China Law Blog

Well, not quite, but the Shanghai to Ningbo bridge is the world's longest cross-sea span and it cuts the drive from Shanghai to Ningbo from 400 km to 80km.

CLB's own Steve Dickinson just returned from Ningbo, having travelled there from Shanghai to meet with a client who is setting up a manufacturing plant there. I asked Steve what he thought of it and here is his response:

The bridge was truly amazing. It is not like a bridge. It is like a very long, straight road. Just like the Beijing airport: the impossible, done quickly and well. Query: why can they do these things and then not be able to put the right paint on a toy? There is reason at the bottom of all this, and I think pricing and profit margins play a role.

Anyone else been down that bridge yet?

Share Your Comments

The Yuan Also Rises blog has a nice post up on China's current visa situation (at least as of this week). The post is entitled "Clear as Mud," and, among other things, it notes of reports that China visas may be easier to obtain in Japan, Korea, Vietnam and Thailand than in England and Hong Kong.

I used to almost always get my visa in Seoul by going to the Chinese Embassy there in the morning, producing an airplane ticket showing my flight leaving that afternoon, and pleading rather nicely for a visa before my plane would take off. I think the longest I have ever had to wait was one hour. Maybe I will have to go back to that when my multiple entry visa expires in September or maybe the tightened requirements for visas will have ended by then.

Share Your Comments

China Daily has an article that nicely summarizes the evolution of China's environmental laws, entitled, "A Legal Leap Forward." Makes for a good primer on the basics. (h/t to The Green Leap Forward).

Share Your Comments

Very good Washington Post article by very good WaPo reporter Ariana Eunjung Cha on the impact of China's new labor contract law. The article is entitled "New Law Gives Chinese Workers Power, Gives Businesses Nightmares" and it presents a fair and balanced view of what this new law is doing to the employer-employee relationship in China. (h/t to Thomas P.M. Barnett)

Share Your Comments

This Washington Monthly article, entitled, "Confessions of a Sweatshop Inspector" does a really good job conveying what really goes on in China's factories. (h/t to All Roads Lead to China) I admit to having spent very little time in Chinese factories, but this article certainly jibes with what I have been told by those who have and with what I have read on the subject. If you are outsourcing product manufacturing to China, it would behoove you to read this article.

Share Your Comments

When growing up, I played basketball 2-7 hours a day, year round. That meant a lot of basketball shoes. The shoes were everything. The shoes told people how you thought of yourself and they influenced how others thought of you.

Like everyone else of my era, I started out with Converse All Stars because I had no choice. They were crap but until better came out, we just didn't know.

The first "modern" basketball shoe was the Adidas Superstar. I think they cost thirty dollars, which my parents thought was absolutely insane, compared to the $9.95 I was paying for my Cons down at Okun Brothers. But I had to have those shoes. Is there anyone out there who does not associate Kareem with these shoes?

At some point thereafter came my
John "Hondo" Havlicek phase, which meant having to special order really ugly green suede (were they suede or were they leather?) Adidas. This told everyone that I may be White, but I can play. While wearing those shoes, great plays on my part would sometimes evoke other players to call me "Hondo." Yes!

There was also for some short period my Walt "Clyde" Frazier era, which meant moderately ugly (and too wide for my feet -- okay mom, I'm finally admitting it now) Puma Clydes. Great plays on my part led to other players remarking that I was "Clyding." This told everyone that my ambitions extended beyond Kalamazoo. I was urban and urbane now.

There was my very short Pro-Keds period. Purple suede, I believe. Are you messin' with me, or are you messin' with Tiny Archibald? Totally cool shoes, totally cool image, but, when you got right down to it, they were lousy shoes. Oh well.

And there was also my Iceman phase, which meant Nikes. Did I just nail that 25 footer with someone three inches taller than me draped all over than me? No big deal.

So the thought of anyone messing with any of these classics would draw my ire.

