Shanghai develops well-crafted legislation to improve business environment

During the 2nd China International Import Expo (CIIE) held in Shanghai in early November, foreign multinationals, including the electric car giant Tesla, unanimously applauded Shanghai for its law-based business environment.

The government of this East China metropolis has indeed been pursuing a pro-business environment by both refining its legislation and strengthening institutional legal safeguards.

In March, several local departments including the bureau of justice jointly released a list of 34 slight law violations, for which enterprises can be exempt from penalties.

"We found in our studies that the majority of the enterprises with slight law violations are small, medium-sized or innovation-driven enterprises which have been operating for a relatively short period of time and are short of adequate awareness for legal compliance," said an official from the city's market regulation authority. "Most of their violations resulted from their carelessness and the penalties would have had a negative impact on their future development."

Enterprises do benefit from the list. In one case, a local company was found using a term that violates China's advertising law in its advertisements and therefore faced a penalty of up to 100,000 yuan ($14,206) under the law.

However, considering the fact that the advertised product was certified, its sales were quite small, and the company had removed the inappropriate term from its advertisement, the law enforcement department finally decided to exempt the company from the penalty according to the list.

"It's not just about the penalty," said one of the company's executives. "Once we are penalized, our company's credit record will be affected. So the list was developed really in the interest of enterprises."

The list also addresses the concerns of the law enforcement department which was often criticized for their exemption of enterprises with slight law violations from penalties in the past.

About a month after the release of the list, the local government also established a community of legal guardians which consists of about 40 local authorities, universities, institutes and law firms. 

Together, the community is tasked with developing legislation, enhancing law enforcement, providing judicial guarantees, optimizing the dispute resolution mechanism and building think tanks.

In October, the World Bank released its annual Doing Business report, in which China's ranking is up by 15 spots from last year to 31st. Because Shanghai carried a weight of 55 percent in the statistic analysis of China's overall business environment, the city really contributed substantially to the country's elevation in the rankings.