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Doing Business in ChinaI hate to beat a dead horse (and I’m not going to compare China’s Olympic basketball team to a dead horse), but I am fascinated by the discussion that has ensued from my earlier post excoriating China’s Olympic basketball team and asking what business conclusions we can draw from them — if any.

That post made it to reddit, here, where some truly interesting comments were made. The comments started out applying my incredulity at the lack of smoothness and teamwork to soccer:

  • I’ve got to echo his point on football (soccer). Playing football with Chinese players is such a frustrating experience. Nobody makes movement off the ball, looks for space or anticipates anything you want them to do. And usually when you pass to a player they will just try to do everything themselves and try and get the individual glory.
  • Second this [the above comment]. Every team has one player who is LIHAI and the aim is solely to get him the ball and let him try to dribble through the entire opposition team. Twenty times a game. And then he gets through once and scores and he is LIHAI. I’m average at best at soccer, and out of shape, but me and a small group of ragtag expats run rings around almost every team we play. The only time we got schooled was 5 Korean uni kids who are ultra fit and have a mean passing game.
  • I remember once I joined a group of guys to play. The one in the Arsenal shirt seemed to be the captain:
    “What’s your name?” “Genius”
    Genius was very much the player described [in the comment] above, except he wasn’t actually that good.
  • Sounds like they should be forced to play netball until they master teamwork (in netball you can’t run with the ball, only pass)
  • Sounds somewhat familiar. I occasionally join the evening pickup games at the local public stadium. Thing is, none of the people I see there have had any actual coaching growing up. Tactically they’re all over the place even though they try (we’re most often 10-12 players to a team). It’s just weird as hell seeing the left fullback suddenly attempting to be a striker and even weirder on the ensuing counter, nobody seems to be realising the left side is totally open. I’m not exactly 18 anymore so I don’t really care. It’s funny though, that even in Saturday pub/pick up games in the parks back home, you’d be getting a massive chewing out for something like that 🙂
    Oh, reminds me: We have a couple thousand Burmese in this city so sometimes they get to the field first. I’ve played with them once or twice and it’s really quite different. First of all, the teams they make have clear leaders telling everyone off if you’re out of position and they take it a lot more serious -in the good way.

Then a discussion regarding Chinese food ensued:

  • Is the food in general even all that great nowadays? It used to be for sure, but most of the Chinese food restaurants I end up trying in Shanghai nowadays are disappointing to say the least.
    There’s still a lot of great places to eat, but I just feel that more and more stores are being opened by people who have no interest in the food they’re serving.
  • Yeah. Is this off topic? I’ve had the same feeling in my lowly 2nd tier big city. There’s endless chains being opened where all of the business aspects are on point (iPad ordering, great social marketing, good decoration, theming, staff doing a reasonable job, play areas for kids or whatever) and then the food itself is average and boring. Shit ingredients, lazy cooking, boring menus. There’s much less of those kind of random, poorly decorated but exceptional food restaurants around.

Then someone analogized the way the team played to the way Chinese employees act:

  • Reminds me of some of the meetings in my company. No passion. Everyone has a rehearsed role, nobody steps out of line (or anywhere for that matter) and nothing really moves. It’s just dull.

And then a few people questioned my methodology (I didn’t even realize I had a methodology, but okay)

  • I don’t rate this guy’s methodology. If I judged the USA by its Basketball teams the aftermath of Hurricane Katrina would have been totally beyond prediction.
  • yeah this is a stupid article, well at least its a clickbait headline.
  • That is a hell of a rant for a single fucking ball game.

I realize I can be attacked for attacking a team for one game, but in my defense, I would not have done so if I believed there were any chance that the team might play differently under other circumstances. I saw too many Chinese players literally step out of the way when an opponent was driving against them to believe that they are capable of ever playing tough.

