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China Contracts That Work

Posted in Basics of China Business Law
A good written contract beats a handshake deal every time.Drawing by 7414 at http://bit.ly/1dxKDKD

A good written contract beats a handshake deal. Drawing by 7414 at http://bit.ly/1dxKDKD

I spoke last week at the USPTO road show in Irvine, CA. It was an excellent event (they always are). All good speakers. Good breakfast and lunch. And all for the low low price of $55. You should not miss these events when they come to your city!

During a break, the owner of one of the businesses attending asked me whether his contracts were “enforceable in China.” My response was that I would need to look at the contract to know but that there are actually three powerful reasons for having an enforceable contract with a Chinese company and enforceability is only one of them. I explained the following to him:

There are three reasons why it makes sense to have a contract with your Chinese counter-party, and only one of those reasons is enforceability in court.

1. The first reason is to achieve clarity. Having a well-written contract in Chinese will assure you that the Chinese company with which you are doing business truly understands what you want of it. Put simply, it will put the two of you on the same page. For example, if you ask your Chinese supplier if it can get you your product in thirty days, it will answer with a “yes” pretty much every time. But if your Chinese supplier signs a contract mandating that its failure to ship your product within thirty days will require it pay you 1% of the value of the order for each day late, you will know that the Chinese company is serious about the thirty day shipment terms.

2. The second reason for having a well-written Chinese language (usually) contract with your Chinese counter-party is to convince it that it will be better off complying with your contract than violating it. Having a well written contract that is at least potentially enforceable means that the Chinese company knows exactly what it must do to comply and knows that its failure to comply could subject it to a lawsuit that it might lose.Let’s use the thirty day shipment time as the example again. If your Chinese manufacturer makes widgets for 25 foreign companies and five of those have very clear time deadlines with a very clear contract damages provision, and the Chinese company starts falling behind on production, to which companies will the Chinese manufacturer give production priority? Of course it will put the five companies with a good contract at the front of the line. You need to make sure that you are one of the five. For more on the importance of putting a contract damage provision in your China contract, check out China Commercial Contracts: Writing the Contract Damage Provision.

3. Enforceability is the third reason for having a good China contract. Here’s the funny thing. My firm has written hundreds of China contracts and we have never once been called on to litigate any of them nor am I aware of any of them having been litigated. I attribute this to reasons #1 and #2 above, but I have to admit that this also means I cannot stand up and scream that Chinese courts enforce well written contracts. Even better though, I can stand up and scream that they do certainly seem to prevent problems. Even though I cannot speak regarding the enforcement of my firm’s contracts, I can say that where my firm has sued or threatened to sue or arbitrated or threatened to arbitrate on good China contracts written by others, we have felt that China does enforce contracts. More importantly, however, the World Bank feels the same way, ranking China 35th among 189 countries in terms of enforcing contracts.

And that is a lot of the point. If your Chinese counter-party believes your contract will be enforced or even if it just believes it may be enforced, it is likely to act accordingly.

China Signs Of Fraud

Posted in China Business

American companies are always asking the China lawyers at my firm how they can avoid getting scammed by a Chinese company. There is no one answer and sometimes it involves “instinct” as much as science. We see so much fraud/attempted fraud in our practice that we can usually (but not always) spot a fraud within minutes just by looking at the documents the victim or potential victim has been provided. I previously wrote about some of the ones I have come across:

Because China due diligence should not be optional.

Because China due diligence should not be optional.

  • Company claimed to have a multi-million dollar account at a non-existent bank. It was a bank in Australia and five minutes on Google revealed that bank did not exist. What caused us to look was that we thought its name (an Ocean not contiguous with Australia) was very strange for a bank in Australia.
  • Company documents showed a subsidiary in the Marshall Islands, yet always spelled the country as Marshal Island. It had no such subsidiary. Why would a company not know how to spell one of its locations correctly? I mean, come on.
  • Company claimed to have a branch office in a particular city, yet its documents on that branch office (including supposed government documents) put that city in the wrong province. Again, come on.
  • Company claimed to be bringing in twice as much product as physically possible on a particular ship. When I first saw the amount of product involved I thought “this must be a massive ship.” I then thought, gosh, I didn’t realize Cambodia had ships of this size. So I spent about five minutes checking out this particular ship and realized that it was not nearly large enough to carry the cargo it claimed it had carried.
  • Company claimed to have been shipping out product on a particular ship that did not exist during the first few years when the product was allegedly being shipped.
  • Company claimed to have won an IP lawsuit in a country’s Supreme Court (they produced the Supreme Court’s decision and everything), but there had never been such a case. Had a lawyer friend check this out in the applicable country (Russia).

