Chinese Companies Court U.S. Disaster.

I don't think this is true at all.

My personal experience is that large Chinese companies that are doing or planning to do business in the United States are perfectly aware of the legal environment in the United States and acting accordingly. (Also, it's important to be clear here that we are talking about the United States and not the West. The US is unique in being particularly litigious.)

Smaller companies tend to be less aware, but when made aware of their legal exposure in the United States, generally find that their assets in the United States are often not high enough to justify legal planning to fight a lawsuit. The strategic plan is "if we get sued, we pull out" which as far as I'm concerned is a perfectly good one.

Also a lot of the strategic planning that I have seen with smaller and mid-sized Chinese companies involves not so much litigation planning, but setting rather up their asset and corporate structures so that if they lose a lawsuit in the United States, that their ability to do business is not impaired. The typical structure would be to create a US subsidiary of an offshore corporation in HK or BVI such that if the lose a lawsuit in the US, the judgement is going to be against an empty shell. The parent Chinese corporation is judgement proof, and the US corporation can be folded and a new corporation started which is not subject to the liabilities of the old corporation.

Something else that I have seen is that with Chinese companies is that when they are made aware of the legal costs of doing business in the United States, rather than hire lawyers, their reaction is not to do business in the United States at all. Which again is a rational response. And again the fact that we are talking about the US rather than the "West" makes a difference. You can decide to do business in Canada or the EU, where you don't have to deal with lawsuit non-sense, and a lot of Chinese companies do just that.

This could be industry dependent (I'm in banking and finance). Anecdotally, I know of some Chinese companies that were forced to pack up and go home, but I don't know of any situations in which a Chinese company was seriously damaged by packing up and going home, and in the cases that I'm aware of "packing up and going home if we get into trouble" *was* part of the strategy. Also, I don't know of any companies that were shocked by the US legal system. One big asymmetry with China is that Chinese tend to be much, much more knowledgeable about the United States than Americans about China (although this is changing.) Even if you don't take into account the large number of Chinese that have spent large amounts of time in the US, you just run into the fact that more Chinese can read English than Americans can read Chinese.

I should also point out that it's not that hard to set up your US corporate structure is that it is easy to "pack up and go home." It's trivially easy to get up a US corporation and to have assets in that corporation, and it's trivially easy to move assets into and out of that corporation. There are ways of enforcement a judgement against an associated corporation, but these tend to be in practice useless if one of those corporations is offshore. (i.e. if you route your assets through BVI or HK, you aren't going to know who to sue and where to serve the summons, and good luck trying to find what banks accounts have money.)

By contrast, Chinese law is set up to intentionally make it hard or impossible for foreign companies to pack up and go home. A moments thought should make it obvious why Chinese government official obsess about minimum capital requirements, and require that you have large amounts of physical assets in China, and make it annoying to convert from RMB to USD.

It should be noted that there are Chinese companies that intend on large capital investments in the US, but these companies tend to also pay top dollar for extremely high priced legal and governmental relations firms in NYC and Washington, DC. Once you are that level, then your main challenge aren't lawsuits, since you just deal with US lawsuits the same way large US companies do (stonewall and settle). The main challenges are regulatory (i.e. getting CFIUS approval and getting approval from the Fed, the SEC, Treasury, Commerce, and the USDOJ) and then dealing with the same set of regulators in China.

Again a lot depends on which Chinese and which Chinese companies you deal with, but having seen large Chinese SOE's hire dozens if not hundreds of lawyers (who often tend to be Chinese having gone to Harvard or Columbia law school) to deal with the intracracies of CFIUS and USDOJ anti-trust review and the details of getting exemptions from the Federal Reserve to avoid being classified as bank holding companies, I just can't accept the idea that "Chinese companies just don't understand US law" and are unprepared for it.

Also, I'm not aware of any particular problems that Chinese companies have with IP lawsuits. The types of IP lawsuits that the big Chinese companies find themselves in the US, are the same types of lawsuits that large domestic technology companies routinely file against each other. Cisco recently filed a major lawsuit against Huawei, but Oracle also just filed one against Google.

