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China Hostage Situations. More Common Than Most Think, But Not Really A Big Issue.

Posted in China Business, Legal News

The mainstream media has given massive coverage to workers in China holding Chip Starnes, the president of an American company, hostage for alleged non-payment of wages.  Just as we usually do whenever a hostage taking hits the press, we ran our own blog post, The Single Best Way To Avoid Being Taken Hostage In China, setting out how to avoid getting yourself into just such a situation.  And just as we always do, we link back to all of our prior posts on the subject, to let everyone know that “we told you so.”

But how common are these foreigners being taken hostage situations and how worried should you be?  I was called by three reporters yesterday asking me the commonality question.  I told all of them the same thing, which was essentially as follows:

We learn of a foreigner getting held hostage in China probably once a month.  We learn about this from the media (as in the case of Chip Starnes), from spouses and co-workers calling us to see what we can do, and from readers who simply email us.  My law firm has worked on a handful of these cases over the last five years.  They really are not all that complicated in that one almost never has any choice but to negotiate.  We have used Chinese lawyers to try to get the police to end the stand-off, but that has never worked. Heck, in at least two of the cases we have handled, the police were actually assisting.

The common theme in every hostage taking we have handled (and I think of which I am aware) is money; money allegedly owed for a breach of contract, for wages, or for a personal injury. But the person with whom you really should be talking is my friend in Shanghai at an international risk consultancy company because I know that his company constantly handles China hostage situations.

As for whether these hostage takings in China are getting more or less common, my answer is yes and no.  How’s that for a lawyer answer?  I do not think they are getting either less or more common in the sense that they are either increasing or tapering off due to societal or legal or cultural reasons. Instead,  I think that they are starting on a new increase and I expect that they will continue to increase as China’s economy slows.  As I mentioned earlier, these hostage situations stem from money allegedly owed and now that China’s economy is in a downturn, we can expect there to be more situations where Chinese companies and individuals believe they are owed money and more situations where Chinese companies and individuals will feel compelled to take things into their own hands to get paid. With this we will no doubt see more hostage situations.

Does this sort of thing happen outside China and as much?  I don’t know enough to make comparisons, but I assume this sort of thing goes on in most emerging market countries.  I know it has happened in Vietnam and I know it has happened in Russia, where someone I know was held upside down out a third floor window until he agreed to pay a dubious debt.  So yes, it definitely happens outside of China but I just cannot quantify it.

So what is the answer then about the numbers?  Who really knows?  But what I find so interesting is the initial response my China risk consultancy friend gave by email to the first reporter that contacted him (I was cc’ed):

We work on several cases of unlawful detention like this per month (and, depending on the month, sometimes several per week) … this kind of thing is that prominent in China these days.

I look forward to seeing the articles.

In the meantime though, how worried should you be?  Not that worried. And here is why.

First off, not a single client of my firm has ever been involved in a China hostage situation.  Every time we have been called in to assist on one, it is for a new client. And much of the time, assisting consisted of little more than telling the company that they probably would be better off paying the USD $10,000 claimed, as opposed to paying my law firm to try to contest the amount owed while their employee indefinitely remains guarded in an office by three men or in jail for an indefinite stretch.  But the real point is that all have avoided this problem and the reason they all have avoided it is because they simply do not go to China when there is that risk.

Just the other day, a client of ours called us while walking down the street in a smaller Chinese city.  He told us that he had gone over there to look into what his company should do now that one of its suppliers had just shut down.  During the conversation we learned that the Chinese company had shut down owing its employees all kinds of money and our client was calling us to discuss our assisting in his company possibly buying the factory.  We quickly told him to leave town.  Now.  We explained how if he went to the factory and explained who he was, the workers might well kidnap him.  We have dealt with this exact situation.

