Holding Redlich © 2023
21 March 2023
#Corporate & Commercial Law, #Intellectual Property
Published by:
Mitchell Riggs
As the Year of the Rabbit progresses, it is clear that the events of 2022 continue to have an effect. Following a change in Australia’s federal government in 2022, the Australian and Chinese trade ministers met (virtually) for the first time in three years and Chinese President Xi Jinping held formal talks with an Australian Prime Minister for the first time since 2016, ending the diplomatic freeze between the two countries. The opening of international borders in 2022 and China’s end to its COVID-zero policy in late 2022 have enabled increasingly free travel between the two countries. Some view these shifts as a sign of stabilisation in bilateral relations and that cross-border business collaborations and relationships will now have more opportunities to grow.
Indeed, two-way trade between Australia and China continues to thrive as China remains Australia’s largest trading partner despite continuing geopolitical tensions. From an outbound trade and investment perspective, there continues to be opportunities for Australian companies in healthcare, technology, food and beverage, agribusiness, innovation and renewable energy. In terms of inbound opportunities from China, high-end manufacturing, healthcare, education, agribusiness, tourism and hospitality remain key sectors.
While there are opportunities in these sectors for business with China to prosper, the business landscape with China has clearly changed in recent years. The Australian Government’s stance that trade and investment with China will no longer take priority over Australia’s strategic interests has significant implications for how companies should consider cross-border business. Commercial opportunities will need to be pursued within a context where engagement will only be encouraged where it is in Australia’s national interest. Given those opportunities for commercial collaboration with long-term success are becoming relatively difficult to pinpoint, it is important for Australian companies doing business with China to understand how key regulatory and policy developments in China and Australia will impact commercial relationships and opportunities. Companies will need to be clear-eyed and considered in how they pursue opportunities.
When doing business with China, it is essential to understand the underlying principles of China’s policy-making. ‘Self-sufficiency’ has been a recurring theme in Chinese policy announcements and strategies for many years. China is increasingly striving for self-sufficiency to mitigate the impact of global volatility and international vulnerabilities. This is a long-term process and, while the ultimate goal is to minimise reliance on imports from foreign countries, foreign players will continue to have opportunities as the process plays out. This is epitomised in ‘dual circulation’ (双循环), a principle often cited in Chinese government strategies that promote increasing reliance on the domestic market (internal circulation) while also remaining open to export-oriented development (external circulation). China’s Development Research Centre of the State Council has in recent months further emphasised the need to support ‘high-quality development’ through opening up to foreign investment, indicating the continued importance placed on foreign investment throughout 2023.
China is also undertaking significant legal reform to encourage foreign investment and collaboration. In January 2023, the China National Intellectual Property Administration issued Draft Amendments to the Trademark Law of the People’s Republic of China, proposing major reforms to address bad faith trademark filings, trademark hoarding and malicious trademark litigation. The amendments’ legislative purpose references promoting ‘high-quality development’, indicating its role to reassure and encourage foreign companies to continue to play a role in assisting China to achieve the goal of ‘high-quality development’.
However, even in the technology and innovation sectors, the policy of ‘self-sufficiency’ will mean that opportunities need to be balanced against risks. For instance, it is important to keep in mind China’s ultimate goal of self-sufficiency when considering what role Australian companies can play in cross-border collaborations.
The Made in China 2025 (中国制造 2025) strategy, released in 2015, is the Chinese government’s ten-year strategic plan to develop domestic manufacturing through increasing high-tech and high-end manufacturing. Underlying this plan is the aim to reduce dependence on foreign technology. This has created a significant opportunity for cross-border collaboration as Chinese companies seek foreign expertise to assist with developing this sector. In particular, on the back of Made in China 2025, China has rapidly accelerated its research and development in AI. The past 18 months have seen increasing recognition of China’s efforts in the AI sector, as Chinese research papers make up an increasingly significant global share of AI research papers.
As with other technology and innovation fields, there are opportunities for Australian companies to play a role in China’s rise as an AI powerhouse through collaboration. Cross-border collaborations in AI publications between Australia and China have rapidly increased in the past decade, demonstrating significant interest among Chinese researchers to work with Australian counterparts with AI expertise.
Legal developments and considerations
However, swift advancement in AI technology and the innovation sectors in general has also prompted increased regulation in China. Progressive laws regulating AI-generated ‘deep-fakes’ (synthetically produced or altered images or other digital media) introduced in January 2023 are just a taste of what is to come. More legal regulation of AI and other technology can be expected, with the 14th Five-Year Plan (14th FYP), a blueprint for China’s economic plans between 2021-2025, stating the need to establish legal and regulatory frameworks around AI. Businesses collaborating in the technology/innovation sector should be aware of the shifting regulatory landscape and the challenges this may pose.
Similarly, 2022 saw the continued trend of increased regulation around patents and attempts to improve protections of patents in China, with China’s National Intellectual Property Administration issuing a further revision of the draft Patent Examination Guidelines (专利审查指南) in late 2022 that aims to further refine Chinese patent law. Such developments are on the back of the 14th FYP listing improving patents as a priority. A focus on improving patent protection in China is a positive development for Australian businesses seeking to do business with Chinese companies in the tech and innovation sector. However, such companies should remain aware that there is still much progress to be made in this space and it is important to focus on managing IP rights in China.
While there are opportunities for collaboration, significant changes to Australia’s foreign investment approval regime will continue to create challenges and increase uncertainty for investors. The Australian Government’s wide-reaching amendments to the Security of Critical Infrastructure Act 2018 and enactment of the Foreign Investment Reform (Protecting Australia’s National Security) Act 2020 and its accompanying regulations signalled a trend of increased scrutiny by the Australian Government of foreign investment, especially in sensitive sectors. Companies seeking to participate in cross-border collaboration and investment in Australia should be aware that the foreign investment regulatory landscape has changed and should seek legal advice on investment risks and volatility.
Businesses with international trade and operations should consider important developments in the digital currency space. In recent years, China has made significant investments into developing a digital form of its currency, the renminbi (RMB). Digital RMB is a central bank digital currency (CBDC), meaning that it is issued by China’s central bank as opposed to a commercial bank. Digital RMB may allow for faster, more efficient and cost-effective cross-border transactions due to its non-reliance on commercial banks and messaging services and limited need for other intermediaries in settlements, instead using a more direct peer-to-peer network between payers and payees.
China leads the CBDC space by a large margin, having commenced development in 2014. This was highlighted when US President Joe Biden called for “urgency” on researching and developing a possible digital dollar in 2022. Given the rapid development of the digital RMB and China’s significant presence in international trade, many expect the digital RMB to become an alternative to the US dollar for international trade and ultimately play a role in gradually reducing total dependence on the dollar for cross-border settlements. Businesses should be aware of this development and the opportunities it presents, and consider how internationalising the RMB further bolsters China’s significance and influence in the global trade space.
If you have any questions about this article or how the above developments may impact your business, please get in touch with a member of our team below.
Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
Published by:
Mitchell Riggs
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#Mergers and Acquisitions, #Corporate & Commercial Law, #Environmental, Social and Governance (ESG)
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