Basics of China Business Law

China employment lawyerHiring employees in China (the right way) is almost as difficult as terminating them. If you do not do your due diligence on your new employees, you find yourself losing lawsuits.

Consider the following scenario, based on an actual case:

New Employer wanted to hire Employee. Employee was still working for Old Employer, but he assured New Employer that all he had to do to leave Old Employer was to give Old Employer 30 days written notice. Employee then informed New Employer that Old Employer was angry with him for having left his Old Employer and was demanding he pay Old Employer damages for the early contract termination, but because it had been 30 days since he had given Old Employer his notice, “there should be no problems.” Employee also proposed a “perfect solution” to New Employer: he would sign a letter of guarantee to New Employer stating that he (Employee) would be solely responsible for any damages payable to Old Employer and expressly providing that New Employer would not be liable for any such damages.

New Employer was in a rush to hire an employee with the Employee’s particular skill-set so New Employer went ahead and hired Employee right after Employee executed the guarantee letter. About a month after Employee started working for New Employer, Old Employer sued both Employee and New Employer. Employee and Old Employer had an education reimbursement agreement that required Old Employer pay a substantial amount of money for Employee’s extensive training in Europe, and Employee had agreed to a 5-year service period in return for this European training. Employee was nowhere near to completing his contracted-for five years of service when he left Old Employer to be hired by New Employer.

At trial, Old Employer was able to prove everything, including producing actual receipts for the training provided to Employee. The court deemed the education reimbursement agreement valid and found New Employer liable for the damages incurred by Employee’s breach of contract. In other words, New Employer had to pay for having failed to conduct due diligence on Employee before hiring him. Even if New Employer could pursue Employee for all the money it paid Old Employer, it still is itself on the hook for the liability and it still had to pay its own lawyers to defend against the lawsuit. It also took a public hit to its reputation.

This case (and various other cases) make clear the importance of ensuring that your China hires are not joining you with similar legal baggage. Non-compete agreements are the most common “baggage” of which you should be aware. There are plenty of other employee agreements that can be important as well, such as the education reimbursement agreement in the case above. We do not recommend our clients use private investigators to investigate their potential new hires as that is generally illegal in China. We instead advise they request their potential employees provide such agreements before making any hiring decisions and that they also check with the potential hire’s previous employer, after first securing the potential employee’s consent to do so. It is, of course, entirely at the discretion of the previous employer to provide or not provide information on the previous employee, but in our experience, they usually will. It also is a good idea always to check the proof of termination of employment relationship. If the potential employee does not have this proof or is taking too long to get it, there is probably a problem. The failure to get this proof quickly likely means the potential employee did something wrong or is subject to some sort of contractual restriction. And when there are red flags, you should consider not hiring that person.

It also makes sense to insert a provision in your employment contracts with new hires that makes clear that a condition of employment is that your new employee has no restrictions of any kind from its previous employment. Note though that for this sort of provision to be effective you must set a probation period, and not a super short one. Then if the employee fails to meet the conditions of employment, he or she can be terminated before the end of probation period. Just be sure you have a well-drafted employment contract, well-drafted Employer Rules and Regulations, and that you document everything. 

Slack off in making a new hire at your own peril.

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.

I came across your blog while researching employment contracts in China. Is there a standard amount of notice employees are legally required to give their employer when breaking a contract in China, or does it depend on the company itself? Also if I am going to give less time than is legally required, is it standard to pay for those days to exit the contract professionally? And is it standard to give the full amount of time or even more?

You are asking essentially two questions. One is a social/employment/morale/reputational one and the other is a legal one. We don’t know the answer to the question of how much time you should give in your particular industry or locale (especially since we do not even know your industry or your locale), so we would urge you to ask around so as not to harm your future employment chances in China (and if yours is a small industry, perhaps worldwide as well). As for the legal side, it should be whatever the employment contract says, so long as the applicable national, provincial, or local laws do not override that, which any one or more of these very well might. I urge you to read our post, China Employment Law: Local and Not So Simple. Unlike in most countries, it is not uncommon for China employers to sue an employee who fails to provide the legally required notice for leaving, so it is generally a good idea either to give the full notice that is legally required, or reach a written agreement with your employer letting you off the hook (probably by your paying money) for not doing so.