I also found the following two comments to our original post interesting:

  • I think there are a number of good points raised here overall about the mentality that I see generally in China – Guangzhou, Guangdong. Again, generalizing of course, but lack of creativity or uniqueness is a real issue. Every liquor store in our area, for example, sells exactly the same liquor. By the way, many (90%+) Chinese play basketball on the playground the way he described it above. I do disagree on the food stores, however. I don’t know what food stores Mr. Harris frequents while here, but in Guangzhou, I see a ton of mediocrity (with few exceptions), average-low quality, and repetitiveness across stores, and I don’t see the “creativity” and the delicate touch he mentions. I really don’t. And, one of the more expensive restaurants in our area that tries to emulate a 4 or 5 course meal in France or the US etc. just really lacked the final delicate touch that would separate them any other restaurant trying to do the same or is going for 4 stars. They have a saying – Cha bu duo – which effectively means “it’s good enough” that is used quite frequently.
  • Australia and China are neck and neck in the medal count, although that will change I suppose. But Australia has 2% of China’s population, i.e. less than Shanghai. China has more middle class people than our entire population. It is the system baby.

I promise this will be the last post on this topic, but does anyone have any more thoughts? Any commonalities between how China plays basketball and what it takes to do business in China?

UPDATE: A friend of mine who spent 10+ years in China and has been doing business with China for at least twice that long, sent me the following by email, requesting anonymity:

  • Renato Canova from Italy is the top distance running coach (marathon) in the world. He has worked in Africa for years training Kenyans and Ethiopians. He had a lot of success in Italy before that. The Chinese sports federation hired him on a three year contract to fix their men’s and women’s distance running programs. He quit after the first year, saying that he could not change the Chinese system. He said that “they just would not do anything I told them to do.” This sounds typical to me. On basketball, the answer is really easy: no team sports for the Chinese. Everyone hates everyone else and cannot play on a team. The situation is really bad now in the error of the single Child families. The result: fabulous weightlifters but no soccer, no basketball, no baseball/softball and not even any volleyball any more. Ask anyone who tries to run a technical/science R&D project in China: impossible.

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?

Doing Business in China          Doing Business in China: May 24 Webinar

On May 24, China Law Blog’s own Dan Harris will be putting on a webinar on the legal aspects of doing business in China, with a focus on how to structure your Chinese operations and deals so as to protect your IP. This webinar is being put on by CommercialLawWebAdvisor, which describes it as follows:

Companies often cannot afford not to do business in China. Whether producing goods there or selling to the Chinese market, companies that engage in business with Chinese partners need up-to-date legal advice on how to protect their technology and other intellectual property (IP) interests from being counterfeited, pirated, or otherwise misappropriated. As IP theft is one of the top issues facing businesses operating in China, there are substantial risks companies must identify and address proactively to protect their valuable IP assets. Deals made in China can threaten IP rights not just in China, but in markets around the world. Understanding the Chinese IP landscape and how to manage the pertinent issues can go a long way to safeguarding your client’s valuable IP interests.

Please join Dan Harris as he explores the nuts and bolts of constructing a good business deal with a Chinese partner, what your agreements should include, and how to manage the Chinese IP rights framework to minimize your client’s IP-related risks.

WHAT YOU WILL LEARN
This webinar will cover:

  • How to choose a good Chinese partner
  • Identifying the IP assets that need protection
  • How to structure your deal
  • Drafting your deal papers
  • Drafting China employee contracts to protect your IP
  • IP registrations: What you should know about trademarks, patents, copyrights, and licensing agreements

YOUR CONFERENCE LEADER
Your conference leader for “Doing Business in China: Structuring Your Deal and Protecting Intellectual Property” is Dan Harris. Dan is an attorney with Harris Moure, PLLC, in Seattle. He 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.

Dan writes and speaks extensively on Chinese law with a focus on protecting foreign businesses and his China Law Blog is regarded as one of the best law blogs on the web today. The ABA Journal recently named the China Law Blog to its Blawg Hall of Fame (a designation given to the top 20 law blogs of all time).

This session is recommended for corporate and in-house counsel, as well as attorneys advising companies or organizations and intellectual property attorneys and any business looking at tightening up its China legal situation. Find out more about costs and registration here, and note that China Law Blog readers can use promo code cw16dbc to get a $35 discount on the event.

We look forward to “seeing” you there.

China Film Event. Photo by Sina Daily News
Photo by Sina Daily News

AmCham China’s Media & Entertainment Forum is putting on a what is sure to be a great event in Beijing on Thursday April 21st, from 5:30 p.m. to 7:00 p.m.: “China film finance — in conversation with Bennett Pozil of East West Bank.”

AmCham describes the event as follows:

China’s film business is growing at an astounding rate. The Chinese box office will eclipse North America’s in only a few years. Every week brings announcements of exciting new Sino-US film projects, investments and acquisitions.

