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“Compared to October last year, many cities have issued implementing rules for the PRC social insurance contributions by foreign nationals,” said Gordon Feng, chair of Paul Hastings’ employment law practice in Shanghai. Beijing, Chengdu, Qingdao, Suzhou and Chongqing have all issued local implementing rules requiring foreign employees to enroll in government schemes for pension, medical care, work-related injury, unemployment and maternity.

With many of China’s foreigners residing in Shanghai, the city still maintains that contributions to the schemes are voluntary in the country’s most populated municipality. “It seems Shanghai is not interested in enforcing the Social Insurance Law against foreigners as it is keeping quiet about any implementing regulations and so far the enrollment remains voluntary,” said Feng.

Hong Kong, Macau, and Taiwan residents were also part of the initial measures, but later removed as previous legislation required contributions from them. “The Ministry of Human Resources and Social Security already had regulations for Hong Kong, Macau, and Taiwan residents in place, requiring them to enroll in the social insurance system, but the enrollment was not mandatory in practice before October 15, 2011” said Feng. He believed HMT residents were later removed because otherwise the rules would have been redundant.

The southwestern city of Chengdu and the eastern city of Suzhou are two cities where contributions are mandatory. Despite the removal of HMT residents, Chengdu and Suzhou are unique in that their implementing regulations included HMT residents. “The Chengdu Circular and Suzhou Circular do not go against the Ministry because previous regulations required HMT residents to pay social insurance,” commented Feng.

But what about enforcement? China is notorious for releasing measures where enforceability is non-existent. Despite repercussions of forced transfers from the social insurance administrative authority and interest fee penalties of 5% for non-compliance, there has not been any news that they have been enforced or companies employing foreigners chased for contributions.

Social insurance for PRC nationals is a far greater problem in China. The social insurance centre does not have the energy or the appetite to go after foreigners. Foreigners are such a small percentage of the population compared to local residents, and the authorities already have a big problem dealing with nationals.

Even though stories of enforcement or penalties have yet to surface, Feng always recommends his clients to follow local laws. Companies employing several foreigners need to be careful, as enforceability of the measures could increase at anytime. It remains to be seen which other municipalities will release circulars and whether Shanghai will require such regulations.

By David Tring www.chinalawandpractice.com

All power within the government of the People's Republic of China is divided among three bodies: the People's Republic of China, State Council, and the People's Liberation Army (PLA). This article is concerned with the formal structure of the state, its departments and their responsibilities. Most, but not all, positions of significant power in the state structure and in the army are occupied by members of the Communist Party of China which is controlled by the Politburo Standing Committee of the Communist Party of China, a group of 4 to 9 people, usually all older men, who make all decisions of national significance. As the role of the Army is to enforce these decisions, the support of the PLA is important in maintaining Party rule.

Power is concentrated in the Paramount Leader, currently Hu Jintao, who heads all three bodies: He is General Secretary of the Communist Party and of the Central Committee, President of the People's Republic of China, and Chairman of the Central Military Commission. Recently, experts have observed growing limitations to the Paramount Leader's de facto control over the government.

The legal power of the Communist Party is guaranteed by the PRC constitution and its position as the supreme political authority in the PRC is realised through its comprehensive control of the state, military, and media. According to a prominent government spokesman:

We will never simply copy the system of Western countries or introduce a system of multiple parties holding office in rotation, although China’s state organs have different responsibilities, they all adhere to the line, principles and policies of the party.

The primary organs of state power are the National People's Congress (NPC), the President, and the State Council. Members of the State Council include the Premier, a variable number of Vice Premiers (now four), five State Councilors (protocol equal of vice premiers but with narrower portfolios), and 29 ministers and heads of State Council commissions. During the 1980s there was an attempt made to separate party and state functions, with the party deciding general policy and the state carrying it out. The attempt was abandoned in the 1990s with the result that the political leadership within the state are also the leaders of the party, thereby creating a single centralized focus of power.

At the same time there has been a move for having party and state offices be separated at levels other than the central government. It is unheard of for a sub-national executive to also be party secretary. This frequently causes conflict between the chief executive and the party secretary, and this conflict is widely seen as intentional to prevent either from becoming too powerful. Some special cases are the Special Administrative Regions of Hong Kong and Macau where the Mainland Chinese national laws do not apply at all and the autonomous regions where, following Soviet practice, the chief executive is typically a member of the local ethnic group while the party general secretary is non-local and usually Han Chinese.

Under the Constitution of the People's Republic of China, the NPC is the highest organ of state power in China. It meets annually for about two weeks to review and approve major new policy directions, laws, the budget, and major personnel changes. Most national legislation in the PRC is adopted by the Standing Committee of the National People's Congress. Most initiatives are presented to the NPCSC for consideration by the State Council after previous endorsement by the Communist Party's Politburo Standing Committee. Although the NPC generally approves State Council policy and personnel recommendations, the NPC and its standing committee has increasingly asserted its role as the national legislature and has been able to force revisions in some laws.

By mid-2007, the Shuikoushan Non-Ferrous Metal factory in Hunan Province faced a crisis. As part of its 11th Five-Year Plan (2005-2010), the Chinese government was closing down high-polluting factories–and the Shuikoushan factory was among those at risk. The 110 year-old state-owned factory, with a gross annual income of more than US $1 billion and 12,000 employees, was emitting high levels of heavy metals into the local water supply. This polluted water was flowing directly into the Xiang River and affecting the drinking supply for millions of people within the nearby city of Changsha. Despite several attempts to remove the heavy metals by using conventional chemical treatment methods, the factory continued to emit dangerous levels of pollution.