Many months ago, a company sent me some documents to get an estimate from us on what we would charge to represent it on a deal. Within ten minutes I wrote back saying that we would not be interested in taking on the contract writing because I thought that the alleged Chinese company was a scam and we did not want to in any way participate in it. I instead suggested that this company retain us to conduct basic due diligence on the company to determine its bona fides. The potential client (who no doubt had dollar signs in its eyes) seemed a bit offended and sought to challenge my suspicions of fraud. My response to his challenge (with some key identifiers changed) was as follows:

I spent less than ten minutes looking at just the proposed contract you sent me and from that one document and in that short amount of time I noticed the following:

  • If a company is named China, it is almost always huge. Massive. Very unlikely that sort of company would have reached out to you out of nowhere for a $350,000 order when there are so many other potential sellers in other countries (including within China) it could have contacted. This makes no sense. I strongly suspect that the person reaching out to you is not with this Chinese company.
  • The Chinese company with this name is in the X business. Why would a company in the X business be looking to buy Y product? Makes no sense. I strongly suspect that the person reaching out to you is not with this Chinese company.
  • The bank is in Shenzhen. The company is in Shandong Province. It would be like you in Nashville using a small bank in Seattle for your banking. Makes no sense. I strongly suspect that the person reaching out to you is not with this Chinese company.
  •  Your contract is not a contract at all. That standing alone is not a sign of fraud but it does not make sense for a large company (which this company purports to be) to send out a document like this because it is not even close to being a real contract. I strongly suspect that the person reaching out to you is not with this Chinese company.

After the American company got over their anger at my questioning their deal (which they saw as the start of something big), they had us conduct due diligence on the company and the situation and within a week, they too were convinced that they had been scammed. No deal, but no massive losses either.

For more on China due diligence, check out the following:

China Due Diligence. The Most Basic Things To Do.

China Business Due Diligence

Giving China Due Diligence Its Due

Oh, and be careful out there, especially if you get a contact out of the blue from a Chinese company purportedly wanting to buy your product or your service.

China’s E-Commerce Development Plan

Posted in China Business, Legal News

China government planners are working to increase the role of domestic consumption and domestic investment in PRC economy. The State Council has decided that increasing the role of e-commerce is one way to promote consumer driven, private investment. However, though the players will be private, the government will take the lead in developing a modern e-commerce industry in China. The basic plan was outlined by the State Council in its May 7, 2015 Opinion on E-Commerce 国务院关于大力发展电子商务 加快培育经济新动力的意见.

China's Internet

China’s Internet

The Opinion proposes to resolve the following primary barriers to developing a modern e-commerce industry in China:

  • High minimum capital requirements and related licensing restrictions that keep SMEs and individuals out of the market.
  • Taxation, social benefit and registration requirements that prevent lower wage individuals from using e-commerce as a supplementary form of income.
  • Lack of effective online payment mechanisms.
  • Inadequate consumer protection and associated lack of trust in products purchased from e-commerce platforms.
  • Primitive and unreliable package delivery systems.
  • Lack of coordination and procedures in international e-commerce, both for import and export.

As is typical of this type of PRC planning document, it uses virtually every current e-commerce buzzword at least once in the Opinion. As is also typical in this type of document, the Opinion is quite detailed in setting out the problems but is lacking in serious discussion on how to resolve them. The Opinion sets 2025 as its goal date for creating a fully modern, privately owned, Chinese citizen controlled e-commerce system, but does not address who will do it, how much it will cost and who will pay for it. It creates more questions than answers.