And apparently, I am not the only one. According to the Seattle Trademark Blog, an Oregon Federal Court jury just found Payless Shoesource, Inc., liable for infringing Adidas America, Inc.’s three-stripe trademark and awarded Adidas $305 million. "The jury found Payless infringed or diluted Adidas’ mark or trade dress by using a two- and four-stripe logo on its competing athletic shoes. Trial lasted 14 days. The jury deliberated for two days." Here are the shoes the jury found were infringing:

Man, if Lot 3601 doesn't look just like my old Kareems, only with some mutant fourth stripe. Tort lawyers out there, can I bring a claim for post-adolesent traumatic shoe disorder? Are we talking class action? Should I be wary of allowing my childhood friend, Jeff Lane, to join in for fear that Payless will be able to prove that because he was never any good at hoops, there are no reputational damages? Same with John DiDominic.

In your face Payless, thinking you might be able to confuse people into thinking I once wore your shoes when I was always way too cool for that. Payless. Damn. That would have been an abomination. No Payless here.

So what's the China angle? Well it is a bit tenuous, but this ought to remind you that trademark infringement can occur anywhere, not just in China, but if you want to know how to protect your trademark in China, read this article. And it ought to tell you that the shoes are everything.

Weird observation: Big difference between male and female basketball players when it comes to "the shoes." Boys see it as a compliment when some other player buys the same shoes. Female etiquette dictates securing permission before buying the same shoes, and, oftentimes, if possible, the request is tempered by a promise to get them in a different color.

Share Your Comments

Project Alpha just posted the transcript from a very enlightening panel discussion on private equity/venture capital in China. The discussion was at JP Morgan's recent China conference in Beijing. I attended this discussion and found it very informative.

Shaun Rein (Managing Director, China Market Research Group) did an excellent job moderating the discussion between Robert Theleen (CEO, ChinaVest); Joel Kellman (Managing Partner, Granite Global Ventures), and Brandon Lin (Partner, SAIF Partners).

All three of the panelists have done big deals in China and all three did a great job conveying what it takes to succeed as a VC there. If you have an interest in China private equity/venture capital investing, you absolutely should read the transcript.

Share Your Comments

I feel almost compelled to pass on some of the gems Warren Buffet (an apparent hero to the Chinese as well) voiced at Berkshire Hathaway's annual meeting the other day. They are that good.

“Contemplating any business act, an employee should ask himself whether he would be willing to see it immediately described by an informed and critical reporter on the front page of his local paper – there to read by his spouse, children, and friends.”

“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.” I particularly like this one because I am always saying that the older I get, the more convinced I become that the simple strategy is almost always the right strategy.

“Can you really explain to a fish what it’s like to walk on land? One day on land is worth a thousand years of talking about it, and one day running a business has exactly the same kind of value.”

“If I were to land on earth in a UFO and I went to the bank for $1 billion in currency, would I put all $1 billion in the U.S. dollar? No.”

“If past history is all there is to the game, the richest people would be the librarians.”

“The ability to say ‘no’ is a tremendous advantage for an investor.”

Regarding Coke: “A ‘brand’ is a promise. Ten years ago Richard Branson opened Virgin Cola… There have been hundreds of colas over the years… Who buys some substitute cola for a couple of cents less? Same goes for brand chocolate bars. We feel reasonably good about our products.”

Since I always claim that knowing business is more important to success in China than knowing China, these Buffett bon mots are right on point.

Share Your Comments

Every so often I will get an email from an English teacher in China who is owed money by the school for which he works. Typically the letter will state the case and then ask "do I have a case." I nearly always answer by saying that "based on the facts you have conveyed to me, it certainly does sound as though you have a case," but you really need to ask yourself whether it is worth your time and money and all the hassle and stress to pursue your case for $300 to $700. These emails are the sum total of what I know about teaching in China.

Despite this, I every once in a while also get emails from people asking me what I think about teaching English in China. I respond to these by saying that I think it is a good thing for everyone to learn English. Next time I will also mention this post, "Teaching English in China," on the Stupid Pig's China Blog because it is the only thing on the web of which I am aware that talks about teaching English in China. If you are interested in teaching English in China, please do not email me, just check out this post.