 

China employment lawyerChina’s labor laws require employers provide their employees paid vacation days based on their total years of service. Employers are legally obligated to ensure their employees take their vacation days and to the extent the employer fails to do so, it must pay the employee an additional 200% of her normal wages for each unused vacation day.

The law also requires China employers pay their employees for unused vacation days at the time of termination. One question our China employment lawyers are often asked is whether an employer has the same payment obligation when it unilaterally terminates an employee for employee breach. The governing law is silent on this. But since it says that at the time of termination, an employer must pay employee compensation for unused vacation days, a strict interpretation would dictate such a payment must be made. As is typical of almost everything China employment law related, the real life answer depends on where the employer is located and even at which court the labor dispute will be adjudicated. For example, the general view of the Shanghai courts is that an employee terminated for her own fault is not entitled to payment for unused vacation days, because she is at fault for being terminated before she could use all of her vacation days.

This though gets complicated when the unused vacation days are spread among several years. For example, suppose an employee terminated in 2017 due to employee breach did not use any vacation days in 2017 prior to her termination. Assuming the employer’s unilateral termination decision was held to be lawful, the employer will probably not be required to pay the employee for unused vacation days in that year. But suppose that same employee was never paid for unused vacation days in 2016 either. In that case, the employer very well may be required to pay for unused vacation days — assuming the employee did not voluntarily relinquish her vacation time via a clear writing and the statue of limitations has not otherwise run out against the employee.

Employees usually do not pursue labor arbitration just to try to collect money for a few unused vacation days. These claims typically show up as part of a claim challenging the lawfulness of the employee termination. So this is yet another reason why unilateral termination can be so problematic. Employers that unilaterally terminate their China employees often find themselves caught up not just in one lawsuit but in several proceedings—labor arbitration, trial, appeal, and sometimes a retrial and in most of those proceedings, it has to defend itself against not just its termination decision but also against multiple other ancillary claims. “Mutual” terminations with a clear written settlement agreement avoid the employer having to jump (stumble) through so many hoops.

Also, like most aspects of China employment law, vacation time is not an area where it makes sense getting creative. For example, don’t just assume that a provision in your rules and regulations stating that your employees forfeit their unused statutory vacation time by not taking that time. Think twice before you ask your China employees to give up something to which they are legally entitled. If you are unable to secure a separate written agreement (in Chinese) from your employee saying she voluntarily chooses not to take her vacation time (who would, really?), you must pay her for those days or find a way to let her take the paid time off.

Last but not certainly least, we also are sometimes asked whether employees under the flexible working hours system are entitled to statutory vacation time just like employees under the standard working hours system. The answer to that is a resounding yes.

 

 

China employment lawyers
Do not flick off your China employees!

The old saw, “hire slow fire fast” does not work for China. This is because China employee terminations require far more careful legal handling than in the United States. When it comes to employee terminations, China is still very much a Communist country. Think France not the United States. I estimate botched terminations cost foreign companies on average around five times as much as a well-handled termination that includes severance, and yet our China employment lawyers spend more time trying to fix badly done terminations than providing legal consulting on how to achieve one correctly.

This is largely because in disputes arising from an employee termination, the employer bears the burden of proving its termination was both handled properly and justified. This means that for an employer to prevail in a termination dispute, it must have the evidence/records to support the termination.

A recent employee-employer case out of Shenzhen nicely highlights the importance of the employer have good evidentiary support, and what can happen to an employer lacking that support. The facts of this case are not terribly complicated and I have simplified it even more for this post. A Shenzhen employer issued a written notice to an employee immediately terminating the employment relationship. At trial, the parties did not dispute the termination date (even though this issue is often contested) or that the employee actually received the termination notice (even though this is often contested by the employee). The termination notice essentially said nothing more than “we are unilaterally terminating your contract.” The employer contended that it had fired the employee for a series of breaches of the employer rules and regulations and alleged it had orally explained the reasons for the termination to the employee when it delivered the employee’s termination notice.

