Despite a once-in-a-century pandemic, intermittent factory closures, and historically high tensions between the United States and China, US businesses still witnessed multiple positive developments in China last year. In addition to the Phase One trade agreement signing and China’s Foreign Investment Law going into force, China’s Ministry of Commerce (MOFCOM) created a new mechanism for handling the complaints of foreign companies. The measures describing the new policy tout greater intellectual property (IP) rights protection, equal treatment, and transparency. Whether the new measures—which went into effect in October of last year—will be applied fully and consistently, let alone used by the foreign business community, still remains to be seen.
Previously, investors were covered by an antiquated predecessor: the Interim Measures for Processing Complaints of Foreign Invested Companies, as well other other official avenues with similar jurisdiction. While this system technically provided channels for foreign companies to air grievances, it had its problems.
First, the complaint center was buried within MOFCOM and had little influence over the complaint process, as it could not do much apart from passing the complaint to the relative authority, as one company put it. Second, this office often deemed IP infringement—one of the most challenging problems faced by foreign companies in China—outside of its work scope.
The latest complaint rules include several important developments. For starters, complaints will now be overseen by a new, high-level system with the authority to coordinate complaints at the central level and guide others at regional levels. In theory, this system should provide for more consistent application in cases handled across the country. Other noteworthy additions:
- A “no-retaliation” clause: Before, the lack of protection against reprisals had eluded US companies who opted for more discreet, established channels to voice complaints. Now, foreign companies are guaranteed in writing that punitive retaliatory actions are off the table.
- A shortened timeframe for processing longer complaints: The complaint processing period for lengthier matters has been reduced from two years to one year.
- Protection of intellectual property: In the old system, there was no explicit and stringent commitment to protect IP during the complaint handling process. Its addition now is further evidence that Beijing intends to implement its broad commitment to prevent the unauthorized disclosure of confidential business information as part of the Phase One agreement.
Despite these improvements, the complaint measures are not a panacea for every commercial ailment. For instance, it remains to be seen if the new scheme will consider IP-related complaints within its administrative scope. Additionally, the word “complainant” is defined narrowly as “foreign-invested enterprises (FIEs)” and “foreign investors.” Business organizations had called for expanding the definition of complainant to include industry associations, as they can anonymize complaints and present them as collective problems, minimizing the risks assumed by any individual company when they choose to go it alone, so to speak.
There is also no indication that the new mechanism will be quicker to process average complaints. For instance, the new measures lengthened the deadlines for processing and reporting complaints between various departments and to higher ups, even compared to a draft version that was released last April. Now, provincial-level centers are only required to submit related work every other month, as opposed to the once-a-month.
Some companies see the new measures as more systematic and transparent, but others have no reason to believe it will be different since, as one executive put it, “the fundamentals are still the same.” Companies who choose to dip their toes in the water will do so with some skepticism. Many companies had already found work-arounds to the old system, like using their direct lines to local and central government officials. If the new apparatus proves to have not just style, but substance in implementation, companies may be gaining a useful new tool for conducting business in China.