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China Lawyers

Because 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.

China’s biggest companies, both private (like Alibaba and JD.com) and State Owned (SOE) or quasi-government owned (like Shanghai Auto and CNOOC) are on buying sprees, be it for other companies or for technology. Our firm has represented a number of foreign companies (so far, mostly U.S. and European) on some of these deals and one of the things we are finding that our clients often believe is that because they are doing these deals with such big and well-known Chinese companies, certain rules for avoiding risk do not apply.

Those rules do apply and here’s the kicker: these deals are virtually never with the big and well known company and oftentimes this is not clear until the first contract draft is written. Instead, these deals are with newly formed entities that these big companies form just for this one deal. These newly formed companies usually have virtually no history and, most importantly little to nothing in the way of assets. Sometimes we can get these China mega companies to guarantee the deal but most of the time we cannot. So most of the time the reality is that — technically — our client’s deal does not have big company type safety, just big company prestige.

So the answer to the quasi-question is that these deals with big companies are really all over the map in terms of risk and nothing should be assumed.

Negotiating with Chinese companiesThis is the third in a series of posts in response to emails and comments asking us to expound upon how Western companies can better negotiate with Chinese companies on technology deals.

In part one, Negotiating With Chinese Companies: Be The Rabbit, we talked about using the Zen technique of “being the rabbit,” which in Western terms translates mostly into just being patient, hanging back and letting the Chinese side start negotiating with itself. In part two, Negotiating With Chinese Companies: Walk, Don’t Look Back, we talked about how Western companies must 1) convey a willingness to walk away from the deal and 2) actually be willing to walk away from the deal. In this third part, we again emphasize the need to patient, this time when facing the common Chinese company negotiating “death by a thousand cuts” tactic.

Chinese companies, both SOEs and privately held, are in a mad dash to purchase foreign technologies on the cheap. And when I say technologies, I mean just about every technology possible: health care, internet, Internet of Things, computer hardware, software, manufacturing. It is truly endless. I feel like I am in the middle of a gold rush. A severely flawed gold rush.

What are the flaws?

The biggest flaw is that the default option for these Chinese companies is usually to try to get the technology for literally nothing or next to nothing. And far too often, the foreign company goes along with this.

Let me explain.

The media covers the massive China tech deals. Deals like Midea Group’s $5 billion bid for Germany’s robotics specialist Kuka AG. Those are not the deals my firm is seeing. Not at all. The deals we are seeing involve — at least half the time — second and third tier technologies held by foreign companies on an economic precipice. The China company swoops in and offers a lot of money for the technology. The foreign company then retains us and we then explain why what looks like such a good deal is, in reality a terrible deal. The foreign company then tells us (and far too often the Chinese side) how if it doesn’t make this deal it may have to “downsize” or even shut down. Some of these companies are quite large and quite well known, but their ability to secure additional funding is marginal.

And then over the next few months the two sides negotiate and during that time the Western side reveals — either intentionally or unintentionally, its desperation to get the deal done. And during that time, the Chinese side constantly and unremittingly seeks to exploit that desperation, using the following tactics.

Death by a thousand cuts. The Chinese company starts out saying it will pay $20 million for the technology, as though that is the extent of the deal. Then it drafts some vaguely worded MOU that mentions $20 million in passing, but is nothing like a straight up deal and when analyzed either makes no sense, is clearly not achievable under Chinese law, or will almost certainly lead to the Western company never getting paid. When the Western company complains about this, the response of the Chinese company is usually to go silent for a few weeks and then to suggest to the Western company that it modify the  nonsensical/unworkable MOU. Our advice is to seize that moment by presenting a carefully drafted and realistic Chinese and English language contract that actually reflects the parties’ earlier discussions. The Chinese company usually will wait a few weeks and then respond with a reasonable number of objections to the contract. The foreign company and the Chinese company negotiate on these issues and reach resolution. The foreign company quite naturally then assumes that the negotiation process is complete and expects the next steps will be to execute and then implement the contract.

Instead, the Chinese company puts forth a brand new set of contract objections. The parties again negotiate and again reach resolution. The foreign company again assumes that the next steps will be to execute and implement the contract. But the Chinese company returns yet again with a new list of contract objections, including objections to some of the matters already decided on in the previous rounds of negotiation.