Share Your Comments

Kevin Brown has a post up on the OpenDemocracy site that is either brilliant or completely tongue in cheek and I am too dense to tell which. Anyway, the post is entitled, "China's Olympics -- the lull after the storm," and it posits that China has been doing a heckuva good job with Olympics public relations by following the basic PR rule of getting the bad news out first. Brown sees the Olympics running smoothly from here on out and the Chinese just kicking back and enjoying it.

I vacillate between thinking Brown is dead on and thinking he has lost his mind. What do you think?

Share Your Comments

Second year SMU law student, Jing "Brad" Luo, recently had an article of his on China lawyer ethics published in China Law & Practice Magazine. A law student getting an article published in such a prestigious magazine (in his second language, no less) is really quite a feat. The article is entitled, "Chinese Law on Lawyers Amended: Progress Made and to Be Made," and though a subscription is required to see the whole article on the China Law & Practice site, Brad nicely summarizes it on his own blog, with a post, entitled, "Legal Ethics, In Chinese Style."

My gross summary of Brad's summary is that China's new ethical rules for lawyers expand a bit on both the scope of confidentiality of client information and on what constitutes a conflict of interest, but on neither front have the rules gone far enough to make Western clients feel terribly comfortable. I previously wrote on why this discomfort is necessary in a post, entitled, "China Lawyer Ethics -- Perils And Pitfalls For Foreign Companies," which post, in turn, was based on two of Brad's previous posts (here and here) on China lawyer ethics.

Now I know you non-lawyers (if you have even gotten this far) are thinking that none of this has anything to do with you, you are going to just have to trust me that if you have ever hired a Chinese lawyer or law firm or are even contemplating doing so, you need to read the above posts.

Share Your Comments

Kyle over at BizCult has posted on what is becoming a much more frequent occurrence in China: an encounter with the police over a visa issue. The post is entitled "You Are Big Brother's Keeper" and it starts out with what we lawyers call "factual background."

Kyle came to China eight months ago on a tourist visa because such visas were (eight months ago anyway) easy to get. Upon arriving in China, Kyle did not stay in a hotel, which stay would have caused him to meet the requirement that he register his residence within 24 hours upon arriving in China. Instead, he stayed on a friend's couch for a couple weeks. Kyle then found an apartment, registered with the local police station and paid a 500 Yuan fine for his two weeks of "floating" in China without registering. Kyle thinks this put the first "red flag" on his file.

So a cop is now calling Kyle wanting to know why Kyle has not re-registered with his new visa, because surely his initial tourist visa has expired. The cop also wants to know why Kyle failed to come back and re-register after he left the country for a week for Chinese New Years? Okay, and people, please be honest with me here, but how many of you know you are required to re-register under these circumstances? I am guessing around 5%.

The cop tells Kyle's Chinese speaking roommate that Kyle must go to the police office the next day "to pay some fines." Kyle gets some "helpful tips from locals" who suggested he go in "very meekly and apologetically to the office" and he ends up being let off with a warning and "some gruff reminders."

Based on this experience, Kyle now graces us with the following helpful tips:

1. When in doubt, register with the local station. And then register again. When anything in your status changes, from visa to phone number to address to just-back-from-holiday, it is always a good idea to let the authorities know (as creepy as that seems).

2. Do not attempt to fight back (too hard). The sentiment of the authorities seems to be tilting in the direction of contempt of foreigners who think they can do whatever they want. When I suggested to Mr. Officer I was never told that I should re-register upon re-entering the country, I was shown the “Arrival Card” that everyone fills out at customs that states in fine print something to the effect of “failure to register with the police department within 24 hours of arrival can lead to you being deported.” Point taken

I have some additional advice based on having spent nearly my entire career having to deal with all sorts of governments and courts and having dealt with countless sticky visa issues all over the world, including the following:

a. Being held up for 24 hours at the border into Greece from Turkey in a train where the air conditioning has been turned off and where the Greek police every so often ask you why you wanted to go to Turkey in the first place. Trust me, there is no good answer to that question.