One reality of how IP really works with large technology companies. In some high technology areas, it is impossible to do anything without infringing on some patent, and so large companies deal with this by maintaining cross-licensing agreements and defensive patents. You sue me, I counter-sue you, we settle.

The other fact that makes large companies different from small companies, is that if you are a large company with deep pockets, you will spend a lot of your time defending yourself against lawsuits. Any large company with deep pockets will typically have dozens if not hundreds of lawsuits pending against it at any given time, and the cost of dealing with lawsuits is basically the cost of doing business in the United States, and something that is simply factored in a business decision. If you ask any in-house counsel of any large corporation what the corporation can do to eliminate lawsuits, the answer is essentially that you can't. By being honest and producing quality products, you can reduce your liability, but you still have to deal with the cost of lawsuits even if you do everything right.

However, this gets to another question which is why a Chinese company would want to do business in the US at all. US businesses do business in China for basically two reasons cheap labor and new markets. If you are a small Chinese company, you are going to be able to take advantage of new markets by just staying home. It can be in your strategic interest to "go global" but there are other countries where it is just easier to do business than the United States, and even among industrialized nations, there are other countries that may be easier for a Chinese company to do business in than the United States (Australia, Canada, and Singapore).

The only two reasons that I can think of for a Chinese company to do business in the United States, are that the United States is still the world's leader in technology and process management, and there is a lot of stuff that a large Chinese company can learn from doing business in the United States, and that China has large reserves of capital which can be used to fund US businesses.

However in the second case, you bypass most of the legal headaches by just being a passive investor in a company. Instead of trying to run a company in the US, just take your cash, buy a minority stake in the company, and let the managers run the company. Getting access to US technology and know-how is something that a lot of Chinese companies are very interested in.

However, if you want something from the US, that you can't get from say Finland or Australia, then the odds are very good that the US is not going to give it to you. In any case, you will be hiring dozens of lawyers and lobbyists filing applications for CFIUS review and export licenses with the US Department of Commerce, and the odds are very good that you will be in some sort of joint venture with a US technology firm which means dozens more lawyers. More often than not, you as a Chinese company will walk away when you look at what you are up against and the fact that the final answer is likely to be NO!!!!

I don't have a huge amount of experience with SME's, and most of what I've seen up close involves large US and Chinese companies, but in those situations I have absolutely not seen the sort of misunderstanding of the US legal and business system that the original articles implies Chinese companies have. Usually when you have a big Chinese company that is considering a move into the US, they already have an in-house legal department that is staffed with returnees that went to school in the top US universities, lived in the US for an extended period of time, and often have experience with a US law firm before being poached by the Chinese company. For that matter the major law firms that handle these sorts of mega-cases hire a lot of Chinese from the big name law schools.

II have seen one basic reality which is that good lawyering matters less than lawyers sometimes think it does. There are a lot of situations where a deal is doomed from the beginning for business or political reasons, and sometimes you are just not going to get that export license no matter how good your lawyers and lobbyists are. Even when good lawyering can make a difference, there is the issue of cost. Good lawyers cost a lot of money, and sometimes when you add in the possible costs, its just not worth doing business in the US.

In that case, there's no need to spend the money going into the details of the law or thinking too much about strategy in the US.

There is another basic reality which is that the United States is the most powerful country in the world, and there is a lot of worry within the United States that China may displace or challenge US global power. One thing that is striking when you talk to someone that is not American is how people outside of the United States view those concerns differently. It may matter a lot to an American if the US or China is the worlds most powerful country. It matters a lot less to a Canadian or a Malaysian, so in the United States you are going to have a degree of suspicion and nervousness about Chinese businesses that you just don't see in say Canada or Australia.

Just finished a case against a Chinese company here in England and it was just as you have described.

This is just yet another indicator of how Chinese companies try to bully their way into other countries. They try to bully in the courts too, but it doesn't work there.