Photo of Dan Harris

Dan Harris is internationally regarded as a leading authority on legal matters related to doing business in China and in other emerging economies in Asia. Forbes Magazine, Business Week, Fortune Magazine, BBC News, The Wall Street Journal, The Washington Post, The Economist, CNBC, The New York Times, and many other major media players, have looked to him for his perspective on international law issues.

Doing business in China
China businesses can have a changing of the guards too

Late last year, a Foxconn executive was criminally charged in China with having stolen 5,700 iPhones and I am guessing most companies doing business in China never thought twice about this. They should.

When one of our China lawyers tells a client about how important it is to have a contract with their Chinese counter-party that makes clear who owns what and what must be kept confidential, our clients sometimes respond by insisting they know and trust the owner of the Chinese company and so such a contract or provision will not be necessary.

So what is the connection between the 5700 stolen iPhones and the reaction our clients sometimes convey to our China attorneys? Here goes.

The meaning of the Foxconn story is that a company is more than one person. Yes, your friend may never steal your trade secrets, but his or her employees or subcontractors very well might and if you want to encourage your friend from preventing such thefts and set yourself up for compensation if one occurs, you need something in your contract that does those things. Also, how many times have you had a friend or ally leave or even sell the company with which you are conducting business and then the new person claims no knowledge of previously agreed upon matters? And is it really beyond the realm of possibility that at some point your relationship with this person might sour?

So though friendship is of great importance, a written contract can be more long-lasting and provide better or at least additional protections. And who does not want that?

China contract lawyerOne of our China lawyers got an email the other day from a US company saying the following:

I read one of your blog posts saying that it almost always makes sense to draft a contract with a Chinese company in the Chinese language and to say that Chinese law applies and the dispute will be resolved in a Chinese court. Here is my contract which I will be translating into Chin00606ese. As you can see, it says Chinese law will apply. I also have chosen the Shanghai People’s Court as the Court because I understand that is the best court in China. Can you quickly tell me if you agree with what I have done here.

I was “nominated” to respond to this email and I did so as follows:

Sorry, but there is no way we can give you any legal advice without knowing a lot more about your goals with this contract, your fears with this contract (preferably ranked) and more about you and your Chinese counter-party. What I can tell you from five minutes skimming your contract is that translating a contract into Chinese and saying Chinese law applies does not make the contract appropriate for China. This contract has many provisions that do not make sense for China and will never be enforced and other provisions that are probably harmful to you. Your listing of a specific court in China is probably not a good idea, nor is your provision calling for a cooling off period before you can sue.

Let me break down and briefly explain the concerns I quickly noted in my email because the problems (and even the number of problems) in this contract are incredibly typical of what our China attorneys often see in contracts drafted by people — including lawyers — without substantial real world China contract drafting experience.

  1. Translating a contract into Chinese does not make the contract appropriate for China. It just doesn’t. Just as is true of every language and of every country, there are certain words and phrases that courts just know and if you nail the phrase exactly you will likely have no problem and if you do not come close to nailing the phrase at all you may or may not have a problem. But if you come close to nailing the phrase, but don’t, you are likely to have a major problem because the court will think the contract is specifically intended not to nail the phrase and specifically intended to call for something different than the usual. Then of course there are all the times where people put in provisions that simply will not work under Chinese law.
  2. Listing a specific Chinese court for your dispute is usually a mistake. Chinese courts tend to ignore any attempt by contracting parties to dictate where a matter will be litigated. Chinese courts usually determine jurisdiction based on the nature of the claim, the amount of the claim, the location of the parties, and the location of the witnesses to the dispute. If your choice of Chinese court jurisdiction is wrong (and it probably will be because China has speciality courts and complicated jurisdictional rules) your mistake could raise questions about the validity of Chinese Court jurisdiction or create other confusions.  The reason for crafting a dispute resolution clause is to avoid the expense, time, and  uncertainty of where and how your disputes will be resolved. Trying to get too specific about the Chinese court will likely only delay resolution and increase uncertainty and expense.
  3. Cooling off periods usually do not make sense. Suppose your Chinese manufacturer has started making and selling your product all around the world. Do you really want to be unable to bring a lawsuit to stop that as quickly as possible? Do you really think if this happens it will make sense for your company to have to spend 60 days “amicably” trying to resolve your dispute with this company and then have to spend another few months choosing a mediator and then an additional 4-10 months trying to reach agreement via mediation? Of course not.

