reputation, resolve disputes/conflicts quickly/effectively, maintain good government relations.
- Form well-coordinated internal/external professional wind down team.
- Insure risk management and reporting to senior management.