If the Chinese side has been forced to concede on important matters, this death by a thousand cuts tactic will likely continue until the Chinese side gets most of what it wanted from the beginning.

In negotiating the initial objections from the Chinese side, the foreign side will usually have made concessions that weakened its position, all as part of the normal negotiating give and take and all done on the assumption that both sides would be making concessions to consummate the deal. However, when the Chinese company comes back with new demands, it has already extracted concessions from the foreign side and it is now seeking additional concessions.

The Chinese company engages in this tactic to wear down the foreign company to that point that it concedes on important points to get the deal done. The Chinese negotiators are often quite clever at mixing important issues together with trivial issues and hiding important changes with seemingly minor changes in wording. Fatigue and changing negotiation staff from the foreign side can allow these matters to slip through at the very end of the negotiation process.

In the last year or so, we are seeing a new tactic, where the Chinese company will send back a revised contract in just badly written English, and without any redlining that would allow us to quickly see the changes that have been made to it. This new tactic has all of a sudden become quite common and it is an ideal way for the Chinese side to throw yet another cog into the negotiations, especially since Chinese is usually the official language of the contract and especially since their written English is almost never clear enough so that we can understand everything and it is virtually never clear enough so that we can use it in a real contract. When this happens, our typical response is to say, “no.” If you don’t have the time or the ability to put it into two languages, send us just the Chinese and send us a redline version showing all of your changes. We are not going to charge our clients lawyer rates trying to parse out what you have given us.

You can usually avoid the death by a thousand cuts tactic by being firm with the Chinese side. One good counter-tactic is to make clear (preferably in writing and in Chinese) that your Chinese counter-party has only one chance to comment so it should make sure that all of its comments and objections are included in its first communication. The Chinese side typically ignores this rule and will still come up with additional comments even after having been told that they will be ignored. The way to deal with this is to live up to your own commitment by telling the Chinese side to “take it or leave it.”

More to come….

Barcelona Law Office
In basketball too, the center has become less important.

During the first years of this blog (mostly from 2006 to 2010) we wrote often about the power dynamic between Beijing and China’s provinces and we also wrote constantly about China’s second tier cities. Since 2010, and especially in the last few years, we barely touch upon these subjects. What has changed? A lot.

In our early days, we were big believers in foreign investment going into China’s second tier cities and we were also witnessing China devolving power to its provinces. Back then, when people would ask us in what cities we did most of our work, we would usually estimate about 30% n Shanghai, 20% in Beijing, and the other half throughout China (but mostly in Shenzhen, Guangzhou, Xi’an, Nanjing, Tianjin, Xiamen, Qingdao, Dalian, Suzhou, Chongqing and Chengdu). Now, our answer would be more like 30% Shenzhen (China’s technology and Internet of Things center), 30% Beijing (China’s software and media center), 30% Shanghai (China’s center for corporate locations) and maybe 10% “other.” When I ask other China lawyers outside my firm about the geography of their China legal work, they report much the same.

So it is now mostly Beijing and Shanghai and Shenzhen, but really only Shanghai and Beijing are true “centers” in the sense that it is almost exclusively in those two cities where one will find the best lawyers and the best accountants and the judges and the best consultants and the best. . . . Shenzhen is mostly for manufacturing, not services. If a client of our firm seeks a recommendation for high level assistance, we virtually always refer them to someone in Shanghai (if they are located there or nearby) or in Beijing (if they are located there or nearby or maybe not so nearby.

And when it comes to government, Beijing is obviously the lead city, and that is truer today than five years ago. There was a period where Beijing was increasing the authority of jurisdictions outside the capital, but in the last few years — at least with respect to the sort of China legal work in which our firm gets involved — we are seeing authority shift back to Beijing. I thought about that today after reading a Guardian article, entitled, China punishes officials over sewage in first environmental case of its kind. This article highlights how Beijing is more strongly enforcing its laws/positions as against the provinces:

Chinese prosecutors have successfully sued a county environmental agency for inadequately punishing a sewage firm that produced dye without appropriate safeguards – the first such public interest case against a government department.

The Supreme People’s Procuratorate, China’s top prosecutor, said prosecutors had successfully proved that an environmental protection department in Shandong province had committed “illegal acts” in its dealings with the Qingshun Chemical Technology Company.

