How To Avoid Getting Kidnapped In China. Plan In Advance Or Go Home.
The other day, in a post entitled, "China Hostage Situation. Now IS A Good Time To Pay Your Debts," I wrote about some U.S. executives who were being held hostage in China over nonpayment of a business debt. Their US based company had gone bankrupt and when they went over to China to explain all this to their Chinese suppliers, they were taken hostage. I have since learned that they were eventually released, though I do not know whether a payment precipitated that release or not.
My friend Shaun Rein, of The China Market Research Group just came out with an article for Forbes, entitled, "How To Avoid Getting Kidnapped In China." Shaun's thesis is that if you are going to do business with another company in China, you should find an "uncle" first who will be able to mediate any disputes that might arise between the two of you:
Before entering a partnership with a Chinese company, you should find an "uncle"--a person both parties trust who will be able to mediate differences. This assures each side that issues will be resolved fairly. I have seen too many American businessmen drag out an inch-thick contract with some clause that they think lets them out of a deal. To their Chinese counterparts, it is clear the Americans are cheating. Use relationships rather than legalese whenever possible to solve problems.
Shaun even posits that this US company whose executives were held hostage could have avoided their fate had they had such an uncle: "The case written up by China Law Blog should have been handled that way. Had the foreign company turned to an uncle to smooth relations before declaring it would not pay, the dispute would never have gotten to hostage-taking."
Well maybe. But I still think the safer tact would have been to get all of your people out of China and then negotiate a payment plan from afar.
Shaun then talks about the need to "build guanxi:"
Many Americans have heard of guanxi, but it's often translated wrongly to mean relationships with powerful people. Guanxi means something very different from the American concept of connections. It means being in a social circle where you can let your guard down a little, because there is deep trust, perhaps from generations of coexistence, living in the same neighborhoods or even with interwoven family relations. In the case I was involved in, the CEO didn't want to hurt his relationship with the uncle, and once he knew I, too, was in the uncle's circle, he wanted to create a friendship with me.Many consultants like to tout that they have good guanxi and can arrange meetings with powerful officials to grease the wheels of commerce. They may be able to get the meetings, but those powerful people don't usually really trust them--especially if the consultants are former officials of foreign governments, as they often are. Building long-term trust is very difficult, especially for those who once sat across negotiating tables representing other countries. Acceptance into a guanxi circle can take years.
Long-term perspective is very important in China. A defaulting borrower should avoid saying he won't pay and instead pay a little right away and explain that he is hurting but will make good in the future. You cannot rely on bankruptcy to absolve debts.
I definitely agree with Shaun on the need to build long term relationships in China and having an "uncle" is certainly not a bad idea. The real key is to build up your relationships before you need them.
http://www.chinalawblog.com/cgi-bin/mt/mt-t.cgi/3211
How To Avoid Getting Kidnapped In China. Plan In Advance Or Go Home.:
Comments
Somehow it seems odd that some people have been conditioned by the omnipresence of laws in the western culture that they have forgotten the basic human conditions. Stiffing people really hard and expecting to get away hiding behind legalese? What makes people think that their counterpart in the negotiation won't resort to violence, or finding some other ways to get even?
I think as important as laws are, I think it is even more important to consider the fundamentals of the human relationships and not be deluded into thinking that laws somehow enables one to ignore such relationships.
Posted by: Falen | July 28, 2009 7:34 PM
Re: guanxi
I really don't like the term guanxi.
Re: uncle
1. The uncle idea sounds good, but finding somebody that meets the profile will probably be increadibly difficult. How will you find out the person who will be able to "shame" your business partner into behaving properly? Running a busines takes a lot of time and effort, and learning about this would probably be jsut as likely to happen by chance than by design.
2. What good is it going to do you when the "uncle" favors the Chinese party because "This is China - things are different here"?
Posted by: Joel | July 28, 2009 11:33 PM
So Guanxi is back in favor now after having being dismissed as a dodgy Chinese standard for so long? How fickle we are when faced with debts we racked up with our PRC suppliers for goods we ordered but couldnt sell. The title should be "How To Avoid Getting Kidnapped In China: Pay Your Bills".