The Opinion does not directly address the real issues concerning e-commerce in China. China’s commercial Internet was created mostly by foreign companies (like Baidu and Alibaba) and was financed by foreign money from foreign companies (like Yahoo and SoftBank) and foreign investment funds, and from foreign IPOs in Hong Kong and New York. Its technology is also overwhelmingly foreign, acquired by Chinese nationals  educated in United States universities and trained in Silicon Valley.

Since the Opinion’s primary focus is on building a Chinese owned and controlled e-commerce sector, it naturally contains little directed at benefiting foreign investors. There is, however, a proposal in the Opinion to increase the percentage ownership interest allowable for foreign investment in Chinese e-commerce companies. This presumably means that foreign investors would be permitted to take a majority ownership interest in Chinese e-commerce companies. The Opinion does not state what the new allowable percentage of foreign ownership will be and it also does not mention whether a majority foreign controlled e-commerce company would be permitted to acquire its own commercial ICP license.

The Opinion does include a long section on “opening up to the outside.” However, in keeping with the general “China power” theme of the Opinion, this opening up is concerned not with allowing foreigners into the Chinese e-commerce sector, but rather with encouraging Chinese e-commerce companies to move outside of China. The Opinion proposes that the Chinese government support this movement out of China in three ways. First, state owned banks will provide loans to Chinese e-commerce companies to invest outside of China, especially for M&A investments. Second, support will be provided for Chinese e-commerce companies to raise money overseas through public offerings. Third, Chinese e-commerce companies will be supported in gaining public recognition outside of China brand and product awareness.

Though there is little new in the Opinion, it does confirm the Chinese government’s intent to “take back” the Internet, at least in the e-commerce sector. It also illustrates one way that the Chinese government hopes to shift to a domestic consumption/private investment driven economy. Over the next year we should begin to see the concrete steps the Chinese government will take to realize this difficult goal.

Where To Locate Your China Company

Posted in China Business
Why not just locate your business here?

Why not just locate your business here?

The other day I was talking with a U.S. based non-tech consumer company about their commencing retail operations in China. This is a new client and at some point in the conversation I started getting specific about what it takes to form a WFOE in Shanghai. The client stopped me and said that they were not yet certain about where they were going to base their China operations, though they are “certainly leaning to Shanghai.” I had inadvertently just assumed Shanghai because so many other companies in similar industries base their China operations in Shanghai and because were I the czar of this business, that would likely be where I would base it as well.

Our China lawyers often work with our clients and their consultants to help in determining where to locate, with our role being mostly legal. We might explain how their IP will be better protected in Shanghai then in Chengdu or how Beijing’s labor bureau tends to be very pro-employee or how Dalian has some strange rules for foreign businesses.

So I am always interested in which China city is good for what, in terms of foreign companies doing business in China. Technode just did an article, entitled Where Should You Base Your Startup In China? Five Expat Entrepreneurs Weigh In. And though this article focuses on start-ups, its information is relevant for any company trying to decide where to locate in China for the first time or even where to locate a branch. Each of the five entrepreneurs does a nice job of briefly setting out the pros and cons of their city, as follows, with my comment in italics:

Matt Conger of SeekPanda. SeekPanda chose Beijing because it “naturally attracts both sides of our network: business travelers and high-end language professionals. We evaluate our “pandas” with in-person meetings. No other city can match Beijing as a magnet for the talent we recruit.” He lists Beijing’s startup culture as a plus and “two centers of gravity for startups that are quite far apart” as a negative. I have to add one more obvious negative: pollution.  

Guan Wang of Amanda. Amanda chose Shanghai because it “targets a global audience, and Shanghai is an international hub where you can find target users, foreign talents, and potential partners across all industries. We are also located very close to universities, which makes it convenient to recruit fresh grads.” For Shanghai pluses, he lists that “Shanghai is a very charming and livable city, definitely the most western style offering on the mainland. This means attracting foreign talent is comparatively easy.” For Shanghai negatives, he mentions the high cost of living and how it is focused on finance and retail, not tech.