I have little doubt that this lawsuit was driven by Beijing or, at the very minimum, approved from there. It very much reminds me of what we have been seeing on the WFOE front for the last few years. What we are seeing is an increase in WFOEs being shut down after audits from Beijing reveal that they should never have been registered in the first place. We are learning about these via calls and emails from some of the companies that years ago chose not to use our law firm for their WFOE formations because we told them that what they were proposing for their WFOE would not work. In pretty much every one of these cases, the foreign company assured us that the Chinese company which with they were working had the “power” to get their WFOE approved, to which our response was and still is always: “great, then you should use them for the WFOE formation. But just as a warning, just because a WFOE gets formed does not mean it cannot and will not be shut down when Beijing or a new government sees that it should never have been formed in the first place.

A couple months ago, my firm opened an office in Barcelona, headed up by Nadja Vietz, who joined our firm (in Seattle) way back in 2004. Nadja is licensed to practice law in Spain, Germany and the United States (Washington State) and she oversees a Spain lawyer and a Spain business professional. Truth be told, we chose Barcelona as our European beachhead not after having analyzed a slew of other city options, but simply because Nadja had chosen to live there. But ex post facto, I have come to realize that it may just be the perfect city for us. It is well-located as within Europe, it is moderately priced (at least as compared to London or Brussels or Paris or Luxembourg or even Munich) and it is incredibly international.

I mention Barcelona because before we opened an office there and before I started communicating so often with all sorts of professionals there, I failed to realize how seriously Catalonians view their independence. I was under the mistaken impression that Catalonia’s professional class would uniformly oppose independence for economic and business reasons, but whenever I broach the subject of an independent Catalonia, one of the first arguments I hear in favor of it is the economic/business one.

England is obviously facing similar issues right now regarding Brexit. And I have to confess that after having read dozens of articles predicting either financial ruin or a financial renaissance should Britain leave the EU, I am of the view that nobody really knows and that either way the impact will likely be far less than predicted.  I am fairly certain of one thing though and that is that whether Britain stays or goes, Brussels’ power over its provinces (the EU countries) will probably never reach a level greater than today and will almost certainly decline.

So I just find it interesting that just as so much of the world is seeing power in the center being questioned and/or weakened, China seems to be moving in the opposite direction.

What are your thoughts about that?

 

 

China lawyers

Our China lawyers have seen a spike in queries from foreign companies encountering problems getting paid by Chinese companies. I’m talking mostly about private Chinese companies without affiliates or assets abroad. This is the first post in a series I will be writing on the new issues in getting money out of China.

An excuse commonly offered to the foreigner by the Chinese company is that the rules have recently changed so foreign payments are no longer possible or practicable. Another one is that the Chinese company is simply not allowed to send more that $50,000 at a time or even $50,000 in total each year. Is there any truth in this?

The underlying regulations have not changed and there is no limit on the amount that can be remitted abroad by a compliant Chinese company. But Chinese banks are becoming much stricter with certain types of remittances. This new strictness has come about in an effort to limit fraudulent capital outflows and to make sure tax is paid in China before money leaves the country.

Chinese law generally requires a Chinese company to obtain a “tax certificate” from its local tax bureau before more than $50,000 worth of RMB can be converted into a foreign currency and remitted abroad. As the name might suggest, the certificate confirms that the Chinese company has made all necessary tax payments on the money or has some kind of exemption for the money. To obtain the certificate the Chinese company needs to submit copies of the relevant contracts (and oftentimes invoices) and provide particulars of the transaction. The tax certificate must be presented to the foreign exchange bank before the payment transaction occurs.

The regulations provide for a blanket $50,000 exemption from approval. No proof or justification is required, up to the $50,000 limit. However, in June of last year, Chinese banks began arbitrarily denying requests for RMB conversion of amounts below the $50,000 limit.

Sometimes, the real problem, especially with larger remittances, is simply that the Chinese company can’t get a tax certificate, or doesn’t want to get a tax certificate, because that would require it to pay tax it wasn’t planning on paying. To be fair, problems sometimes arise when the Chinese company genuinely wants to make a remittance and is prepared to pay the applicable taxes. These problems vary depending on the type of payment. They mostly affect payments for services, royalty payments and Foreign FDI or M&A payments. Payments for the purchase of goods are generally not as complicated, so long as the foreign side has its own paperwork in order as well.

In my next post I will look at the delays and complications affecting different types of payments.

China Lawyers
Is manufacturing in China a battle or a piece of cake?