What are you seeing out there?

China contract lawyersDespite all that you may have read about China’s economy being on the downswing and despite all that you may have read about China factories closing, our China lawyers are starting to see distinctly tougher negotiating by China factories. We attribute this to the following:

  1. To greatly simplify, ten years ago China factories made socks and rubber duckies and with thousands of factories capable of making these things competition was incredibly intense. On top of this, price was oftentimes the foreign buyer’s only real concern. Today, China factories are making incredibly complicated products and oftentimes few or sometimes only one China factory has the capability to make the exact product the foreign buyer wants. Sometimes a China factory even holds a patent for some aspect of the product and so that factory is the only factory that can produce the product with that one aspect. Needless to say, being unique or nearly unique increases pricing power.
  2. To again greatly simplify, ten years ago, there were a number of China factories that knew little to nothing about pricing. It would not be an exaggeration to say that our China lawyers oftentimes dealt with China factories that did not even know their costs, leading us to often joke that they would make up for their selling widgets at a dollar under their costs by selling massive quantities of widgets. Most of those factories either wised up or no longer exist.
  3. Read all you like about factories closing in China, but recognize that there are plenty of profitable China factories these days with very good long term relationships with good stable foreign buyers. Those China factories are in no rush to take on your production on bad terms.

So what we are seeing now is a power shift, with Chinese factories more and more often gaining the upper hand. In subtle ways, this is making our job as China lawyers more difficult, while increasing legal fees for our clients. In the old days, our typical scenario would be that we would draft a manufacturing agreement (a/k/a OEM or ODM contract), send it to the Chinese company and get it back signed within 24 hours. Nowadays, it is far more common for us to receive pushback from the Chinese company on terms, including on terms to which the Chinese company previously agreed with our client. Needless to say, one of the more common push-backs is on price, with the Chinese factory oftentimes saying something like, we quoted $5 per widget with the understanding that we would have 90 days to produce after receiving the PO and now you are asking for 45 days (even though the email trail reveals that our client had made clear it was 45 days all along).

We are also seeing increased toughness even in the pre-quoting stage from China companies. About a month ago, I received an email from a foreign buyer telling me that a potential supplier was saying that it would sign an NNN Agreement with the foreign buyer agreeing not to use any secret information provided by the foreign buyer to compete with the foreign buyer, but if the foreign buyer ended up using another supplier to make its widgets, it would not be bound by the NNN Agreement. In other words, it would be free to use the foreign buyer’s top secret information to compete with it. The foreign buyer asked if something like this would work, to which I replied as follows:

No, this will not work. Not at all. This could be terrible for you. Imagine this scenario. Imagine you get quotes from five other good manufacturers ranging from $5 per widget to $7 per widget, but this one Chinese company is quoting you at $12 per widget. Do you pay the obviously inflated $12 per widget price, because if you do not, that Chinese company can (and likely will, otherwise why is it’s price quote so out of line with everyone else’s) will start making your widgets and competing directly with you. So you can see why this is not acceptable. We have actually never heard of a Chinese company making this sort of proposal so you should not face this situation with any other potential suppliers.

But then yesterday, one of our China lawyers got a similar email from a foreign buyer asking us essentially the same question. I discussed all of this with co-blogger Steve Dickinson and his response was “that’s what’s so cool about Chinese companies. They tell you what they are going to do. These two Chinese companies are saying if you don’t choose us we will steal your product. The choice is up to you. It’s up to our clients to listen”

I guess that is true. To which I can only ask whether you our readers agree that doing business in China and with China is only getting tougher.

For more on China manufacturing pricing, check out China Manufacturing Agreements: Binding Contract or Contract Terms.

China AttorneysBecause of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a super fast general answer and, when it is easy to do so, a link or two to a blog post that may provide some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.