b. Running into someone you know only because the two of you attend the same tiny college in Iowa on a train going from the Netherlands to France and then having the police come in, search this person, find a small quantity of pot and then because of this seek to block you from returning to France where you are spending your semester abroad.

c. Going into England when England's economy is in the complete toilet and being held at the border by a bunch of Brit immigration thugs who are insisting you are coming there to get a job. Having to recover from being so young and stupid that you come from the United States where "we actually have jobs" and that with all the countries in the world that are capable of actually creating enough jobs for their own citizens, nobody with an IQ over 70 would be trying to get into England for a job.

d. Being detained/arrested by the police in Vladivostok, Russia at 11 pm for not having a visa for that particular city.

e. Securing a US Federal Court order to stop a flight leaving Anchorage, Alaska, for Magadan, Russia, after it had already started taxiing on the runway. The order came down before the taxiing (of course) but we did not serve it on the airline until the plane containing our 60 or so Russian clients who were being deported had already left the gate.

My advice is as follows (yes, I know some of it is really basic, but please bear with me).

1. Know the law and follow it, not what someone tells you they heard someone else get away with. There are murderers who never get caught, but that does not make it legal nor does it mean you will get away with it. Want to know the law? The best way is to read the webpage of your embassy or consulate or chamber of commerce and to talk to people at your embassy or consulate. Or hire a lawyer who deals in this arena every day.

2. Keep a copy of your visa and your passport with you at all times. Make sure everything is current.

3. Be civil. Be respectful. Keep your cool. Tell the truth. If you get caught in a lie you are done. Done. Do not make jokes and especially do not make jokes about China. Do not act arrogantly. Act respectfully (I am intentionally being repetitive). Make the job of the authorities easier, not more difficult. Just remember, the people in front of you are just doing their jobs and no matter what you do, your actions that day will not advance democracy or human rights or any other ideal one iota further in China.

4. If nothing seems to be working, ask if you can call your embassy, your consulate, your lawyer, your Chinese joint venture partner, or anyone else you think might be able to help you. Immigration people in every country of which I am aware have amazing flexibility. They are human beings. Give them a reason to cut you a break. This does NOT mean paying a bribe, which has the very real potential of getting you in worse trouble than being deported.

5. If you think you might have China visa issues down the road, deal with them now. Start your application, find the right lawyer, talk to your embassy or consulate. Whatever. Just do not wait.

6. Any other ideas, people?

Update: Beijing is now admitting getting a visa has gotten tougher. Three cheers for transparency after the fact.

Share Your Comments

National Public Radio's All Things Considered Show will be broadcasting from Chengdu, China, from May 19 through May 23. (h/t to Barking At The Sun, which is itself based in Chengdu).

For years, my firm had been getting calls from software companies looking to go into Chengdu, but almost without exception, none of them did. Then, maybe around six months ago, we started getting calls from software companies that were doing more than just thinking about going into China, they were ready to go. Many of these companies are going in with joint ventures where their US software is licensed (with all sorts of IP protections) to the joint venture for use/sale in China and the joint venture sells, markets and supports the software in China and also engages in software development for new or improved product for both China and the United States/Europe.

Chengdu is hot these days and NPR will be there.

Share Your Comments

Professor Donald C. Clarke of George Washington University Law School (a former law school professor of CLB's own Steve Dickinson and the prof behind the Chinese Law Prof Blog) recently had his paper published, entitled, "China: Creating a Legal System for a Market Economy."

The abstract describes the paper as follows:

Since the early 1990s, China has come a long way in legislating the foundational rules for its reformed economy. Virtually all of the important areas-contracts, business organizations, securities, bankruptcy, and secured transactions, to name a few - are now covered by national legislation as well as lower-level regulations. Yet an important feature of a legal structure suited to a market economy is missing: the ability of the system to generate from below solutions to problems not adequately dealt with by existing legislation. The top-down model that has dominated Chinese law reform efforts to date can only do so much. What is needed now is a more welcoming attitude to market-generated solutions to the gaps and other problems that will invariably exist in legislation. The state's distrust of civil-society institutions and other bottom-up initiatives suggests, however, that this different approach will not come easily.

