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.