A truism about lawyers is that we benefit when the economy is either rising or falling, so long as there is change. I was talking with a China lawyer friend the other day regarding his firm’s very small China office and we both talked of how we were getting all sorts of work related to the downturn. Both of our firms have seen a marked increase in the following work, all of which we attribute to the bad economy last year or this year:
1. Lawsuits against Chinese companies. There are a lot of reasons why these are increasing, but the economic downturn is definitely one of them. When Western companies are making a lot of money, they do not have time to pursue lawsuits. Suing in an upswing is oftentimes a waste of precious human recourses. In downturns, when every dollar counts and when employees have extra time, litigation makes better sense. Many more Chinese companies now have assets outside of China is making collection against them far easier and making suing them a much better proposition. For more on the benefits of suing Chinese companies, check out my recent Wall Street Journal article, Chinese Companies Court Disaster.
2. Setting up China Joint Ventures. AmCham interviewed me on this back in October, 2009, and what I said then still holds true now. Many Western companies are coming to the view that they must be in China and yet, they do not want to spend the money to go in with both feet, so they are sticking just one foot in, via a joint venture with a Chinese company.
3. Winding Down China Joint Ventures Gone Bad. Both of our firms have seen a precipitous increase in these matters and after discussing these matters, we both concluded this increase too is due to the bad economy. In most instances, the joint ventures had been bad for years, but the downturn caused our clients to decide to do something about them, for pretty much the same reasons Western companies are getting quicker to sue Chinese companies.
3. Licensing deals. This is a strange one, but both of us attribute this to the bad economy as well, or at least to the fact that China’s economy is doing so much better than the West. We both talked about how over the last year or so we have been seeing a marked increase in Western companies licensing their technology and/or name out to Chinese companies. Struggling companies are more likely to jump at this chance for extra revenue. For more on this increase in licensing to China, check out, “That’s Hot: Made In China For China. By Foreigners.“
4. Shutting down WFOEs. Many Western companies went into China with the expectation of making money there fast. Other Western companies went into China not expecting to be profitable there for five to ten years, if ever, but out of a belief that if they did not go in, they would be losing out to competitors even outside of China. Increased financial tightening has now caused some of these companies to pull out of China, which means having to close down their Wholly Foreign Owned Entities there. China has very strict rules on how to close down a WFOE (a/k/a Wholly Owned Foreign Entity, or WOFE) and if those rules are not followed to the letter, the Western company (and even some of its key personnel) run a serious risk of never being allowed into China again. The smart company closes their China WFOE by the book. For the worst that can happen for failing to close down properly and pay off all debts, check out “How Not To Get Kidnapped In China.”
5. Labor Disputes. The economic downturn, coupled with China’s relatively new Labor Contract Law have also led to a marked increase in matters stemming from job layoffs in China. The New York Times just did a story on this, entitled, “Global Crisis Adds to Surge of Labor Disputes in Chinese Courts.“
What are you seeing out there? What parts of your China business are increasing due to the current tough times?