Professor Clarke is absolutely right. China has come a long way in passing a whole slew of really well crafted business laws, but once these laws get enacted, Beijing so often becomes paralyzed and cannot seem to come out with regulations fast enough to tell those of us in the field how we are actually supposed to work within the "big laws." So instead of businesses knowing exactly what they need to do to comply, they are oftentimes left wondering when the regulations will come out and what exactly they will say. This is absolutely typical of nearly every law referenced in the abstract above and is true of the new labor law as well. In other words, "what is needed now is a more welcoming attitude to market-generated solutions to the gaps and other problems that will invariably exist in legislation."

Professor Clarke's article makes for very interesting reading.

Share Your Comments

Uber-reliable Danwei just did a post on the current situation (or at least word on the current situation) involving China visas. The post is entitled, China Visa Confusion, but, unfortunately, the post itself is quite clear: getting a Chinese visa of any kind between now and October is going to be extremely tough. If anyone can confirm or deny the information set forth in Danwei, please comment below. If all of this is correct, I suspect Hong Kong, Singapore, Seoul, and Bangkok, will very soon start having an influx of temporary refugees.

If all of this is correct, many are going to be hurt by it.

Share Your Comments

As regular CLB readers know, I have been repeatedly preaching (right word) for some time about the massive impacts to expect from China's new labor contract law, which went into effect just this year. My consistent theme has been that disgruntled employees represented by Chinese litigators ready to pounce will bring an ill wind to all employers in China. To read some of my previous posts on this, check out the following:

1. "China's New Labor Law -- It's A Huge Deal. Huge I Tell You." (November 11, 2007)

2. "China's New Labor Contract Law." (November 25, 2007)

3. "China's New Labor Law Gives SOME Employers The Jitters." (December 19, 2007)

4. "China's New Labor Law. Still Coming. Still A Big Deal." (December 28, 2007)

5. "China's New Labor Law: Compliance Comes Easy." (January 3, 2008)

6. "NPR On China's New Labor Law -- Low Tech Getting 'Difficult.'" (January 8, 2008)

7. "China Labor Law: What's Good For The Law Firm And What's Good For The Lamb." (March 6, 2008)

7. "China's New Labor Law Means Tenure For Everybody." (April 7, 2008)

And that is exactly what has occurred, but even faster and in even greater doses than I expected.

Stan Abrams, of China Hearsay fame, and one of his co-workers, Kevin Jones, of DLA Piper fame, just wrote an article on this for China CSR, entitled, "Year Of The Rat Brings A Plague Upon Employers In China."

The article starts out noting how despite lawyers having seen this coming, "implementation has been slow," "litigation has picked up markedly" and "China's new Employment Contract Law continues to pose huge problems for employers." It need not be so bleak:

Employers who have been non-compliant in the past will be hit the hardest by the new law. But is the outlook really that bleak for all employers? The answer is no, not necessarily - for employers who have been largely in compliance with the 1995 Labor Law (which is supplemented, not replaced by, the Employment Contract Law), and who implement proper administrative procedures to ensure continued compliance going forward, the pain will be bearable.

The new law "effectively eliminates" consecutive fixed-term employment contracts:

The Employment Contract Law limits fixed term contracts to two consecutive terms, after which an open term contract is required to be offered to an employee. However, it is unclear as to whether an employer has the option to simply let the second term expire without offering a new contract to the employee. Draft implementing rules will apparently address this issue; it appears that the new rules shall stipulate that an employer is obliged to provide an open term contract if so requested by the employee. This would effectively give employers only one fixed term opportunity to evaluate employees.

It is not clear when Beijing will issue the implementing rules but it is clear that "employers need to be more mindful of when employment contracts expire and need to properly evaluate the long term employability of employees during the initial term."