Mike Michelini of Unchained Apps. Unchained Apps chose Shenzhen because its border location “maximizes China’s large talent pool as well as the network of business development contacts in Hong Kong.” He lists China’s “relatively low cost of operations and living” as a plus, along with “lots of young entrepreneurs.” He mentions rapidly rising costs and competition for developers in the region as minuses.

Matt Vegh of Cloud Time. Cloud Time chose Chengdu because it “blends so many important factors together and does it so well, that it is hard to imagine a more suitable location for an entrepreneur. Urban and rural integration, tradition with modernity, business with leisure, industry with the environment and the list goes on.” He lists Chengdu pluses as “excellent transportation systems and infrastructure” and it being “much more affordable than eastern centers.” Chengdu minuses include it being “under-the-radar … a steep learning curve for foreign investors … and a lack of established tech savvy regional equity pools.” I would mention that Chengdu’s courts are less developed than Shanghai and Beijing’s.  

Nick Ramil of Enter China. Enter China chose Guangzhou because it is the “epicenter of the manufacturing province – Guangdong.” Ramil lists its “proximity to Hong Kong” and “a burgeoning expat community focused on trade” as its pluses. He lists it being a Cantonese speaking city as a minus, along with its “pollution and extreme weather.”

What do you think?

Getting Counterfeit Products Off China Websites: It’s Possible

Posted in China Business, Legal News

 

Counterfeit products on Chinese websitesA couple of our China lawyers nearly every day oversee requests to Chinese websites to take down counterfeit products. The success rate on getting these products removed within a week or so is North of 95%.

Yesterday, the following email (modified very slightly) crossed my computer. It is from one of our China lawyers who does these takedown requests all the time to another of our lawyers who needed information regarding the process. I am publishing it here to show that if the IP facts (and that typically means China IP registrations or in some cases, registrations in your home country) are in your favor, getting counterfeit products removed from Chinese websites is definitely possible and generally not all that difficult. But you do need to be persistent and it certainly helps to be able to read and write and speak Chinese. Here is that email:

I have indeed worked on numerous takedown matters across multiple websites, many on behalf of  _______. Every Chinese website has its own protocols, and you need to follow that site’s protocols before you can even think about going to court (and I’m sure the client could care less about court, as they just want the products taken down ASAP). You are also correct that only the copyright owner or its authorized representative can make takedown requests. However, sites vary as to the sort of authentication they need for a Power of Attorney. We rarely deal with any that require a POA [Power of Attorney] to be authenticated or notarized — this is a big time sinkhole when you have to deal with government agencies, but not so much with private companies.

The most important thing is that if you want to get traction, you will need to show proof that the IP (copyright or trademark) has been registered, and for some sites you will need to prove that it has been registered in China. Yes, I am aware that China is obligated to recognize a copyright registered in any Berne Convention signatory nation. But try explaining China’s WTO obligations to a 21-year-old customer service representative and see how far you get. This issue is where a lot of complainants get bogged down, because in some situations, by the time they get their China copyright registration and can submit a takedown request, the damage has been done. How many people will still be downloading today’s big game six months from now?

Another thing to consider is that the more sophisticated/well-heeled the website, the more likely that they have a formal takedown procedure, or perhaps even a full-fledged website for submitting complaints. This is what Alibaba does. For the smaller websites, you generally have to contact someone directly and hope for the best, because the instructions on the website are hopeless. But unless the website is an out-and-out pirate site, the IP complaint people are usually helpful, albeit within their highly limited constraints. They don’t want to host counterfeit or pirated content, and as long as you do all the work for them, they’ll be happy to take it down.

Finally, you should be aware that once this process begins, it’s pretty much ongoing. The pirates and counterfeiters don’t just give up because their first upload got taken down. We constantly need to monitor and report.

Coincidentally, last week I had a good conversation (for more than an hour) with the US head of a [large Chinese internet company’s] content protection team who told  me about some of interesting anti-infringement programs they’re trying to implement.

What are you seeing out there?

See also Register Your Trademark In China Because Alibaba Is Serious About IP.

