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A "golden era" for UK-China university collaboration?

17 March 2016

David Copping

Partner
Farrer & Co LLP

President XI Jinping’s visit to the UK in November 2015 highlighted the importance of higher education in relationships between China and the UK. Collaboration between UK universities and Chinese partners formed a centre piece of the state visit. This collaboration is longstanding and a key feature of the UK’s transnational education (TNE) exports: almost 10% (56,340) of the UK’s 663,915 students returned as studying wholly offshore to the 14/15 HESA record are in China. With an agreement endorsing greater joint working between the two nations in quality assurance being announced today, David Copping outlines ten key points that universities should be mindful of when considering UK-China collaboration.


​We continue to see significant levels of activity in terms of UK-China collaborations in the higher education sector, but such ventures are not for the faint hearted.
Here are 10 initial points which must be considered before deciding to embark on any UK/Chinese collaboration. They are not intended to be exhaustive; they offer a general summary of some points of the law and should not replace legal advice tailored to your specific circumstances.

General


1. "Why?" 

It is important from the outset to asses why you are considering a potential collaboration in China.  What are the drivers?  Is it to achieve a financial surplus, to fulfil your charitable/educational purposes and/or for some other reason?  The answer to this question will help you to ensure that the legal aspects of the deal are properly structured.  For example, if the venture is "profit" driven, it may be necessary to route it via a UK trading subsidiary, and you will know to assess the scope of work and financial terms carefully to ensure that such profit is not eroded.


2. Chinese tax considerations and the "Permanent Establishment" risk

Where a UK institution's staff are working in China above an allotted number of days, there is a risk that this may lead to the university being deemed to have a permanent establishment in China for Chinese tax purposes.  This potentially affects both the UK institution and individual staff working in China.  The impact of withholding taxes and VAT must also be considered.

Mode of operation is a highly regulated area in China.  UK institutions will need to decide whether any in-country aspects shall be delivered directly, via a representative office, Wholly Foreign Owned Entity (WFOE) or more formal corporate joint venture structure.


3. Choice of law and jurisdiction

Chinese courts will not typically enforce orders of the UK courts so care is needed when selecting agreed jurisdiction.  Alternative routes include using suitable arbitration provisions - China is a signatory to the New York Convention - or routing disputes via Hong Kong courts.   It may be possible for a contract to be governed by English law, depending on the nature of the agreement.  

4. Brand protection 

Many well-known Western companies and institutions find, upon entering the Chinese market, that their names and marks have been registered by Chinese individuals or companies.   There are various tactics which can be deployed to try to recover lost rights including acquiring registrations, agreeing co-existence or applying for invalidation, or often, a combination of these approaches.   Whatever the position, a review of the Chinese trade mark register and local trade mark filings are both recommended steps.

5. Language and negotiation 

Parties must be clear as to which language will apply to negotiations, legal documents and day-to-day dealings and ensure that the costs and processes around any translations are agreed up front.

Education


6. Chinese regulations 

Collaborative provision of education is heavily regulated in China/ The ‘2003 Regulations of the People's Republic of China on Chinese-Foreign Cooperative Education’ principally focuses on new joint "education institutions". The 2004 Implementation Measures for the Regulations of the People's Republic of China on Chinese-Foreign Cooperation in Running Schools also covers joint education programs,eg, 3+1 awards. Both pieces of legislation include some rigid requirements which must be respected,eg, in relation to capital commitments, value attributed to intellectual property contributions, application dates.  These regulations are supplemented by formal "opinions" and briefings issued by the Ministry of Education from time to time.  

In practice many collaborations are framed in such a manner as to sit outside this regulatory regime, by utilising structures more akin to articulation or progression arrangements, involving  recognition of prior (China-based) study and a (potentially standalone) element of UK study leading to a UK degree.  Whether this is a sustainable long-term strategy remains to be seen.  

One difficulty UK universities face is that the 2004 "Implementation Measures" are not particularly well tailored to joint programmes; much of the wording tends to assume that some form of joint legal entity, eg, with Articles of Association, is being established, where that may not be the case.

7. Ministry of Education policy and quality assurance 

After a period of rapid expansion, the Chinese Ministry of Education is continually vigilant around quality assurance measures, and is implementing various policies to ensure the high quality of sino-foreign education programmes.”  This includes:
  • imposing a requirement in-country foreign teaching/contribution to be at least a third;
  • multiple joint programmes with multiple Chinese institutions losing favour; and
  • not allowing foreign universities who are already offering (a) degree-level joint programme(s) to apply for (a) new programme(s) until one cohort of students has successfully graduated.
Other policy considerations which may impact upon chances of approval include: proposed fee levels; academic subjects shifting focus away from already heavily populated areas such as business and economics towards more science-based programmes; and geographical area, with investments in the North West/inland areas of China reportedly being favoured.

8. UK Quality Code 

In addition to dealing with the challenges of navigating the Chinese regulatory and policy framework, UK universities must not lose sight of their responsibilities under the UK Quality Code for Higher Education, especially Chapter B10, ‘Managing Higher Education Provision with Others​’.

Research


9. Dealing with intellectual property rights (IPR) and publication 

Tied to President Xi's visit, the UK IPO has published a UK-China collaborative research IP toolkit intended to help non-IP experts to handle issues relating to the ownership and exploitation of IP rights generated in collaborations between the UK and China.  The toolkit comprises of guidance notes explaining both the UK and China context and links to the UK’s Lambert toolkit and includes some useful commentary on current Chinese IP protections and practices.

10. Export/import controls 

UK universities will need to be mindful of UK export controls and Chinese rules around "technology import" for certain restricted technologies, in particular technologies with potential military or dual use, when agreeing terms relating to the assignment and licensing of intellectual property rights.