In late 2007, US-Pacific Rim International, Inc.(USPRI), a US consulting company that assists US companies market and sell their products and technologies in China, began to promote the electrocoagulation (EC) water treatment system of one of its client companies, Kaselco, to the factory. USPRI highlighted the EC system’s unique electrochemical process to remove heavy metals from water. Faced with the risk of closure, the Shuikoushan factory decided to try the product.

During a pilot test of the EC system in late 2007, the factory found it could almost completely eliminate the heavy metals that the factory was emitting. After three months of further tests and negotiations, the Shuikoushan factory decided to purchase and install the EC system.

The EC system began operating in May 2008, and the results were dramatic. The factory was able to reduce the amount of heavy metals it discharged by almost 99 percent, meet the highest national water pollution emission standard and treat 4,100 tons of water a day. Deputy Director of the Hunan Provincial Environmental Protection Bureau Xie Lishuai inspected the EC system and praised the project as a model for wastewater treatment. In the space of several months, the Shuikoushan factory had gone from being a dangerous polluter to a socially responsible enterprise.

Even as China faces enormous environmental challenges, success stories like Shuikoushan’s EC system reveal an excellent opportunity for US environmental companies to export their advanced technologies to China. American companies can play a role in helping China address its environmental problems.

A review of some of China’s environmental statistics demonstrates that as China continues its rapid growth, it also faces significant environmental challenges. Currently, 70 percent of the country’s rivers, lakes and reservoirs are not safe for human use, 70 percent of its energy comes from high-polluting coal and 5,800 square miles of its grasslands are lost to desertification every year.

As these environmental problems grow, the market for environmental products and technologies is expected to expand as well. The China Greentech Report 2009 estimates that by 2013 the market for environmental technologies will be between US $500 billion and US $1 trillion. According to the US Foreign Commercial Service, the greatest opportunities for US environmental companies lie in municipal and industry wastewater treatment technology, hazardous waste and medical waste treatment technology, waste-to-energy technologies, de-SOx and de-NOx technologies, as well as air and water monitoring equipment.

Investments by the Chinese and US governments on a variety of environmental initiatives in China also offer opportunities for US greentech companies. Of China’s US $586 billion 2008 stimulus plan, approximately 37 percent is dedicated to greentech-related projects. China’s upcoming 12th Five-Year Plan (2011-2016) is also expected to build on the 11th Five-Year Plan’s significant focus on the environment.

US-Chinese government cooperation on environmental issues has also been growing. During President Obama’s visit in November 2009, the US and China committed to spending at least US $150 million of public and private funding on a US-China Clean Energy Research Center, as well as agreeing to a host of other initiatives related to energy, coal and shale gas.

The complexity of many environmental problems will also require collaboration between US environmental companies. Multiple companies may be needed to complete just one environmental project. For example, a lake clean-up project could require different companies to provide industrial pre-treatment, pipes for dredging and adequate infrastructure. Such collaboration is especially important for small and medium-sized enterprises, when they approach Chinese municipalities and companies they can offer comprehensive environmental solutions. Public-private initiatives such as the American Water Working Group, sponsored by the Foreign Commercial Service, and the US-China Energy Cooperation Program, based out of AmCham China, are promising examples of such collaboration.

Even while there are bright prospects for US environmental companies in China, the challenges of cost, intellectual property rights (IPR), lack of transparency in project bidding and domestic competition must be recognized by any greentech business that wants to export to the Chinese market.

The advanced nature of some US technologies means their prices can be relatively high in China, but still find a place in the market. While the higher costs of certain US technologies will price them out of some markets here, it should not lead US environmental companies to give up on the country completely. Many Chinese companies respect, and are willing to pay a higher price for, high-quality US technologies. In addition, while costs may be too high in some regions of China, in more developed parts of the country, Chinese companies and state-owned enterprises will pay for exceptional US products. Further, companies should consider becoming original equipment manufacturers in China for all or part of their products in order to drive down costs.

As with any company that wishes to export its technology to China, US greentech companies should be particularly concerned about IPR. Even as IPR enforcement has improved in recent years, and even if appropriate safeguards are taken, it is almost certain that companies will have some of their technology copied in China. Recognizing this reality, and treating it as part of a business strategy rather than a legal issue, is a necessity for any US environmental company looking to export to China. To stay ahead of IPR violations, companies must ensure that their products remain leaders in their field.

The lack of transparency in the bidding process for environmental projects can also prove a challenge for US companies. In order to address this issue, companies should hire Chinese staff or engage local sales agents to represent them in the bidding process. Local knowledge of Chinese culture and business practices will enable Chinese staff to illuminate the complex and opaque bidding process for American companies.

Significant public and private sector investments in China’s green industry means US environmental companies will face growing competition from local Chinese companies. Nonetheless, American companies can continue to offer unique technologies in China. In order to offer the greatest value, US environmental companies exporting to China should conduct thorough market research, determining where the country lacks advanced and integrated technology to meet their greatest environmental challenges.

Exporting environmental technologies to China holds enormous potential for small and large US companies. While selling greentech products also presents some challenges, these issues can be addressed by taking a realistic approach to the Chinese business environment. By increasing US environmental exports to China, US companies will not only expand their market, but will also help raise China’s living standards.