The Shenzhen intermediary court basically said that the employer had failed to specify the grounds for termination when it served the employee with the termination notice because oral communications of those grounds do not count. Since the employer never gave its terminated employee the grounds for termination, the court deemed the termination to have been unlawful and it awarded the employee the full amount of statutory severance, doubled.

Complain all you like about this court decision, but recognize that if you should find yourself in the same situation as the Chinese employer who lost this lawsuit, you too will probably lose 999 times out of a 1000. This court handled everything “by the book,” which is 100% par for the course in China employer-employee disputes. The employer lost because it got lazy and failed to do something the law required it to do and because it had no good evidence that it had done it. Had this employer merely provided its employee with a written explanation for the termination and made the employee sign for having received that written explanation (it does not hurt to videotape the providing of notice), it no doubt would have prevailed. In other words, all the employer needed to have done was to have strictly complied with the law.

All the employer needed to have done was to have fired slow, by first determining all necessary steps to a proper termination under all applicable China and local laws, and then done all that it needed to do to act accordingly.

China manufacturing lawyersIn a post entitled The 7 Major Risks You Run With Your China Manufacturers, China manufacturing expert Renaud Anjouran outlines the business risks foreign companies face when outsourcing their product manufacturing to Chinese factories. Renaud’s list nicely accords with what our China lawyers tell our clients for whom we draft Chinese contract manufacturing agreements. See China Manufacturing Agreements: Binding Contract or Contract Terms. When we first talk, our manufacturing clients usually want to focus on the following: a) ownership of intellectual property, b) prevention of counterfeiting, c) ownership of molds and tooling and d) after sales warranty service. This is the kind of thing legal agreements are really good at resolving and it is easy to allow the discussion to center on these issues.

But in my 25+ years of working in China, it is rarely these issues that result in bankruptcy of the foreign purchaser. The matters that result in bankruptcy are usually on the list provided by Renaud. That is, the most serious issues are the core business issues tied to outsourced manufacturing: price, quantity, delivery date, quality and resolution of quality issues, subcontracting and shipping.

Renaud describes the basic issues, but, we should ask at the outset: what is the source of these issues and what can be done to address them. The source of the problems is the pervasive use of the purchase order approach to purchasing contract manufactured product from China. In China Manufacturing Agreements: Binding Contract or Contract Terms, I wrote how there are two basic ways to structure a China contract manufacturing agreement.

Option One is to enter into a binding contract with the China factory that directly confronts all of the basic manufacturing issues in a manner that is legally binding on both the parties. Under this option, the agreement on price binds both the Chinese factory and the foreign buyer. If material costs change, if labor costs change, if production costs change, the parties remain obligated to pay and sell the product at the agreed-upon price, no matter which party benefits or loses from the changes. Both parties are taking the price risk. If the agreement is long term and if the various input costs are likely to change over time, then the parties either take the risk or develop a detailed system for adjusting in response to the change. In most of the world, this is what is done. In China, however, the entire risk tends to be loaded on one side or the other. The same applies to the other key business terms in China manufacturing agreements, such as the terms for payment, quantity, delivery date and quality.

The issue for many foreign buyers is that under Option One, both parties are bound. Foreign buyers who do not want to be bound or who cannot be bound due to lack of resources will follow Option Two. Under Option Two, any form of contract manufacturing agreement is little more than terms and conditions. Such terms and conditions are binding on the parties only after a purchase order is presented by the foreign party and then accepted by the Chinese party. If the Chinese manufacturer does not accept your purchase order, there is no binding agreement you and your Chinese manufacturer. It is this lack of a binding agreement that is the primary cause of the seven manufacturing risks Renaud discusses in his post.