In yesterday’s post, Defrauded by an Alibaba Seller? Here’s What To Do, we talked about what to do if you order and pay for a product on Alibaba, but receive nothing in return or something way way different from what you have ordered. In response to that post, I received two incredibly similar emails, about ten minutes apart (so similar in fact, that they may have been from the same person, using different email addresses). The emails essentially said the following:

Great post on recouping funds from an Alibaba fraud seller, but isn’t it true that even after doing all that you say in the post you will end up with nothing?

No, that’s not true. Not going to get up anyone’s hopes here, but recovering on this sort of fraud is a lot like recovering anything in China. If you can actually trace the actual scammer quickly your odds of getting maybe half of what you lost are probably a bit less than 50-50. This is just a somewhat informed estimate based on the experience of the China lawyers in my law firm and on what we have heard from other China attorneys who, but I think it is a fairly accurate measure to use to determine whether it will be worth pursuing the person or entity that stole your money. So just by way of one example. If you lost $300,000, you have a roughly 50% chance of recovering $150,000. It therefore would probably be worth it to you to spend $10,000 to get to a point where you can then make a new decision as to whether to proceed. But if you lost $30,000, you have about a 50% chance of recovering $15,000 and so it probably is not worth it to spend $10,000 to get a better feel for your chances.

Would love to hear from anyone else about how they do these sort of calculations.

 

Alibaba FraudLexology ran an excellent article the other day, entitled, Catching the Bad Guys: Recovery for a Defrauded Alibaba Buyer. The article was written by Kai XUE of DeHang Law Offices. Our China lawyers can attest to the need for this sort of article as hardly a week goes by where we are not contacted by someone with a major China Alibaba supplier problem. Note though that these issues are certainly not confined to Alibaba. The article nicely sets out how to handle a situation where you have sent payment for an Alibaba purchase but you receive “either junk or nothing and [you] can no longer reach the seller.” As noted in the article, most of these fraud situations involve a Chinese seller that “is a newly registered entity with little registered capital that uses a fake office address.”

Initiate a police report. The article notes that in a fraud case, you should report the crime to the police to try catch the fraudulent seller and to try to recoup your monetary loss. The article rightly notes the importance of going to the police quickly and ignoring various stalling tactics employed by the seller:

When confronted fraudulent sellers will reflexively claim that the matter is a commercial dispute to avoid involving the criminal justice system. For this reason, in cases of clear fraud it is advisable to proceed quickly to report to police and ignore last minute entreaties by the suspect to amicably settle. These apparent attempts by the fraudulent seller to settle not only may be an insincere attempt to delay for time but are also designed to create the appearance of a commercial dispute to dissuade police from pursuing an investigation.

The article notes the importance of going to the right police department (Hong Kong or Mainland) and of going to the police department with sufficient evidence to entice them to pursue an investigation.

Negotiating a settlement with the suspect. The article goes on to discuss how negotiating for restitution with the seller often should be undertaken, even in conjunction with the police pursuing its investigation of the seller:

Once put in detention and questioned by police, the realization of serving prison time acts as a strong impetus on the fraudulent seller to settle claims with the buyer. In exchange the buyer can agree to make best efforts to end the police investigation or ask for leniency for the fraudulent seller before the court if the case has advances to an indictment.

According to Chinese law, if an accused person returns some or all of the defrauded money and obtains a written pardon from the victim, her/his criminal responsibility may be mitigated. It’s on this basis that a fraudulent seller looks for a reduced sentence or release from detention by striking a deal with the buyer.

The article notes that one way to be able to tell whether the fraudulent seller has exhausted its available resources is “the extent that the fraudulent seller’s immediate and extended family make contributions:”

If a family member of the fraudulent seller provides a mortgage over real property or liquidates real estate assets to pay for restitution, then it’s likely that the fraudulent seller has cobbled together the maximum possible restitution payment.

 

Bottom Line: If you have been defrauded by an Alibaba seller (or any other China seller for that matter), the key is to act as quickly as you can in going to the police and in trying to negotiate repayment from the defrauding seller. The quicker you act, the more likely you are to get at least some of your money back.

International litigation versus international arbitration
International litigation versus international arbitration?

If you have any interest in international litigation or arbitration and all that entails (things like service of process, enforcement of foreign judgments or awards, gathering up evidence from a foreign country), you should be reading the Hague Law Blog, written by my good friend Aaron Lukken.