How To Protect Your Intellectual Property In China: May 21 Seminar In Irvine, California

Posted in Basics of China Business Law, Events
Come in from the sun and learn about China IP

Come in from the sun and learn about China IP

On Thursday, May 21, I will be speaking at the UC Irvine Law School at an all day China IP seminar organized by the U.S. Commercial Service, the Southern California District Export Council, UC Irvine Law School, and the John S. and Marilyn Long U.S.-China Institute for Business and Law.

For the agenda, click here.  To register click here — it’s only $55!

I will be talking about why and how to use contracts to protect your IP in and from China.

I hope to see you there.

China Employment Contracts: If Yours Are Not Current, You Have A Problem

Posted in Basics of China Business Law, Legal News

Under China’s labor laws, China-based employers are required to have written employment contracts with all of their full-time employees. At minimum, that employment contract must contain the following mandatory provisions:

Are all of your China employment contracts current?

Are all of your China employment contracts current?

  • Basic information about the employer and the employee
  • The explicit term/duration of the employment contract
  • A description of the work the employee will be performing
  • The place of work
  • The working hours
  • Rest and leave time
  • Wages
  • Social insurance
  • Applicable labor protections and labor conditions and protection against occupational hazards
  • “other matters required by relevant laws and regulations”

If within one month of the commencement of the employment relationship (and upon written notice from the employer) an employee refuses or fails to sign a written employment contract with the employer, the employer must provide the employee with a written notice terminating the labor relationship. In this case, the employer is not required to pay any economic compensation but must compensate the employee for the time he or she actually worked.

If an employer goes more than a month without having a written employment contract with an employee, the employer will be required to pay its employees double the employees’ monthly wage. In addition to having to paying double the employee’s monthly wage, the employer must immediately execute a written labor contract with the employee. Once this second one-month period has passed, even where the employee refuses to enter into a written contract, the employer still must pay applicable economic compensation upon termination.

If an employer goes more than a year without having a written employment contract with an employee, the employee lacking the written employment contract will be deemed to have entered into an open-term labor contract with his or her employer, which essentially means there is no definitive end date to the labor relationship.

It is important to note that all of the above rules apply with equal force to foreign employees who are working in China and that some Chinese labor arbitration commissions and courts do not recognize anything other than Chinese language agreements as constituting a valid written employment contract.

Now consider this question: An employer and an employee executed a fixed term written employment . After that contract expired, the employer and the employee did not renew the contract, but the employee continues working for the employer. Will the employer be penalized for not having a written labor contract with the employee?

As explained below, none of the national rules provide clear guidance on this issue and so (like so many China employment law issues) the answer will depend on the employer’s location.

According to the Interpretation of the Supreme People’s Court on Several Issues Regarding the Application of Laws for the Trial of Labor Dispute Cases (最高人民法院关于审理劳动争议案件适用法律若干问题的解释), the parties will be deemed to have agreed to continue to perform under the original terms of the labor contract, and either party may end the labor relationship at any time. The Reply of the General Office of the Ministry of Labor and Social Security Concerning Issues of Whether Economic Compensation Shall be Paid When the De Facto Labor Relationship is Terminated (劳动和社会保障部办公厅关于对事实劳动关系解除是否应该支付经济补偿金问题的复函) provides that the relationship between the parties is a de facto labor relationship. This however does not mean that the parties have signed a new labor contract for the same term as the original labor contract. Note both the judicial interpretation and the Reply were published before the 2008 Labor Contract Law (which was then amended in 2012) came into effect. The Labor Contract Law, however, does not directly deal with the issue in question.