Consider for a second why that is the case from the perspective of the Chinese factory. Under the purchase order approach, the factory has no assurance that its foreign buyer will place even a single order. During a fiscal year, the Chinese factory has no assurance on price, quantity or delivery date. The Chinese factory is expected to develop the product, taking on the risk and expense of commercialization. The Chinese factory is then expected to turn over to its foreign buyer the plans, molds and tooling so the foreign buyer can move production to a lower cost factory down the road. In this type of situation, the factory really has nothing solid in the relationship with the foreign buyer. So the factory acts in the manner described by Renaud. This is perfectly natural and it is to be expected. That is, any foreign buyer that expects a Chinese factory to act differently under the purchase order approach option is living in a dream world.

So what is the solution? The obvious solution is to follow Option 1 by entering into a binding agreement with the Chinese factory that formally commits both parties to the basic business terms for a specific period of time. However, the lure of China for many foreign buyers is that Chinese factories are willing to do small runs on a purchase order basis. The purchase order system is oftentimes the reason why the foreign company is having its product developed and manufactured in China. To tell these buyers to follow Option 1 is unrealistic.

For this reason, our primary task as lawyers is to develop contract manufacturing agreements that recognize that the purchase order approach will be used and deal up front with the risks that come from that. The key here is that the foreign buyer understand the risks and work actively with the Chinese factory to deal with mitigating those risks in a way that is practical and fair.

We can now consider the situation in China in relation to the risks Renaud identifies. In my follow-up post (on Sunday) I will discuss the first four of these risks and how best to mitigate against them. In part 3 of this series, I will conclude by examining how to deal with the last three of these risks.

China employment lawyerEvery China employer should have a set of rules and regulations setting out employee and its employer duties and obligations. This document should cover all types of employees, including part-time employees. It also should at minimum, cover the following:

Many foreign employers wrongly assume that whatever they use in their home country is good enough for their China employee manual. This is virtually never true as the reason for having employee manuals is so different as between China and Western countries. Western companies often learn too late about these differences when one of their employees leaves or is terminated.

The following are seven common myths our China lawyers often hear about China employer rules and regulations:

Myth 1: It need not be in Chinese. Though having your rules and regulations entirely in English will not necessarily invalidate the entire document (this depends on where you are), it needs to be in Chinese so your employees can understand it. If you do not have a Chinese language version of your rules and regulations, you run the risk of a Chinese court finding it not binding on your employees because they could not understand it and you didn’t bother explaining it to them. Also, the local labor authorities may require a Chinese translation for audit purposes and you don’t want to be caught flat-footed when that happens. And whatever you do, do not just take your English language version and pay a translator to put it into Chinese. Your Chinese language rules and regulations are what the courts will be looking at to determine whether you acted properly or not, so you want that document to be written clearly (and in Chinese) for this purpose.

Myth 2: It need not be in English. You really should have an English translation done and make sure that too is good. You as the employer will need to refer to this document in making employee decisions (especially termination decisions). Unless all of your people who will be making these decisions are fluent in written Chinese, you need a well-written English version to serve as your roadmap on how to handle all sorts of decisions regarding your employees.

Myth 3: It need not be updated because it has a provision that says the outdated sections will automatically be replaced and superseded by then-current laws. Wrong. Both nationally and at the local level, China’s employment laws are constantly changing. It therefore behooves you to do an annual internal audit of the key elements of your employer-employee situation and this yearly employer review should include a review and an updating of your rules and regulations. You could be exposed to huge risks if you have been relying on a section that is contrary to the law. More on this in Myth 5. We also fairly often see rules and regulations that made sense for a company that had employees in just one China city, but no longer do now that the company has employees in three cities.

Myth 4: Employers do not need to follow any procedures in implementing the rules and regulations. You must make your rules and regulations available to every employee so they have an opportunity to read it before signing off on it. And if there is a worker’s union at your organization, you should hold meetings with them and obtain their comments and suggestions before implementing your rules and regulations.

Myth 5: By signing an acknowledgment of receipt, the employee agrees to everything in your rules and regulations, so it doesn’t matter if it conflicts with the law. Not sure why, but our China lawyers have been hearing this myth more frequently of late and it too is just plan wrong. Very wrong. Having a section in your rules and regulations that contravenes the law probably will not invalidate your entire document (though it conceivably could), but many China employment laws must be followed and cannot be contracted away. It does not matter that the employee gives his or her written consent, and it also does not matter that the employee acknowledged that he or she executed the written consent as a free and voluntary act.

