The Flanders-China Chamber of Commerce organized a webinar focused on Managing Compliance and Risks in China in Times of Geopolitical Tensions on 18 November 2025. Mr. Philippe Snel, Founder and Lawyer at DaWo Law Firm Shanghai, shared his view from China on current developments and provided practical guidance on how to best address risk and compliance management.
Ms. Gwenn Sonck, Executive Director, Flanders-China Chamber of Commerce (FCCC), welcomed the participants and introduced the speaker. More than ever, our companies have to be resilient and adapt their China strategy in this very quickly evolving business environment. Mr. Philippe Snel has been practicing as a foreign lawyer in China for over 20 years. He founded Dawo Law Firm Shanghai and has advised numerous foreign investors on establishing and growing their businesses in China. In recognition of his contributions to Shanghai's development, he received the Silver Magnolia Award from the Shanghai Municipal Government in 2021, and in 2022 he was also appointed as Counselor for Economic Diplomacy at the Belgian Consulate General in Shanghai. According to a survey of European companies in China, doing business in the country has become more difficult. This challenge is not unique to European or other foreign businesses – Chinese companies are also finding the current business environment very difficult. The report also mentioned that EU companies in China used to have higher EBIT margins in China than elsewhere, now it is the other way around for almost two-thirds of EU companies. However, 70% of European companies still claim that they are profitable in China but profitability growth is no longer what it used to be. But still, China remains a very important market for our companies considering the size and dynamism of the market which exists nowhere else.
Mr. Philippe Snel, Founder and Lawyer at DaWo Law Firm Shanghai, explained that based on the results of the European Chamber of Commerce survey and other surveys, business in China is not becoming easier in many different ways, but there is tremendous resilience and a sort of inevitability of business in China, and that means that whatever the circumstances are, people are bound to continue to do business with China. Our supply chains worldwide are still very much linked to China and have not been decoupled as some would have wished. One of the elements that is keeping some people awake at night is to ensure the compliance of their activities in China. Compliance is the process of operating a business in accordance with all regulatory, administrative and legal provisions that are applicable in the country.
Mr. Snel mentioned four points about the context of compliance. The first point is that the economic slowdown continues. GDP growth has gradually slowed down. The expectation for 2025 is 5% growth, which seems impressive, but each year there are between 7 and 10 million new students that graduate, and just to get these people new jobs, you probably need 3% to 4% growth. What is more of a concern is the constitution of that growth. Exports are the main component of economic growth, which is absolutely not in line with the expectations of the government over the past five year plan. Consumption was supposed to drive growth after investment slowed down. Consumption is increasing by about 2% this year, but is clearly not taking off as the government would have liked. Investments are going down, so you really have an economic growth that is supported by exports. Exports are impacted by tariffs, but there has been an effect of front charging, people pre-buying stocks in anticipation of the tariffs coming on. That has boosted exports in the first two quarters of the year. Companies are dealing with bottomline profits that are being cut dramatically, which leads them to reduce costs. Salaries basically have stalled and bonuses are also limited or non-existent, which obviously has people concerned and may lead to people seeking other sources of revenue, maybe through ways that are not necessarily the most legitimate.
Another essential element in regard to the economic context are the international trade tensions, which are growing. The Nexperia catastrophe has shown that global supply chains are still very much interwoven and are still sensitive to decisions being made on one side or the other. It also shows that China is flexing its trading arm and will respond to decisions that it deems to be unfair elsewhere in the world. The Nexperia story is a matter of management practices and therefore ties into what we are discussing. European and Chinese expectations in terms of management practices are different and this difference is being largely underestimated by Western headquarters and governments. The Nexperia problem is due to a misperception of management expectation on both sides in relation to compliance and how companies should be managed financially. The rare earth discussion is another one that is impacting trade and compliance directly. There is also the Shein story, or debacle, and their store opening in Paris, which has drawn a lot of protests, but has still been a success from a commercial point of view. It has triggered the French government in opening an investigation and trying to stop the access to the European market for the Shein platform. This is typically an example of Chinese management not understanding compliance requirements in Europe, or at least not being sufficiently attentive to it, and not making sure that their operations are compliant in Europe. It also happens that Western European companies and headquarters do not realize the compliance requirements in China, and sometimes pay a very big price.
Thirdly, there is also the new buzzword of involution, which means that the economy is turning on itself, resulting in disruptive competitive practices. Basically, people are struggling or fighting for marketshare. The most visible effect is a downward spiral in prices, and a cut throat competition to access markets at all costs. China producer price deflation is worsening. The government is not yet calling it deflation, but clearly the numbers are there. On the other end, profitability for manufacturing is up from last year by more than 15% or 17%. So profitability seems to be returning. Excessive competition is also creating overcapacity, and the temptation to export overcapacity worldwide. From a compliance point of view, this cut throat competition leads to a lot of cutting corners, security and safety concerns, and practices that are simply illegal.
The last element in regard to this context is the situation of real estate, which is still hurting. There is no bubble bursting, but it is affecting consumption because it is putting a big uncertainty over future economic development. It has effect on compliance in several ways. One is that a lot of these companies actually postpone payments and the real estate developers and companies linked to them have huge payment problems, but are not yet declared bankrupt, because the government is not allowing them to go bankrupt, considering that most of them are too big to fail. So this has an effect on payment terms and payment modalities, as well as on illicit practices in terms of payments and financial flows. And it also has an effect on foreign currency exchange, which remains very much controlled. Although China is encouraging its companies to invest overseas, the State Administration of Foreign Exchange (SAFE) is still very much scrutinizing and verifying overseas investments and payments more than before, because they are concerned that money would be channeled illegally out of the country by some of these real estate tycoons. So that's the context, which changed certainly from before Covid, a context in which growth and development is not a given, and in which you are fighting almost every day to maintain your market position, and anything goes to achieve that goal.