Just read The Future of Manufacturing in China: Three Big Trends over at ChinaImportal. (h/t to Quality Inspection) and I agree with 88% of it. The post does an excellent job of explaining where China manufacturing is today — with an emphasis on what so many got wrong in their predictions on where China manufacturing would be today — along with where China manufacturing is going. The post does this by breaking down into three main themes:

  1. Production will remain in China, despite increasing costs
  2. Manufacturing is becoming as accessible to Startups and Small Businesses, as Software development
  3. Importers will need to excel at branding and marketing to stay in business

I will examine each of these in turn.

1. Production will remain in China, despite increasing costs.

ChinaImportal talks about how Chinese suppliers are facing increased costs, among which are a rapidly improving Chinese tax collection system, but despite this, “China’s East Coast grew into an even stronger manufacturing base. Shenzhen is the brightest shining star, and has cemented its position as the World’s center for manufacturing.” Shenzhen is today “an ecosystem that cannot be simply transplanted.  ChinaImportal correctly notes how this reflects that “China is losing out in some areas, but gaining in others.” I agree, and for my take on this, check out China Manufacturing: Cha-Cha-Changing….

 

ChinaImportal sees China eventually losing its cost advantage entirely, “compared to the US, EU and Japan, due to cheap robotics, AI and 3D printing. But that’s at least two or three decades away.” Okay.

2. Manufacturing is becoming as accessible to Startups and Small Businesses, as Software development

ChinaImportal then argues that manufacturing in China is becoming so routine and so easy that even a college student can do it:

Today, a product can get financing on Kickstarter. Then, Alibaba comes in with their Trade Assurance program to secure the transaction with the supplier.

Once ready for shipment, just book a quality control online at Sofeast.com, and get a free shipping quote from Flexport – directly delivered to an Amazon FBA warehouse.

In the last few years, the entire supply chain has moved online, and this is just the beginning.

I vehemently disagree with important parts of the above. Let me break it down, claim by claim:

  • “Then, Alibaba comes in with their Trade Assurance Program to secure the transaction with the supplier.” Wrong again. In the last six months or so I personally have had at least four companies come to me after having ordered between $25,000 and $250,000 in product and then received bad product but little to no compensation from Alibaba’s Trade Assurance Program. I also know that at least one of these companies is talking to lawyers about pursuing a class action case against Alibaba for “acting as though it is providing insurance, when it really isn’t doing anything of the sort.” I would love to hear from others out there regarding their experience with Alibaba’s Trade Assurance Program? Has Alibaba treated you fairly? Did it pay you what you believed you were owed? Or did it essentially tell you to go pound sand?
  • Once ready for shipment, just book a quality control online at Sofeast.com, and get a free shipping quote from Flexport – directly delivered to an Amazon FBA warehouse. I buy this.
  • “In the last few years, the entire supply chain has moved online, and this is just the beginning.” I buy this.

3. Importers will need to excel at branding and marketing to stay in business

I completely agree with this, or as ChinaImportal puts it:

As manufacturing becomes accessible to (almost) everyone, the market is becoming flooded with products.

The core of every business is the product, or service, it sells. However, a product is only as good as the marketing and sales processes that supports it.

The future belongs to those businesses that can not only bring a product to market, but also master the art of product branding, customer service – and online marketing.

In fact, these skills are combined more important than the product itself.

ChinaImportal then correctly notes how “what makes a business successful in the OEM manufacturing game is irrelevant when selling on Amazon, and other B2C online channels” ChinaImportal then points how that since so “many [China] suppliers struggle to respond to emails within a week, they are nowhere near having the ability to last more than a month on Amazon.” ChinaImportal is absolutely right on this as well. But ChinaImportal is also right to point out that the competition from China is slowly getting tougher:

That said, the younger generation in China has a much better understanding of branding, and the importance of solid customer service.

The question is how much of an advantage they will have in the future, given that they have better access to manufacturers than their American and European competitors.

That advantage is not negligible, but an understanding of the target market has been always more important, than an understanding of the supplier that makes the product. This holds true, regardless of where in the world you do business.

What are you seeing out there in the world of China manufacturing?

 

China Lawyers Because 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.

The below is a compilation of a fairly common email we are getting with increasing frequency as China expands its consumer sector.