Myth 6: Once published, employers can change anything they want at anytime without any notice because the employees are responsible for keeping up to date with the amendments. First, if your rules and regulations document sets forth an internal procedure for amending the rules and regulations, you should follow that. We usually recommend our clients give notice to their employees of any proposed change before implementation. For important issues concerning employees’ interests such as compensation, working time, rest and vacation time, labor security and health, insurance and benefits, employee training, labor discipline, the safest route is to give them prior notice before amending the rules, especially if the changes may have an adverse impact on them. At the very least, provide the employees with notice of the change and give them an opportunity to comment and ask questions. Doing this simple thing can only help you down the road.

Myth 7: The employment contract between the employer and the employee always takes precedence over the rules and regulations if there is any conflict between them. Wrong. Like so much else related to China’s employment laws, the legal interaction between your rules and regulations and your employee contracts depends on your location. The local law may require that the employment contract prevail over the rules and regulations even if the employer and the employee have a written agreement stating otherwise. Or the law may say that the employee gets to decide which to apply based on which the employee believes is more favorable to him or her and the employer has no say on that. The key here is that you know the legal situation in your relevant jurisdiction(s) and to the extent allowed by law, you make clear in both your rules and regulations and in your employment agreements how your rules and regulations interact with your employment contracts.

For more myths about China employment laws, check out:

 

China lawyer China attorney

Got an email this morning from a good friend and a very experienced China consultant in China. The email included this article on Why Foreign Companies are Shutting up Shop in China. My quick response was that China retail has always been difficult for foreigners to do directly, but that our China lawyers just keep writing distribution agreements that work. And we are doing it for the widest range of products you can possibly imagine.

Our China distribution contracts typically provide for the following, among other things:

  • An exclusivity provision, or not
  • Whether the distributor can subcontract out distribution, or not
  • The geographic and market territory given to the distributor
  • The term of the distribution agreement and what must be done to renew or terminate it
  • The specific products covered by the distribution agreement
  • The methods the distributor can use to sell the products
  • The pricing the distributor can use for the products
  • Payment terms
  • The distributor’s performance and sale requirements
  • Ordering and shipping procedures
  • Who is in charge of what when it comes to such things as defective products, advertising, warranties, technical support, obtaining permits, marketing materials, etc.
  • Rights regarding new or modified products
  • Whether the distributor can or cannot sell the products of others
  • All sorts of things relating to intellectual property (trade secrets, trademarks, patents, copyrights, etc.)
  • Non-competition during or after the term of the distribution agreement
  • FCPA compliance. Anti-corruption compliance
  • Damages for breaches
  • Dispute resolution (venue, choice of law, etc.)

And as noted in our recent post, China Trademarks and Your Chinese Distributor, our China attorneys also intensively focus on protecting our clients’ intellectual property even before the agreement is signed.

And the above is only part of what sometimes goes into such agreements), but for lawyers who do these agreements all the time, they do become at least somewhat standard.

For more on what it takes to distribute your product in China, check out the following:

 

China lawyersChina has greatly revamped its WFOE formation procedures, making WFOE formations easier in some ways and more difficult in other ways. See China’s New Foreign Investment Law — Less Than Meets the Eye.

Because the WFOE formation procedures are so new, our we have been getting a number of calls from Western companies whose WFOE formations have stalled or simply died out, usually stemming from an inability to work through the new system with the local authorities. One of the things our China attorneys do with our WFOE formations is to set out early and often the steps that must be followed and accomplished for our clients to come out on the other side with a spanking new China WFOE.

I was cc’ed on an email the other day from one of my firm’s China attorneys  to a client for whom we are working on setting up a China WFOE. The email does such a good job setting out what must be accomplished to form a WFOE under the new WFOE formation rules, I thought my reprising it here (taking out any and all identifiers of course and adding in a few links) could prove helpful to anyone out there looking to form a China WFOE.