Here is a summary of the rules in Beijing. Though the Provisions of Beijing Municipality on Labor Contracts (北京市劳动合同规定) are silent on this question, the Beijing Labor Bureau, citing these Provisions, is of the opinion that the employer must pay double the employees’ monthly wage for all work performed after the initial written agreement expired. A 2009 judicial document, the Supreme People’s Court of Beijing and Beijing Labor Dispute Arbitration Committee Meeting Minutes of the Seminar on the Application of Law in Labor Dispute Cases (北京市高级人民法院、北京市劳动争议仲裁委员会关于劳动争议案件法律适用问题研讨会会议纪要), also imposed a double wage penalty on the employer for not having a written contract for a labor relationship that continued after the initial written employment contract expired. Finally, in January 2014, Beijing issued the Draft Several Provisions of Beijing Municipality on Labor Contracts (北京市劳动合同若干规定(草案送审稿)) making clear that when employment continues after expiration of the employment contract (even if the employer can be terminated on statutory grounds without severance pay), the employer should still be issued a double wage penalty for not having a written contract. Though these new rules have not yet been implemented, it is clear that in Beijing employers will get hit with a double wage penalty for continuing to employ someone after their labor contract has expired.

And if I have not scared you enough already, let me note that in addition to the double wage penalty payable to the employee, the relevant authorities usually also fine (sometimes quite substantially) the employer for failing to execute a new written labor contract with their employee.

 

Some cities (e.g., Beijing) require that the employer notify the employee in writing before the expiration of the current contract of its intent to end/renew the labor contract, and formally start the relevant process. Even in cities where no such requirement is imposed, it is still advisable to start the renewal process early.

Bottom Line: If you have employees working without a current written contract (in Chinese) you are sitting on a ticking time bomb in need of immediate defusing.

China Law And China Risks: The Company We Do Not Keep

Posted in China Business, Legal News
Are you comfortable leaving your future to chance?

Are you comfortable leaving your future to chance?

As the co-head of my firm’s China law group I get bcc’ed on a lot of emails. In cleaning out my emails today I came across an email conversation between two of our China lawyers from a long time ago that is too telling not to post about.

The situation is a small company that formed a WFOE in China many years ago. The company then started operating in China illegally by among other things, doing something very different from its scope and by not paying its taxes. It got caught and the Chinese government (big surprise!) is now insisting that it pay all sorts of back taxes, plus penalties, plus interest. It also is making noises about going after some of the owners criminally or just via deportation. One of the company owners (who lives in China) contacted us to try to remedy its problems. In particular he was concerned that this problem will mean that he personally will be criminally charged and get deported from China and never be able to return — a very valid fear. In fact, his bigger fear should be that he will not be allowed to leave China unless and until all back taxes are paid, but we will save that issue for another blog post.

One of our China lawyers in the U.S. communicated with this person a few times and at the same time discussed this person’s problems via emails with another of our lawyers in China. To summarize, we told this person that we would need at $15,000 in our bank trust account to get started on his legal work because there were so many complicated and issues involved (ranging from corporate to tax to criminal to deportation, among others) and because of the urgency and the personal risk. We would then charge by the hour against this $15,000.

His response was to ask whether we could instead simply bill “an hour or so” to review the relevant documents and his situation and then tell him what to do. One of our lawyers responded with a very simple explanation of how that would neither make sense nor be possible. We never heard from him again.

I write this post to illustrate a particular kind of person we sometimes encounter (but virtually never represent) and to get help in better understanding this sort of person. This kind of person just keeps taking risks until caught and then is more than willing to continue taking risks even after getting caught. As lawyers with a lifetime of being inculcated in risk management and avoidance, we simply do not understand these people. At all. I mean I just don’t get it. If you do, please explain. Seriously.

China’s Slowdown And Your Business

Posted in China Business, Legal News

In 2012, I wrote an article for the Wall Street Journal, entitled, China’s Slowdown and American Business. There was a slowdown happening in China at that time and the China lawyers at my law firm were seeing it/feeling it from the phone calls and the emails we were getting. This article was intended to address the issues we were seeing then. We are seeing many of those same issues again as China’s economy is undeniably going through an economic slowdown that could last for years.

China's Economy is Slumping

China’s Economy is Slumping

The Wall Street Journal editors chose the following subheading for my article two years ago: “Hardly a week goes by without complaints about payment problems or bankrupt debtors.” If I were to choose a new subheading for today, it would be “Hardly a day goes by without complaints about missing or bad product and hardly a week goes by without someone asking about what will be required for them to shut down their China WFOE.”