The article states that "extensive press coverage of the new law's employee-friendly provisions" has educated Chinese employees of their rights and led to "a significant increase in formal labor disputes." They also predict (and I concur) that the number of labor disputes will increase "even further once the new Labor Dispute Conciliation and Arbitration Law comes into effect in May of this year." The new dispute law will eliminate arbitration fees and extend from 60 days to 1 year the time by which employees must file their claims. For more on the dispute law, check out this post, entitled, "May Day Is Also New Law Day," on the WSJ China Journal.

Employers will still be able to terminate employees for violating written company rules, but the new Employment Contract Law sets forth certain procedures employers must follow for even this to be the case:

For company rules to be enforceable under the Employment Contract Law, the employer must (i) discuss and seek feedback on proposed company rules with all employees or an employee representative congress, (ii) conduct negotiations with the union or an employee representative; and (iii) publish the rules. This effectively empowers a union or employee representative to bargain with employers over salaries, bonuses, training and other work-related benefits and duties. However, as the law currently stands this does not mean that unions or employees have veto rights over any rules.

The authors conclude their article by rightly positing "that non-action is no longer an option."

Travis Hodgkins over at the Transnational Law Blog views the new labor law in a much brighter light as he sees it (rightly so, I might add) as further proof that China is evolving towards rule of law. To find out more about what Travis has to say on the labor law, check out his post, entitled, "A Reason to Have Faith in China's Legal System: The Labor Contract Law."

I would love to hear from employers (and employees) regarding their labor experiences since China's enactment of the new law.

Share Your Comments

The Economist Free Exchange has a post, entitled, "Fondly Remembering a Deflationary China," (h/t to Experience Not Logic) on how China has moved from being a deflationary force to an inflationary one. At JPMorgan's recently completed China Conference in Beijing, one of the best speakers I saw was James Kynge, of China Shakes the World Fame, whose talk was on how China had moved from deflation to inflation and how that would impact the rest of the world.

The funny thing about past Chinese deflation was how few people in the West appreciated it. Most complained about the Yuan being too high, and about China polluting the earth and subsidizing its factories by allowing ridiculously low wages and unsafe working conditions. The problem with those arguments was that it ignored the huge swath of poor and middle class who were benefitting greatly from reduced prices at their local Wal-Mart. Now that China deflation is history, it is being recalled with fondness. For an example of how this deflation to inflation shift will affect consumer electronics prices, check out this post over at Chris Carr's CalPolyMBA blog.

Be careful what you wish for.

Share Your Comments

Though I got a bit of grief for saying it before, I will say it again, arbitration clauses fascinate me. As I said in a previous post on this topic, entitled, "So Ya Say You Wanna China Arbitration, Well You Know":

I can nearly always judge the legal thought that went into an agreement through its arbitration/litigation provision alone. I usually can instantly tell from just that one provision whether the contract was drafted by a lawyer or not, and if it was drafted by a lawyer, whether that lawyer knows international law. Mistakes in this critical provision are rampant. Huge mistakes.

In that post, I listed some of the arbitration/litigation clause mistakes I had seen recently and I have a brand new one to add to that list.

I got a call a few weeks back from a company wanting to discuss some of the things it could do with its OEM (Original Equipment Manufacturing) contract to protect itself from bad China product I mentioned that we typically put an arbitration provision in those contracts because it makes collecting damages easier. I also mentioned we also usually add a litigation "carve out to allow our clients to pursue injunctive relief in the China courts. I also mentioned the importance of non disclosure provisions in such contracts.

A few days later I get an email telling me that they are getting closer to needing the OEM Agreement, but in the meantime, they are talking with a potential new supplier and they had required this potential supplier to sign an NDA (Non Disclosure Agreement) in English, with a Hong Kong arbitration provision.