Here goes:

 

As you know, the PRC government drafted a new foreign investment law last fall and also promulgated a new set of regulations concerning the procedure for registering WFOEs in China. Each local government has been working out their internal procedures for adapting to this new system. Your WFOE in _____________ will be one of the first WFOEs to make use of the new system.

We have been working closely with the ____________ authorities (the Administration of Industry and Commerce of AIC). The local AIC has finally made their basic decisions on the procedure they will follow for the formation of a WFOE under the Foreign Invested Enterprises (FIE) law and associated Ministry of Commerce (MOFCOM) regulations.

The steps in the application will be as follows:

1. WFOE name approval.

2. MOFCOM online registration.

3. Application to form WFOE submitted to local Administration if Industry and Commerce (AIC).

4. Issuance of business license by AIC.

5. Start of business processes: a) open bank accounts, b) cut and register chops, c) open tax and other government accounts, d) set up daily bookkeeping and reporting to the local government, e) execute written employment agreements with employees and open employee tax/social benefit accounts,.

We will be working through each step in order. I will shortly be sending you a series of emails on what we need for step one, the WFOE name approval.

Our team will work with you on Steps 1 to 4 above. With respect to Step 5, we will work with you on drafting your employment agreements for China and your employer rules and regulations. On the other procedures in Step 5, we can take you through all the procedures up to the point where you are ready to formally do business in China.

Step 5 will involve your needing to decide on the following:

  • Local bank.
  • Local bookkeeper.
  • Accountant for tax returns and annual audit and reporting to the parent entity (can be same as B, or different).
  • Employee payment processing and maintenance of employee social benefit accounts.

We must report these names during the formation process, so we will need an answer as soon as is practical. We, of course, are happy to assist you in finding appropriate service support.

As noted, I will send an follow up email explaining the name approval process and the current status.

Please contact me if you have any questions on this matter.

China mold contractIn clearing out emails the other day I came across an email conversation from many months ago between a China consultant whose client was having trouble getting its molds from its China factory and one of my firm’s China lawyers. The consultant’s client, an American company, had just assumed that the molds it was seeking belonged to them because they had paid for them (around $120,000).. Below is the conversation between this China consultant and one of my firm’s China attorneys.

China Consultant. It looks like I might need your help with something else as well. Any chance to get molds from a factory if the attached is all my client has? The factory basically said that it gave us a great deal and we have to pay $80,000 more on top of the $120,000 my client already paid if we want to remove the molds from their factory. I am the middle man and my customer wants to move these molds to their factory in the US because they are moving production back home.

China Lawyer: The China factory is going to say that the agreement [emailed to us] was for services and it owns the molds. We have dealt with these sort of issues many times and our goal when retained is to get the molds for an amount less than originally sought and for a savings that more than pays our legal fees. If the Chinese factory really wants the molds, our chances of getting them back for a good price are not good at all. But if the Chinese factory just wants money and if your client is willing to pay for the molds, we ought to be able to get them a considerably better deal.

If your client had a well-crafted China mold ownership agreement or mold ownership provision in any of their agreements with this factory, we’d be able to get them their molds for nothing or for a couple thousand dollars, and within a few weeks. Most likely, their manufacturer would never even have tried to hold on to them. But we cannot tell them that, at least not right now.

China Consultant: At this point, are you amazed by how many ways china factories screw over American companies?

China Attorney: At this point, nothing a China factory can do would amaze me. But yet I never cease to be amazed by how American companies do things in China without first running them by someone who knows what he or she is doing. Maybe it is just because I am a lawyer and so I know how little it would have cost this company to have done things right in the first place (far less than we will charge them now to try to get their molds back), but it is really the American company that troubles me here, not the Chinese one. Virtually any time you do not have a mold agreement with a Chinese factory and you tell them that you will cease manufacturing with them they hold onto the molds, usually just out of spite. This is why we put mold provisions (and penalties) in nearly every manufacturing agreement we write.