The Hague Law Blog recently did a post extolling the virtues of arbitration for international disputes. The post is entitled, Arbitration– a bright idea for international dispute resolution and it very nicely sets out a whole host of reasons to consider arbitration for your international disputes, including the following that I view as the big three:

  • It’s far cheaper than litigating a dispute.
  • Decisions are made by specialized neutrals selected by the parties.
  • Arbitral awards are more acceptable to foreign courts if the losing party doesn’t pay up. Awards won in U.S. litigation… much harder to enforce.

The post makes clear that arbitration is not always the best way to go for your international disputes and it even calls out an article I wrote on why it usually (but not always!) does not make sense to arbitrate against Chinese companies:

Now, to be sure, it isn’t always the way to go. Dan Harris argues, quite lucidly and from much experience, that arbitration clauses are a waste of time in Chinese contracts. Despite China’s accession to the New York Arbitration Convention , they don’t follow through on their obligations to enforce awards. Accordingly, Dan continues, the best thing you can do in China is choose (1) Chinese courts as the venue, (2) Chinese law as the controlling doctrine, and (3) Chinese as the operative language of the contract.

The post then rightly notes that China is just one country and then makes the point that our [the United States] biggest trading partners—China excepted—believe in arbitration, and their courts are far more likely to compel a losing party to pay on an arbitral award than on a verdict.

Yes, but.

My firm’s international lawyers always tell our clients that we need all sorts of information before we can decide on the best method of dispute resolution. At minimum, we need to know the countries involved, the nature of the contract, our client’s goals (both with respect to the contract and enforcement) and information regarding the counter-party. And then we decide on the best method for resolving potential disputes.

Arbitration is usually not the best way to go when dealing with Chinese companies, but sometimes it is. And though I agree with the Hague Law Blog that arbitration is usually the best way to go when dealing with most companies from most other countries, oftentimes it isn’t, and here are two common reasons why:

  1. Arbitration is not always less expensive than litigating. Sometimes it is way, way, way more expensive. It would be far cheaper to litigate a case in Vietnam or in Thailand than to arbitrate it before three arbitrators in London or in Geneva. Like maybe 50 times cheaper. Sometimes it makes sense for our clients to have dispute resolution be incredibly expensive (like if they believe they are more likely to get sued than the reverse) but sometimes the exact opposite will make sense. It really must be reviewed on a case by case basis.
  2. There are countries where getting a US court judgment enforced is super easy. Canada, England and South Korea immediately spring to mind. Enforcing a US judgment in those three countries is barely more difficult than enforcing a California judgment in New York. So again, these issues must be examined on a case by case basis.

Arbitration or litigation? It’s case by case.

 

China Lawyers

Happy New Year, everyone!

 

I was asked at a party last night (not kidding) what the China lawyers at my firm saw as the biggest trends/issues for China in 2017, and my answer was the following:

  1. Getting money out of China. This will be THE big issue for 2017. It will be a big issue for both Chinese companies and for foreign companies that are doing business in China.
  2. Technology transfer and technology licensing agreements and, more particularly, the tension between Chinese companies wanting/needing top-line technology and their desire to acquire that technology for way way way less than it is worth.

The above two things took up a large portion of our the time our China attorneys spent during the last 3-4 months of 2016 and I have no doubt that they both will take a up large portion of our time in 2017 as well.

But, hey, if there are any China legal or China business or just pure China issues you want us to be sure to cover in 2017, please let us know via a comment below.

And let’s all do our best to make 2017 a great year!

Cuba investment laws

Of course it’s not, but having just returned from ten days there, I figured I needed to write about it and since this is the China Law Blog (and not the Cuba Law Blog, which url my firm owns!), I figured I would need to get “China” somewhere in the title.

But Cuba does have a lot of similarities to China, at least China two decades ago. I went to Cuba in large part because my firm has an office in Barcelona, Spain, and to our Spanish clients, going into Cuba just is not all that exotic. One quick side note. I went to Barcelona immediately before heading to Cuba to meet with our Spain lawyers there and to give a speech on protecting your IP from China. I probably told a dozen people of how I would be heading to Cuba right from Spain and probably a half dozen of them said something along the lines of how they were worried about how “the Americans are going to spoil it.” After getting back, I share their concerns.

