Unclear regulations are one of the top five obstacles for American investors in China, which also include intellectual property infringement, according to the 2011 White Paper by the American Chamber of Commerce in the People’s Republic of China.

Ted Dean, the chamber’s chairman, said there is often a lack of regulatory clarity in government approvals for products and licenses.

“There are cases where in actuality the government is operating on internal guidance that foreign companies don’t have access to or discover after the fact,” Dean said. “Or the guidance is communicated to them in the approval process orally and you ask, ‘Where’s that in the law?’”

The result was usually lost business or increased costs for the companies to discover unpublished rules, Dean said.

Tax Bill

Authorities in the southern city of Shenzhen slapped a 13.7 million yuan ($2.1 million) tax bill on a Hong Kong individual for selling a local shipping and storage asset to a Singaporean company.

Brendan Kelly, a Shanghai-based tax partner at Baker & McKenzie LLP, said the legal basis for the Shenzhen tax bureau’s assessment is questionable under China’s 3 1/2-year-old tax code because the relevant tax avoidance laws so far apply to corporations and not to individuals.

Foreign investors are reluctant to sue, even if the law is on their side, because it’s often viewed as counterproductive and harmful to their relationship with regulators, Kelly said.

“You figure you’ll pay for it some other way down the line,” he said. “There are so many gray areas in the law.”

China’s national security review for foreign mergers and acquisitions, which came into effect in March, is already stalling deals because even authorities aren’t sure how it applies, said Lester Ross, a Beijing-based partner at Wilmer Cutler Pickering Hale & Dorr LLP.