Foreign company buys product from Chinese company.  Chinese company shuts down and foreign company goes to Chinese factory to see what is going on and to see if its already paid for (or not) products may be sitting in inventory.  Chinese workers learn of the foreigner in their midst and grab him or her (it is almost always a “him” but I am aware of at least two cases involving a “her”) and demand that the foreign company pay the outstanding wages. The foreigner explains how they too have been hurt by the shutdown and they certainly do not owe anyone in China any wages.  The Chinese workers see things very differently.  Their explanation is that they worked hard to make product for the foreigner and the foreigner got the product and the workers never got paid and so now the foreigner needs to pay the workers and if it does so, he or she will be freed and they can even leave with their product.  The fact that the foreign company already paid once for the product is simply irrelevant.

Anyway, our client left safely.

Not only are these hostage situations generally preventable, but (and I know this is only small solace) these situations in China do not typically involve violence in that the person taken hostage is usually not beaten nor killed.  I am not saying violence never happens, but I am saying that I am not aware of an instance where it did.  Should you be so worried about being taken hostage in China that you do not try to conduct business there?  No.  Should you at least consider the possibility of a hostage situation.  Yes, you should at the first sign of any sort of potential dispute.

What do you think?

UPDATE:  One of the articles for which I was interviewed just came out and I was provided a copy of it.  This article was written by Leslie Pappas of Bloomberg BNA.  I was provided with a pdf of the article, but it is hidden beyond a paywall.  I wanted though to highlight the portion of this article quoting my Shanghai risk consultancy friend, who I can now reveal to have been Kent Kedl of Control Risks.  Kent highlighted the commonality of these China hostage situations and the benefits of thinking and planning before acting when a hostage situation is possible:

The commercial element of the Starnes case is “typical” of other hostage situations in China, which are increasing as the economy slows, according to Kent D. Kedl, the Shanghai-based managing director for Greater China and North Asia for Control Risks, a global risk consultancy based in London. ”

“We work on several cases of unlawful detention like this per month — and, depending on the month, sometimes several per week,” Kedl told BNA in a telephone interview June 26. Unlike countries such as Mexico and Nigeria, it is extremely rare in China for a company executive to be kidnapped and held for ransom, Kedl said. In China, cases usually arise because of a commercial dispute, which may involve a company’s employees, distributors, suppliers, or other affiliates. “It’s someone who gets upset and doesn’t know what to do,” Kedl said.

Control Risks has seen a “sharp increase” in hostage situations in China in the past two years, Kedl said, and has seen an increase in threats and actions against company management and foreigners. Kedl attributes the change in part to China’s slowing economy, as companies reassess their businesses in China and in some cases start to restructure–news that often comes as “a shock” to workers. Restructuring “is an anathema to most Chinese employees,” said Kedl. “It’s been nothing but growth for the past 10 years. . . . In China, business hasn’t come and gone. It has only come.”

Companies need to think through all aspects of a downsizing or restructuring, including the compensation strategy, the communications strategy, and relationships with local officials before they undertake a restructuring, Kedl said: “It is the company’s responsibility to think through what they’re doing and think through what could happen.”

I agree.

  • kay otica

    I’m trying to feel bad for the guy…I really am. But them I think of all the American workers left jobless because he tried to pinch pennies moving his factory over to China. Now he is doing the same to them trying to move it to India. It seems like they have more freedom over there to retaliate and demand compensation. I guess karma can be a bitch. It sounds like he shoulda kept his factory in the U.S and maybe he woulda come out even but spared himself the embarressment of being a hostage.

    • Tim

      This is a sad commentary of how we Americans cannot adjust to a changing world and the selective memories of America’s greatness and how it became that way.

      It is also betrays a lack of understanding of economics. Companies do not exist to employe people; they exist to turn a profit. It may be noble to maintain all of your low value add jobs in a relatively high wage location out of a sense of loyalty to your employees but foolish to think that this is ultimately beneficial to anyone. After all, you cannot employ anyone – American, Chinese or Indian – if you’ve gone out of business.

  • Wololoo

    I wonder, whether it is possible, to get out of a situation like this by acting illegal as well. I think about hiring thugs and beat up the leader of the kidnap, like government officials do, when they want somebody to leave his house.