But without further ado, here are my random thoughts on Cuba.

  1. I spent 90 percent of my time in Havana, at an AirBnb in Nuevo Vedado, with a host who spoke maybe ten words of English, but who actually seemed to enjoy speaking with me despite my less than perfect Spanish. This host let me know that though most people in Cuba rely on either God or the government, he — being an engineer — had learned to rely on his own intellect. I also went to Viñales and to Miramar (which is really just a Havana suburb).
  2. I was surprised at how often I was approached on the street by people who simply wanted to use their English and who wanted me to know that “the United States is the best country in the world.”
  3. Pretty much everybody also wanted me to know that they thought Trump was either “crazy” or “interested in just the money.” I heard both of these things so many times that I began to wonder whether the press was saying this.
  4. Speaking of the press, every single person I asked (of all skin colors) insisted that racism had been “eradicated” in Cuba. I wish that were true, but know that it is not, but based on my observations alone (and the huge number of interracial couples and friendships), the situation appears impressive.
  5. Cuba is an incredibly safe city. Every person (including those I trusted) said violent crime is virtually non-existent. Many warned me of pick-pockets as though they were everywhere, but I saw no evidence of that. Nobody seems to hesitate to walk alone at night, anywhere.
  6. The food was much better than I expected. I would describe it as very good, but not amazing. The two best restaurants were Atelier (where President Obama went) and La Guarida (where every celebrity goes. As evidence of their standing, these were the only two restaurants that had Diet Coke.
  7. You cannot use your American credit cards anywhere, and I suspect this is because no American bank will run them through. Yet.
  8. The Internet is terrible in Cuba. Terrible. It literally went out for a day, pretty much everywhere in Havana, including the airport. The only fast Internet I found was in the business center at the Hotel Nacional. Second best was at the Melia Hotels.
  9. The grocery stores are not well stacked. At all.
  10. Many small businesses are springing up.
  11. Some of the people with whom I spoke had nothing but good things to say about Cuba. Some told me that 75-80 percent of the people eat pretty much nothing but rice and beans and eggs and bread, all of which are really really cheap, but most every other sort of food is not.
  12. Most of the foreign investment in Cuba is from Spanish companies, but Canadian, Mexican and other Latin American companies are there as well, with China seeming to be accelerating its investments too, especially in building new hotels.
  13. Things do not happen on American time. We wanted to go to Trinidad one day and the taxi driver with whom I had made the arrangements and confirmed multiple times showed up 45 minutes late and with a different car, one that was way way way too small. So we had to adapt. There is a lot of that in Cuba. I can remember only one meal where the restaurant had everything we ordered off the menu.
  14. Jose Marti Airport has five terminals, spread throughout the city. At least two are international terminals, so know before you go.
  15. Cuba’s foreign investment regime makes China’s seem like a can of corn (figured I had to get in a baseball reference somewhere).

The question everyone asks me is whether they should go to Cuba and, if so, when. My answer is as follows:

Most emphatically yes. The people are great. The scenery is great. The buildings are great. The cars are great. The food is good. The place is safe and great for walking. But do not go there expecting Paris because you will be disappointed. And I cannot stress enough how you have to be prepared for no internet and no credit cards. Bring a lot of money and bring a guidebook. Multiple times people would see us with our guidebook and plaintively ask us where we got it, and then when we told them the U.S. they would ask to take pictures of certain pages. Oh, and go now before the Americans spoil it.

China trademark. China Customs.
1. Register your trademark in China. 2. Register your China trademark with China customs.

One of our China lawyers got the following email from a client the other day about an AmCham China IP event:

Just saw that AmCham is putting on this Innovative Approach to Stop Counterfeit Goods and just wanted to congratulate you for having convinced me to institute that approach nearly five years ago.

The “innovative” approach to which both AmCham and the writer of this email are referring is the following, as described by AmCham in its lead-up to this talk:

Many companies with large overseas operations have to deal with lost revenues and reputational damage caused by counterfeit goods. As well as being a large potential market, China is also major manufacturing hub, for both fake as well as genuine products. Despite improvements in the legal framework regarding intellectual property rights, companies are often disappointed by the results of their attempts to prevent the proliferation of counterfeit goods through through the courts, the Ministry of Commerce and local governments.