Posted by: Ganbei Jui | July 28, 2009 11:45 PM
Enter hostile negotiations with at least one security expert and a pre-planned exit route. Neutral locations are preferable for such negotiations, particularly hotels. Best to err on the side of caution. GPS tracking is an option for the really paranoid.
Posted by: Richard Gould | July 29, 2009 2:50 AM
I'm relieved to hear the hostages were released.
The 'uncle' method works well in many parts of the world - Italy and Middle East to name but two.
And Falen makes some very good points.
Posted by: uk visa lawyer | July 29, 2009 6:08 AM
I have serious reservations anytime someone uses the term 'guanxi'. Alarms bells and all. I agree with Sean's caveat, but I disagree with his contention that foreigners can develop 'guanxi' by developing long term trust. No disrespect to Sean, just reasonable people can disagree. In my opinion, the only people who have guanxi are Chinese. There's something about, the perception at least, of a Chinese person, and more importantly his extended family, being so enmeshed within this country and their locality, that they cannot simply dislocate themselves and all of their family. Guanxi is not just 'connections' as Sean rightly explains, it means, in part, the Chinese having recourse against each other. For foreigners, it's too easy for us to pack our bags and leave the country. That is always in the back of their minds when dealing with us - that ultimately, they would likely have no recourse against us in a dispute if we just take off. And guanxi is, among other things, a dispute resolution network.
This is not to say that there aren't any Chinese who manage to flee the country with assets. But these are notable exceptions, and these individuals leave their extended families sadly in the lurch.
In my opinion, 'guanxi' doesn't just mean long term trust, it means no escape. The network doesn't work unless it is hard wired.
Posted by: robert | July 29, 2009 8:32 AM
‘Guanxi either retires or goes to Jail’ -Jay Boyle, ExpatCFO
Have to agree with Robert on this. Guanxi is a term that is so over-used that I don’t believe most non-Chinese understand its implications or the sheer amount of time that normally needs to be invested to establish and maintain a local network of connections. Further, as Jay’s quote above asserts, it can be tenuous or even ruinous for companies who rely on their network to abate crises.
I imagine attempting to develop a long-term sustainable business model in China using a web of intermediaries, or Uncles, to insure good relations (i.e. you don’t get kidnapped) with your suppliers, government authorities, and clients would be a soul-sucking, liver-failure inducing, undertaking.
Bill Dodson over at This is China! Blog did an excellent three-part series on the subject, which sadly doesn’t seem to be archived on his blog. If he ever puts it back up (perhaps he can be cajoled?) it is one of the better reads on the subject.
Posted by: Tim | July 30, 2009 8:26 PM
robert: In my opinion, the only people who have guanxi are Chinese.
I don't think this is the situation. I've seen extended trust networks form in any sort of tight knit community. You see some very strong networks among professional groups, astrophysicists, or investment bankers, for example.
Also sometimes it's to your advantage *not* to have tight relationships.
robert: For foreigners, it's too easy for us to pack our bags and leave the country. That is always in the back of their minds when dealing with us - that ultimately, they would likely have no recourse against us in a dispute if we just take off.
Again it depends. One thing type of community that is very similar to Chinese "guanxi" are university alumni networks, and if you and some Chinese person both went to Yale or if you both worked for the same investment bank, and you cross them or they cross you, there is a huge amount of recourse that either party can through against the other.
If you are an astrophysicist or investment banker, then you *can't* escape the consequences of your actions just by getting on a plane out of the country.
Tim: I imagine attempting to develop a long-term sustainable business model in China using a web of intermediaries, or Uncles, to insure good relations (i.e. you don’t get kidnapped) with your suppliers, government authorities, and clients would be a soul-sucking, liver-failure inducing, undertaking.
No worse than getting into the "guanxi" networks involved with getting venture capital in say Houston.
Posted by: Twofis | July 31, 2009 3:37 PM
You don't need an uncle. You need "friend(s)" that have more clout or pull than your supplier in the local government or locale to smooth them over. These friends need to be loyal to you and have no financial ties with your supplier, but can definitely impact their business. Remember, Chinese take their own as hostages as well...Apex co-owner disappeared December 2006. But the best approach is to hire Harris & Moure as your legal consultant before you decide to do business in China.
Posted by: R Mitchell | July 31, 2009 5:50 PM