The following are the key points from my Wall Street Journal that apply with similar or greater force today:

Regulation. The best assumption to make is that the Chinese government will respond to the slowdown by attempting to minimize citizen discontent so as to keep its hold on power.

Sourcing Problems. The slowdown is changing Chinese company interactions with foreign companies. Chinese exporters, particularly those that compete with companies from lower-wage countries like Vietnam and Bangladesh, are suffering—in particular in very low-tech, very low-wage industries such as textiles, clothing, shoes and low-end electronics and toys. Foreign companies that do business with Chinese companies in these industries must be on their guard. Hardly a week [right now its almost daily] goes by without one of the China lawyers at my firm getting a call from a Western company experiencing problems. Sometimes the Western company has paid for a product and the company it paid no longer exists. Sometimes the company still exists but it needs ‘more money’ from the Western company to buy raw materials for the product it already promised to produce.

Foreign managers need to understand what is happening in their own industries within China. This might mean visiting your Chinese co-party’s factory, warehouse or office to look for warning signs of a company in distress. Or it might mean taking out insurance to cover your China business or transaction. A number of Chinese manufacturers are owned by Taiwanese, Singaporean or Hong Kong companies, and sometimes it is possible to secure guarantees from the foreign parent.

The key is to be proactive: If you find yourself in a bad situation with a Chinese company going under, there usually is no remedy after the fact. Bankruptcy in China more often than not consists of a company shutting down in the middle of the night and its owner fleeing to another town.

The key to weathering China’s slowdown will be for foreign companies to go back to basics …. focus on scrupulous regulatory compliance; and renew focus on due diligence at a company-to-company level. Above all, no Western company doing business in China should blithely assume that a slowdown won’t affect it.

Updating the article just a bit, I would note that China is going after companies that are paying individuals in China without paying the required employer and employee taxes. If you are doing that, I would urge you to read Hiring A Chinese Employee Without A Chinese Entity. Good Luck With That. Like today. If you are sourcing product or services from China or doing any other sort of business where the financial health of a Chinese company is important to your company, I suggest you read China Business Due Diligence. Lastly, if you are looking to close down your China operations, consider the long term repurcussions if you do not do so correctly and for that I suggest you read Shutting Down A China WFOE. The Potential Repercussions.

On the positive side, many companies are finding lower prices than even six months ago.

What are you seeing out there?

Negotiating With Chinese Companies: Screaming As A Tactic

Posted in China Business
Will doing this help your negotiation with a Chinese company?

Will doing this help your negotiations with Chinese companies?

I wrote a post the other day on Linkedin, entitled, How to Negotiate with Chinese Companies. Someone left the following comment in response to the post:

How bout get in their face and tell it like it is! That usually wipes the fake smiles and nervous laughter off their face pretty quick! Don’t give the Chinese one inch of room to move, if you get pissed bang on the table and scream in their face; they hate confrontation and will always back down. They are constantly worried about a loss of temper from a laowai, if you get a reputation as a hot head you will get what you want.

My initial feeling upon seeing this was consternation simply because I do not consider anger as a good method for achieving one’s goals, unless and until all else has failed. If you are calm and rational and that does not work, you can try anger and that might work. But if you start out with anger it becomes extremely difficult to win someone over by switching to a calm and rational approach. I am not saying anger never works or never makes sense because it sometimes does. But I am saying that using it as a first approach is virtually always unwise. And when you do employ anger, you should be sure to employ it in a controlled way, so that your counterpart does not flee from you, but realizes that you are one favor away from being calm and rational again. I last got angry with Comcast (I mean, who doesn’t) and even then I was sure to constantly interject with “I’m not mad at you, I’m just mad about the fact that Comcast seems to be asking me to pay the price for its own incompetence.”

But when it comes to China, I have my doubts about the value of ever using anger as a method for effecting business change. My sense has always been that getting angry will lead your Chinese counterpart to at that moment act as though he or she is agreeing with you and what you are proposing, but that once you are gone your Chinese counterpart will do whatever can be done never to have anything to do with you ever again.

Anger in China, does it ever make sense as a strategy for advancing a business deal or relationship? We’d love to see your comments on this below.