Now there is a new, innovative approach to stemming the trade of counterfeit products. Based on their experience working with numerous clients, experts … will share details on how the Customs Bureau can help companies in the fight against counterfeits.

Seeing as how none of our China attorneys attended this event, we do not know what was discussed at it. But we can tell you what we have been saying on this blog and to our clients since at least 2013, and that is that not only must you file for a China trademark for your brands and your logos, but you should also then register your granted China trademark with China customs to stem counterfeits of your products from leaving China.

For instance, earlier this year, in China Trademarks: Customs Helps Those Who Help Themselves one of our China IP lawyers, wrote the following regarding the real benefits to be gained by registering your China trademarks with China customs: “For trademark owners, customs seizures can be a valuable part of an anti-infringement strategy. But don’t expect much help from the customs authorities if you can’t be bothered to help yourself.”

But long before that, way back in April, 2013, we wrote a post, Register Your China Trademark Now. Then Register It Again With Customs, where we called for exactly what the title of that post would lead you to expect: that you should not only be sure to file for a trademark in China, you should also be sure to take that China trademark once you get it and register it with China customs. It bears repeating what we said in that post because it so nicely sets out what exactly this will entail and why it is of such importance:

The implication for foreign companies doing business in China is clear: Chinese Customs can help protect your IP from infringement…. What the numbers [of China customs seizures] don’t tell you, however, is that nearly all of the seizures were of goods that infringed registered Chinese trademarks, and that those trademarks had been registered not only with China’s Trademark Office but also with Chinese Customs.

As we have written a number of times — see File Your Trademark In China. Now., China: Do Just One Thing. Trademarks, and China’s Changing Trademark Environment. Why You Need To Register Your Trademark Now. — the essential first step in any China IP strategy is to register your trademarks with China’s Trademark Office. Because China is a first-to-file country, until you register a trademark you have no rights in that trademark. But a trademark registration alone will not limit the spread of counterfeit goods. A trademark registration merely gives you the legal capacity to enforce your rights to that mark, and should properly be seen as one of the pieces in an overall strategy.

For any company concerned about counterfeit goods coming from China, the next step should be registering your trademark with Chinese Customs. This is not a legal requirement but a practical one: though China Customs officials have discretion to check every outgoing shipment for trademark infringement against the Trademark Office database, in reality they only check against the Customs database. No separate registration with Customs means no enforcement by Customs.

If you register your mark with Customs, they will contact you any time they discover a shipment of possibly infringing goods. At that point you have three working days to request seizure of the goods. Assuming you request seizure (and post a bond), Customs will inspect the goods. If Customs subsequently concludes the goods are infringing, they will invariably either donate the goods to charity (if the infringing mark can be removed) or destroy them entirely. The cost of destruction, and of storing the goods during the inspection process, will be deducted from your bond.

Registration with China Customs generally takes three to five months and can only be done after China’s Trademark Office has issued a trademark certificate. The latter currently takes approximately fourteen months, which means that within nineteen months of the date you file your trademark application, Chinese Customs could be helping to stop counterfeit goods from being exported from China.

Nineteen months can be an eternity in the retail world. Whether you’re a toy company producing dolls in Shanghai, a home video company making DVDs in Guangzhou, or a luxury goods company manufacturing high-end purses in Qingdao, there’s only one approach that makes sense. Register your China trademark now. Then register it again.

So though we never saw registering your China trademark with China customs as innovative, we have always viewed it as important, and that really is all that matters in any event.

Chinese CultureI just finished reading and heartily enjoying the book, Etiquette Guide to China: Know the rules that make th difference, by Boye Lafayette De Mente and Patrick Wallace. I read most of it on a flight back from Barcelona, Spain, my law firm’s European headquarters, and a city in which I have spent a fair amount of time and in a country where I have spent considerable time. Yet even on this only two day trip, I learned tons about both Catalonan/Barcelona personal and business culture.