I quickly replied with the following email:

I hate to tell you this, but you made a huge mistake with your confidentiality/non-compete/non-circumvention agreements with your Chinese suppliers in asking for arbitration in HK. You do NOT want to arbitrate this sort of thing in HK because arbitrators (even in China) have no real power to force parties to do anything. All they can do is issue a monetary award. I hate to be so harsh, but your agreement is of almost no value at all. You need one in Chinese that provides for your ability to go to Court in China to enforce and maybe, (though we would have to know more to say) allows you to arbitrate in China for damages. The key in these situations is usually not damages; it is stopping the wrong-doing as soon as possible. The way you have set this up, even in a best case scenario, you will be arbitrating for about 8 months in Hong Kong and then spending another 4-5 months getting that award enforced in China before you can even think about asking the Chinese court to stop anyone from doing anything. In other words, you have put exactly what you want to accomplish in a deep freeze for about a year. You truly would be better off not having this agreement at all.

The BizCult blog is guilty of the same thing. In a post, entitled, "Foreign Arbitration: No Little Whitey Lie," the good folks over at BizCult write about co-blogger Steve Dickinson's talk on Chinese Joint Ventures (JVs) at JP Morgan's recently completed (and excellent) China Conference in Beijing. BizCult attributes to Steve the view that arbitration outside China is NOT advised in what sounds like every case:

Anyway, you remember Mr. Dickinson saying at J.P. Morgan’s China Conference 2008 (which ended just last week) NOT to rely on arbitration of disputes outside of China.

BizCult then goes on to cite (correctly) Steve's written materials from that conference on arbitration:

The next mistake foreign investors make when they lose the battle for control is to provide for arbitration of disputes outside of China. As with separate guarantees, many foreign investors will say that they are not worried about the fundamental problems with their joint venture structure because they have provided for arbitration of disputes in a neutral third country such as Sweden or France. This is also a mistake.

Arbitration or litigation outside of China is not likely to resolve any problems that result from fundamental issues related to management of the joint venture company. Arbitration outside of China is cumbersome and expensive, and is therefore not a really practical alternative. More important, when critical issues arise concerning the management of a Chinese joint venture, it is important that the foreign partner have a legal forum within China that will allow the foreign party to make its case in China. By taking action outside of China, the foreign partner actually makes it difficult or impossible directly to confront the issues in China with staff, media and the courts…. Many foreign investors insist on foreign arbitration because they are concerned about receiving fair treatment in the courts or arbitration panels in China. For the most part these concerns are misplaced. China now has reasonably capable and fair courts and arbitration panels.

I respond to BizCult by leaving the following comment:

Whoa, whoa, whoa. Choosing whether to have a foreign arbitration clause should definitely be made on a case by case basis. All Steve said at the JP Morgan conference was that foreign arbitration is not usually a good way to get control of your joint venture back. Generally, and I mean VERY GENERALLY, foreign arbitration is good for securing damages, but not so good for securing injunctive relief (getting someone to be ordered to do something. For example, foreign arbitration is not so good for getting a Chinese company to have to stop manufacturing your product, but it might be the best way to get that company to have to pay you damages for having engaged in that manufacturing. So in this example, the contract might call for foreign arbitration (where?) but have a “carve out” provision calling for litigation in China for injunctive relief. These things are hugely complicated and at least 9 out of 10 times it is done wrong by those putting in these provisions without lawyers. In fact, many years ago I spoke at an end of year Continuing Legal Education conference where about ten of us from different areas of law were given about 15 minutes to speak on one thing in our area of law that we thought it most important for all lawyers to know and I spoke on the uses and abuses of arbitration provisions in international contracts. I chose this topic because non international lawyers nearly always get it wrong too.

I cannot stress enough that the decision on whether to arbitrate, what to arbitrate, and where to arbitrate absolutely must be made on a case by case basis and it must be done by skilled and experienced legal counsel. The article, "Seven key points to consider when using arbitration provisions," says it best:

To the untrained negotiator, an arbitration provision may be legal "boilerplate," which means typical clauses that require little or no negotiation -- a throw-in type provision. The reality is that parties should carefully weigh the benefits and disadvantages of arbitration in every transaction . . . .

The decision to use or write an arbitration provision in commercial transactions should not be made with a mechanical "one-size-fits-all" approach. It is critical that transaction parties consult with their litigation lawyers, not just their transactional counsel, and take the long view of the business relationship at hand and how the parties are going to resolve disputes. To neglect to tailor a dispute resolution provision to your needs at the outset of a transaction may lead to unnecessary disadvantage, expense and distraction down the road.