My company entered into an exclusive distribution agreement with a Chinese company for it to sell our product in China and then the Chinese company did not do a single thing to try to sell our product in China. Why did it waste its own time on the contract?

Our answer is usually something like this:

The Chinese company did not waste its time on the contract as it no doubt got exactly what it wanted from the contract, which was to prevent anyone else from selling your product in China. I am guessing that this company already makes or sells a product that competes with yours and by contracting with you for the exclusive right to sell your product in China (and then doing nothing), it has effectively shut you out of the China market for however many years it has that exclusivity — assuming you do not have appropriate provisions in the contract that allow you to terminate due to the Chinese company’s inaction.

Unfortunately, we see this a lot.

China Media and Entertainment LawOur lead China media and entertainment lawyer out of Beijing, Mathew Alderson, was recently interviewed for a VICE Sports story by Joshua Bateman, entitled, The UFC With Chinese Characteristics. The full text of the interview is below, with the publisher’s kind approval.

Alderson: I understand the UFC [Ultimate Fighting Championship] business is to be conducted by a Nevada LLC. The company promotes and produces mixed martial arts events broadcast free-to-air or through subscription services. I understand the company to have a broadcast deal with Fox Sports. The company is reportedly in discussions with Chinese buyers or investors. You are therefore interested in the effect Chinese ownership or investment may have on the management and regulation of the company.

At the outset, it should be appreciated that Chinese ownership of the Nevada LLC (or any other non-PRC company) would not, of itself, bring the company under Chinese regulation. The company would continue to be subject to regulation in the place in which it is established (Nevada and the United States) and the place or places in which it conducts business. The UFC would only become subject to Chinese regulation to the extent it conducts business in China. As a foreign company, the UFC could only promote its events in China with the assistance of a local partner with the necessary permits and licenses. Production of TV programs in China would also require the assistance of such a partner, probably a local co-producer. This is because foreign investment is restricted in the sectors in which UFC operates.

I answer your questions with these introductory remarks in mind.

VICE Sports: Is it possible Chinese regulators would view the UFC as a media company, and that would impact investment opportunities or how the company is regulated in China?

Alderson: Yes, it is possible because the UFC business model involves promoting live events and producing and broadcasting TV programs. These are sectors in which foreign investment is restricted. The impact would depend on whether the UFC established an entity in China and whether that entity is wholly Chinese or partly foreign-invested. A foreign-invested entity would attract greater scrutiny. The impact would be less if the Chinese market were approached by licensing content into China.

VICE Sports: If the UFC were to be acquired or were to accept investment from a Chinese company, would there be political/regulatory pressure in China for the company to alter its management or board structure to have more Chinese representation?

Alderson: Again, it would depend on where the company is operating and where the investment is made. There would be more scope for such pressure if a unit of the company were established in China, whether as a fully Chinese company or as a foreign-invested company. It would be much harder for Chinese owners to exert, or be subject to, this kind of pressure in holdings outside of China; although, if they had the necessary voting rights, Chinese owners could — like any investors — control or at least influence management abroad.

VICE Sports: If current UFC ownership does not sell the company but instead attempts to expand in China going forward, could they do so on their own or would they most likely need to join forces with a Chinese partner?

Alderson: They would need Chinese partners because foreign investment is restricted in the sectors in which they would likely be operating. The most likely business models are joint ventures and co-productions.

China LawyersWe got a whole new look today. For two reasons. One, we needed to change to look better on mobile devices, which is where about half of you now read us these days. And two, because it was simply about time.

We tried for a new look that at least has a nod to our old look. Do you like it. It was designed by our good friends over at LexBlog.

If the stars had aligned, our new look would be coming out on our tenth anniversary, but that day passed on January 4, with nary a mention — I forgot! Continue Reading Do You Like Our New Look, Ten Years On?

Negotiating with Chinese companiesThis is the second in a series of posts in response to emails and comments asking us to expound upon how Western companies can better negotiate with Chinese companies on technology deals.

In part one, Negotiating With Chinese Companies: Be The Rabbit, I talked about using the Zen technique of “being the rabbit,” which in Western terms translates mostly into just being patient, hanging back and letting the Chinese side start negotiating with itself. In response to that post, I received the following email from a China business consultant I greatly respect who has been in China for at least twenty years:

I liked the post on negotiating with Chinese companies. I found the best trick is to lay out terms and when the Chinese side balks, be super polite and say when you can agree to these terms please, email, call or text me. Then give them your card and leave. I always tell people the mentality of bargaining in China is the same whether buying fruit on the street, clothing in a market or doing mega deals in the boardroom. A lot of people act like they are dealing with a Japanese company. They are not. You have to have a walking away point in place before you start so that you don’t lose your cool.