In Barcelona, I gave a speech to an overwhelmingly European (mostly Catalan with some attendees from elsewhere in Spain) on how to protect your IP from China without any notes and on at least 3-4 occasions I realized that my descriptions of how foreign companies typically act in China was overly based mostly on how American companies act in China and only later did it become clear to me that some of what had said was less true of Catalan (and Spanish) companies. In other words, I would have benefitted from having known more about Catalan culture.

Though the book obviously calls itself an etiquette guide, I view it as more a cultural guide and becuase so much of it dealt with China business culture, I found it very helpful. This is a great book (indeed, an almost necessary book) for anyone new or relatively new to doing business in China. It also makes for an excellent refresher for China veterans.

Let me start by saying that I am not terribly good with etiquette anywhere. It’s not that I don’t think etiquette matters; it’s just that I’ve always believed that being respectful and polite and not condescending and not snarky go a long way. Etiquette, whatever that means, is, to me, more like icing on the cake.

Does this hold true for China? I think it does. I was in Shenzhen last month and while there I actually had a discussion with a China lawyer regarding the importance of etiquette in China versus the importance of etiquette in Korea. We both then had great fun in telling (and in listening) to our various business etiquette faux pas stories involving doing business in Korea and then we concurred that etiquette matters a lot less for doing business in China than it does in Korea. So even though both of us have had many more business  dealings with China in our careers, neither of us had any great China faux pas stories to tell.

Below is my favorite Korean faux pas story, which just seems to get better every year.

Many many years ago, I was representing a very large Korean company in a settlement negotiation with a very large American company. On the first day, the talks were tough, but going fairly well and at lunch time, the lead in-house lawyer for the Korean company invited the American side to join us for lunch. The Americans declined. We went to lunch (the Korean company representatives and me) and then negotiated the rest of the afternoon.

The next day, we made tremendous progress and a full settlement was completely in the bag when the lead in-house lawyer for the Korean company again invited the American side to join us for lunch. Again, however, the American side stressed the need to work through lunch.

So again, I went to lunch with my Korean client, but this lunch was very different from the previous day. My usually very light-hearted and sober client had a number of drinks during lunch and made clear early on that he was not in a joking mood. After lunch, we returned to negotiate and one of the more junior lawyers on the American side made some completely innocuous suggestion. I do not remember the suggestion, but for effect when I tell this story, I say that he suggested the agreement be signed in blue, not black — it really was nearly that inconsequential.

In response to the young lawyer’s comment, the lead in-house lawyer for the Korean company slammed his notebook shut and proclaimed that we were “done here” and instructed all of us to walk out. The Americans looked at me for an explanation and I had none.

Only a few weeks later did my client tell me what had transpired.

On the first day, he had invited the American company to lunch and they had turned him down in front of “his people.” The next day, the American company should have invited all of us to lunch but they didn’t. So in an incredibly magnanimous act, the lead in-house lawyer for the Korean company had invited them. Again though they declined, which made him lose tremendous face in front of “his people.”

in the end, we did eventually settle, but it took another month and a lot of lawyer time and a highly choreographed trip to Korea by the CEO of the big American company and all because of a declined invitation for lunch.

Something like this is a lot less likely to happen in China. Despite the importance of face, business practicalities tend to win out in China and had this same thing happened in China, I doubt it would have slowed down the settlement talks at all.

Though not knowing China’s etiquette rules are unlikely to destroy your business chances, it can hardly be disputed that knowing those rules can aid it. Knowing the etiquette rules on how to conduct business will  help you in doing business in China. And if you want to know the rules, you should buy and read Etiquette in China.

The parts and chapter titles of the book will tell you better about its content than I could so here you go:

Part I. The Middle Kingdom

  • The Origins of Chinese Etiquette
  • The New China
  • Cultural Influences on Chinese Etiquette

Part II. Minding Your Manners in China

  • Personal Etiquette in China
  • Chinese Meal and Celebrations

Part III. Doing Business in China

  • Foreigners and the Chinese Way of Doing Business
  • Cultural Influences in Chinese Business

Part IV. Negotiating In China

  • The Chinese Way of Negotiating
  • Preparing to Negotiate in China
  • What to Expect While Negotiating
  • Business Entertainment
  • When You Are Host in Your Own Country (this was my favorite chapter

Read the book, and no matter what your level of China cultural knowledge, I assure you that you will walk away with a better understanding of China after having done so.