China Consultant: My client has decided it will be easier and less nerve-wracking and maybe even cheaper to just remake the molds, especially since they don’t need all of them.

China Attorney: I completely understand. Totally their call. Good luck to you both.

 

China lawyersI was talking with one of our China lawyers the other day about how we constantly get the same emails and phone calls from Western companies with China legal problems that either cannot be solved at all or cannot be solved at a fee that will make sense. We then discussed how so often these problems could have been avoided had these companies contacted us (or some other experienced China-focused law firm) early enough.

Very briefly, the below are six of the most common problems our China attorneys see, all of which can almost always cost-effectively be avoided by doing “the right thing’ early on.

If you are doing business in China or with China, this post is for you!

1. The Problem: “The Chinese government will not allow the company that owes us money to send us the money.” This has become a huge problem in the last year, as China consistently steps up its capital controls and tightens the spigot on money leaving China. The Solution: There are essentially four types of deals when it comes to money leaving China: One, those that will be allowed without government pre-approval and with little documentation. Two, those that will be allowed without government approval, but with specific documentation required. Three, those that require government pre-approval. Four, those that will never in a million years be allowed. To avoid problems, you should before you enter into any China deal know the category of your transaction and act accordingly. For more on how to get money out of China, check out the following:

2. The Problem: “We paid our China manufacturer to a new bank account and it is now claiming it never received our payment.” This is the China bank switch scam and there are many things you can and should do to avoid becoming yet another victim to this. The Solution: Read How to Conquer China Payment Scams for the complete list of exactly what you should do before paying your China supplier, or really any foreign company for anything.

3. The Problem: “We are part-owners of a China company but we have never received any of the profits.” There are two typical explanations for this situation. The first is you think you are a part owner of a Chinese company, but you aren’t. Believe it or not, this situation is incredibly common and we see two common variants of it. One is where the foreign company thinks it is part of China Joint Venture and it simply isn’t, usually because no Joint Venture was ever actually formed. The other is one we are seeing constantly these days (mostly in the tech sector) where the foreigner (including foreign companies) thinks it has ownership in a Chinese company when the law clearly forbids that. For more on this situation, check out the China Stock Option Scam. The second situation is where the foreigner does have ownership in the Chinese Joint Venture, but the Joint Venture has been structured so that the foreign company will never see a penny. For more on this situation, check out China Joint Ventures: The Tide is Out.The Solution: Have an experienced China lawyer look at your ownership documents before you invest time or money into your venture. It is nonsensical to do otherwise, and using the same lawyer as your China “partner” is lunacy as well.

4. The Problem: “Our branded products are showing up on Alibaba and various other online China shopping sites.” This one is simple. When I get this call, I first ask if the company on the other side of the line has a registered trademark in China. If it does, I assure the caller that we will almost certainly be able to remove the offending products in a week or two. But if the company has no trademark registered in China (especially if it also has no trademark registered in any other country), I tell them that if nobody else has already registered their trademark in China, we can do so for them and then in about 15-18 months we can almost certainly get the offending products removed. The Solution: Submit your application for a China trademark now. See China Trademarks. Register Them In China Not Madrid.

5. The Problem: “Our employees are threatening to sue us for ______” The reasons for the potential (or real) lawsuit are many and varied, but most of the time the problem could have been avoided with advance planning and a thorough HR audit. The Solution: Almost all employee problems can be prevented or at least mitigated with good employment contracts, good employee rules and regulations, and astute handling of employee problems. Make sure your HR documents are in good order and never fire anyone, or reduce anyone’s pay or change anyone’s hours without first getting an okay to do so by someone who truly understands China employment law. We have yet to conduct a China HR audit without finding a whole host of things that can be done to minimize future employer-employee problems. See Six Common Myths About China Employment Laws.

6. The Problem: “My China manufacturer just sent us terrible product.” I hardly need describe this problem as it is so well known. The Solution: There are three keys to getting good product from China: 1. A good supplier. 2. A good contract  3. A good QC program. For specifics, check out Having Your Product Made In China: The Basics on Protecting It and You.