To which I again say, Amen.

Share Your Comments

Craig Maginness at the Going Global Blog has an extremely thoughtful post up analyzing the global trade positions of Hillary Clinton, John McCain, and Barrack Obama, entitled, "Presidential Primary Edition -- The Candidates, the Parties and Their Positions on Global Trade." His somewhat upbeat conclusion:

Fortunately, each of the 3 remaining serious candidates seem to be bright worldly people. I have to believe that whatever they may say in the nominating process to appeal to their party's extremes, when faced with the responsibility of leading the free world, they will recognize the benefits to the US of being fully engaged in international commerce and global competition.

Check it out.

Share Your Comments

David Dayton over at the consistently enlightening Silk Road International Blog did an interesting post comparing China to Thailand for manufacturing, entitled, "Thailand vs. China." (h/t to China Economics Blog) David is eminently qualified to make this comparison because his Master's Degree focused on "Comparative Chinese and Thai Corporate Cultures," he is fluent in both Thai and Mandarin, and has spent considerable time doing business in both places.

My business/legal dealings with Thailand have been so few and far between that I am just not qualified to opine on these things, but I would, of course, love to hear from readers familiar with both countries.

Dayton starts his post off by quoting a friend saying that “Every thing in Thailand is slow except for the internet.” “Everything in China is fast except for internet” and then sets out the following eleven comparisons:

1. "legal requirements for export are not nearly as burdensome here [in Thailand]."

2. "Thailand’s infrastructure is at least as good as China’s East Coast’s—ports, airports, toll-ways. Nothing new, I know, but this is one of the major drawbacks of working far inland in China or even close to large cities in Vietnam or Cambodia. The big plus in Thailand is that there are no inter-provincial tariffs or restrictions on the flow of goods like there is in China."

3. "Even with the recent wage increases labor is still more expensive in Thailand than in China. I’m seeing cost differences of about $50 to $75 a month between factory workers in China vs. Thailand."

4. "The environment is much more “international” in Bangkok than it is in Shenzhen—more so than even Hong Kong, I’d say. Sure there isn’t as much English on signs but the exposure to “the west” is certainly as much or more—To me, Bangkok seems to be becoming more western and Hong Kong more Chinese."

5. "The advertising is much more sophisticated in Thailand than China where it’s still a relatively immature industry. I was consciously amazed at the higher quality of both radio and out-door media advertising."

6. "Nationalism is alive and well in both countries but Thailand’s flavor is much less strident. China seems to be a bit more angry, with something to prove, while Thailand is much more comfortable with its unique place in the world."

7. "As I work with people in the jewelry industry here I’m constantly being told the same thing when I tell people I live in China, 'You know, labor is more expensive here, but you get better quality work too.' Almost to a person, this was the response I heard—more than 10 times in just one day."

8. "Thailand has a very well developed export base for automobiles, machinery and electronics, according to the Bangkok Post today. While China does have some of this too, pick-up trucks and hard-drives are especially well developed sub industries in Thailand."

9. "Staffing in China is difficult in both retaining top-level local employees as well as low-end factory labor. Thailand has similar tight market in top-level employees. Service levels are much higher in Thailand as is education in general. Professional standards seem, to me, to be higher in Thailand as well."

10. "The traffic in both Thailand and China is horrible—but each has its own perils. In China you are literally taking your life in your hands when you get into a car—the roads are some of the most deadly in the world. It’s scary, and for good reason. Thailand is completely different—you’re never going fast enough to be in a dangerous situation! The traffic, in Bangkok, is so bad at almost all times of each and every day that estimates are it lowers annual GDP by multiple points!"

11. "Banking (I can’t believe I’m going to say this); hands down China has better banks—in terms of service and accessibility. In China if you need a bank, you can get one open from 8AM to 5PM 7 days a week. Thailand is 9AM to 3:30PM five days a week and off every holiday known to man."

What do you think?

Share Your Comments