Most of the negotiating techniques we are seeing Chinese technology companies employ are similar to those we have seen Chinese companies employ for decades. A classic example of an old tactic Chinese technology companies seem to constantly employ is to “lure” in Western companies to do a deal by promising the moon and then backing down from nearly every promise with each new contract draft. The best response to this tactic is usually a simple statement that you will not agree to the change and then to wait. In other words, be patient and be prepared to walk.

We are also seeing massive Chinese technology companies agreeing to a do deals with Western companies and then at some subsequent point in the negotiations substituting in some other “related” company as the signatory for the contract instead of the massive Chinese technology company. The company substituted in for the massive company is usually a brand new company created just for this one deal. When we explain that our client wants to do the deal with the massive and well-funded company and not the newly created one, we get pushback and excuses.

The Chinese technology company will claim that it “needs” to do it this way for IPO purposes or for investor purposes or because it will be able to move quicker this way. They will sometimes mouth platitudes about how “it doesn’t matter because the big company will be behind it all anyway,” but when we ask them to have the big company give its own guarantees on the deal, the big company balks. The only way to handle this sort of company switch is to be patient and 1) be willing to convey from day one that you are willing to walk and 2) actually be willing to walk.

 

China technology licensingAs we keep saying here on the blog, Chinese companies in the last year or so have taken to trying to buy U.S. technology via just about any means possible. And as that has been occurring, we have been detailing how risky this can be for foreign companies with the technology Chinese companies want. Our previous blog posts have mostly explained the legal issues and traps these foreign companies so often find or put themselves. See Manufacturing in China: Do Not Be “Assimilated”China and The Internet of Things and How to Destroy Your Own Company, and Selling Or Licensing Your Technology or Your Technology Business to China: Buckle Up For Some Seriously Tough Negotiating.

In response to our posts — both via comments and via emails –we have been getting requests that we explain how exactly foreign companies should respond to Chinese negotiating tactics. This post is part 1 of what will be a multi-part series on how to negotiate with Chinese companies on technology deals — or really, any sort of deal. This part 1 is not so much geared to provide strategies, but to change mindsets.

The first thing you need to realize if you are going to be negotiating with Chinese companies (technology or otherwise) is that you need to stop bargaining like a Westerner and to fully recognize that your Chinese counterpart sure as heck is not going to bargain in any way approaching what you view as fair. And if you can’t deal with that, you will pay the price.

Or as my friend Andrew Hupert likes to put it, you are the cow and no one “buys the cow when they can get the milk for free. In China, technology, IP and business methodology is the milk of profitable transactions. If you’re giving it away too early or too cheaply, then you are the expensive cow no one buys. Sorry.”

Many years ago, I had a very smart Westerner for a client who was very much into Zen Buddhism. With him we were negotiating a really tough deal with a Chinese company and every time the Chinese company would stall or push too hard or lie or agree to nine out of ten things one day and then three out of the same ten things the next day (all very common negotiating techniques of Chinese companies), my client’s response would be, “we will be the rabbit.”

According to this client, “being the rabbit” was a Zen concept of fighting back by not fighting at all, like a rabbit that goes limp when attacked by an eagle. So when the Chinese company would come back with massive changes from the day before, my client would send the Chinese company a really nice email saying something like, “I completely understand your new position and we will be reviewing it and responding when appropriate.” And then he would do nothing. Zero. Nada. Instead, he would just wait weeks and weeks until the Chinese company would come back and accuse him of having delayed this deal that needed to close so quickly. At that point, my client would say something like, I understand why you are in such a rush but we are not so if you can think of any way we might be able to speed this up, please let me know. The Chinese company would get so frustrated that it would start negotiating against itself and once it had reached the end of the line on that, my client would start negotiating again. I got the sense the Chinese company was simply not used to a Western company displaying Zen-like patience and it clearly was both irritating them and throwing them way off their game.

“Be the rabbit” is one tool among many that Western companies can employ when negotiating with Chinese companies. We will be providing more tools as this series continues.