Let's now look at some regulation and trade compliance. China is becoming part of more trade agreements. In the past two years, there's been updates and increasing implementation. Dual use items have been added to the controlled export list in which drones and parts of drones are now included. China is restricting the export of drones so as to avoid that they would be used in a military context. This was not the case just a few years back. There's also the restriction on rare earth and strategic materials. AI is working for Chinese customs and is detecting much easier mismatches in real time. And there are the unreliable entity list and the blocking measures. In response to the U.S. entity list by the Commerce Department, China has put forward its own unreliable entity list, also affecting international trade. If you're trading with China, you better make sure that you regularly update your information and that your custom declarations are accurate and specific. The consequences can be costly if it's not done properly. It's important to keep in mind that the U.S. is not the only one that is regulating trade worldwide. China definitely is now extending its trade muscle and is using the resources it has to also extend influence on international trade where it can. Incidents involving rare earth and associated materials and dual use incidents in the last two and a half weeks of October cover two pages, and some affect ordinary businesses. One example: on the 27th of October, camouflage fabric was declared as 100% cotton, but was clearly for military use. The export transaction incurred a fine of CNY553,000 because it was not declared properly and only after detection by the Customs. There were also fines for graphite, emulsion, and powder, where the wrong code was used.
The Chinese government is in a position to affect your supply chains, perhaps not every day, but when it thinks it has an interest in showing its force to eventually have its interest respected. You need to make sure that your supplier is complying with Chinese regulations properly, that he is registering the shipments as they should be registered, and obviously that you understand that from your side you may be held accountable for using the products that you buy from China. China's foreign unreliable entity list is affecting businesses worldwide, both the U.S. entity list and the Chinese unreliable entity list. If you look at the U.S. entity list, what we see in our practice every day in relation specifically to Huawei, is two things. One is that the restriction imposed on Huawei by the U.S. Department of Commerce is directly affecting many of our businesses in Europe, and people are having a hard time to deal with this restriction while at the same time maintaining or seizing the business opportunities that they may have in regard to China. Huawei is one of the central players in many different industries, for instance in the EV market, and is becoming in many ways a company that you cannot go around. People have to do business with Huawei regardless of the restrictions imposed by the U.S. government. From our experience, these restrictions are not necessarily being activated so far, and we expect that it will be less and less the case. We saw in the Nexperia case that China is responding with its own tools when it feels that it has been illegitimately targeted by restrictions from other countries. There are the anti-blocking regulations, which specifically prohibit a foreign company to act on Chinese soil in execution of foreign legislation. If you're doing business in China and refusing to sell, for instance, to Huawei, you can be sanctioned for that. Or you can be put on the unreliable entity list if you help foreign governments suppress Chinese enterprises, thereby seriously undermining Chinese national sovereignty, security, and development interests. So companies big and small in Europe need to understand that your compliance concern is not only valid with regard to U.S. regulation, but also with regard to Chinese regulation. That puts you in a difficult situation sometimes, but one should not underestimate, as the Nexperia story has shown, the power of the Chinese government to disrupt businesses worldwide if they want to do so.
A new anti-unfair competition law came into force on October 15, addressing the difficulties related to the digital economy. It breaks new ground on e-commerce platforms, imposing direct liability on corporate executive decision makers. Regardless of your role or title, if you're a decision maker in a Chinese company, you may be held accountable directly under this law and may be facing penalties, including financial penalties, if you have either obviously participated in an act that is infringing against the law or if you have tolerated your employees to act against the anti-unfair competition law, or if you fail to put in place sufficient supervision and control. This is a far-reaching obligation and potentially liability that you may face. Some of you may be legal representatives of your companies while not living or being permanently in China. You have to be conscious of these responsibilities that will lie on you as well, for instance, as legal representative or as general manager and that you may have to face if you are in China.
What you need to do is to make sure that your people are sufficiently trained, that they are made aware of the restriction, that you understand what is going on in your company and that you have a clear trust relationship with the people that are managing your business in China. Also under this anti-unfair competition law is the extraterritorial reach to regulate market operations originating beyond the borders of the country. For instance the Shein situation in France. If France goes ahead with this intention to stop Shine of doing business, one may expect that there will be a sort of retaliation action based maybe on this law on any companies doing business on the web here in China and having websites dealing with data. It has already happened recently for a French luxury group.
The criminal law on anti-bribery and anti-corruption was changed and now also extends to corruption affecting private businesses, as opposed to only state-owned enterprises. It specifically identifies three situations or major offenses, being illegally engaged in a similar business, illegally seeking profits for relatives or friends, and crimes of sharing or selling assets of a company at a low price. This is actually a positive evolution, but the backside is that your company may become subject to the same measures. Due to the economic pressure, there is an increased risk of private corruption, bribery within private companies, such as irregular trading activities going on. There are still too many companies that don't have an updated or effective anti-bribery policy that is put into place in their code of conducts and internal regulations. The price of ignoring compliance is increasing. We talked about fines, massive damages, planned shutdowns and market bans, for instance, in the medical sector. So we cannot insist enough on the effects and the consequences of not properly managing this problem here in China, Mr. Snel concluded.
DaWo Law Firm Shanghai has published a digital “Compliance in China” booklet. If you are interested to receive the PTT and the booklet, please send an e-mail to info@flanders-china.be