Continue Reading China Film Finance Event, April 21 in Beijing

China Law Seminar

On Wednesday morning, March 30, at 8:00 a.m. China time, I will be putting on a free webinar with AmCham Shanghai, focusing on avoiding and managing China business disputes. I will mostly be discussing what makes dispute resolution (mediation/arbitration/litigation) with Chinese companies so different from dispute resolution in most Western countries, with an emphasis on how to avoid such disputes and how to prevail in those you cannot avoid. I will talk for about 30 minutes, followed by 15 minutes of Q & A.

To register for this seminar (I mentioned it was free already didn’t I?) click here.

Note that this will be on March 29 (not March 30) at 5:00 p.m. Pacific Time and 8:00 p.m. Eastern Time. And for those of you in London, it will start at midnight March 29 and for those of you in most of Australia it will start at 11 a.m. on March 30.

For more information go here.

 

Come to AmCham's Media and Entertainment event on March 21 in Beijing
AmCham Media and Entertainment event on March 21 in Beijing

 

AmCham China’s Media & Entertainment Forum is putting on a what is sure to be a great panel in Beijing on Monday March 21, from 12:00 p.m. to 2:00 p.m.: IP in China’s Entertainment Industry — the Big Issues.

AmCham describes the event as follows:

The rapid growth and increasing sophistication of China’s entertainment industry present both challenges and opportunities to foreign businesses. Foreign owners of audiovisual content confront a range of complex IP issues. Many of these are particular to the Chinese market. Come hear our panel of experts discuss the big picture as well as delve deeply into such issues as:

  • How an IP case winds its way through Chinese courts
  • Recent examples of Chinese IP litigation in US courts
  • How takedowns work
  • Format protection
  • When you can (and should) litigate around IP issues
  • Emerging IP trends within China’s entertainment industry”

Mathew Alderson, who heads up our China media and entertainment practice out of our Beijing office and is a co-chair of the AmCham Media and Entertainment Forum, will  be one of three panelists, along with Joel Blank, IP Attaché for China at US the Embassy, Tom Duke, Senior Intellectual Property Liaison Officer at the UK Embassy. Kristian Kender, Managing Director of China Media Management Inc, and the other co-chair of AmCham’s Media and Entertainment Forum, will be the moderator.

Please go here to learn more about the seminar and go here to register

If you’re going to be in Beijing on Monday March 21, you should get along to AmCham for this great panel.

China Law SeminarI will be participating in what I know will be an excellent international business/law event at Cardozo Law School in New York City on Wednesday, March 16., beginning at 5:30 p.m. I know it will excellent event I participated in a Cardozo international law event last year with many of the same people. The event is entitled, Emerging Companies: From Domestic Establishment to International Expansion and it will consist of two panels. Go here to register and to get the full agenda. Registration is free and two CLE credits will be given.

The first panel is “The Growing Company: Creating a Strong Foundation for Future Success.” Rob Sanchez, an adjunct professor at Fordham Law School and the co-host of the Fashion is your Business podcast, will moderate this panel, which will consist of the following:

Katharyn Bond, Founder of Kat Bond Law (whose web site is so stunning you really should click through to it)

Gemma Sole, C0-Founder and COO of Nineteenth Amendment

Deep Gujral, VP Strategy & Development at Nomad Financial

Len Gray, Co-Founder and CEO, of Common Legal and General Counsel at Interplay Ventures

Jonathan Truppman, VP Business Development & Legal at Casper

The second panel is International Expansion: Preparing to Take Your Business Abroad. Geoffrey Sant, a Partner at Dorsey & Whitney will be moderating this panel, which will consist of the following panelists:

Jamie Underwood, Partner, Alston & Bird

Helen Su, Partner at Alston & Bird

Cindy Yang, Partner at Schiff Hardin

Bryon Benevento, Partner at Dorsey & Whitney

and me.

Go here to register.

Will I see you there?

On being a China lawyer and on doing business in China
On being a China lawyer and on doing business in China

I was interviewed last year by Jason Aquino of Scouts Consulting as part of an ongoing interview series on strategy and innovation in business, sports, and national security. Jason will be releasing this series of interviews in the future, but in the meantime he is allowing me to publish mine here, mostly after I begged him to be able to do so because I liked it so much.

The first part of my interview dealt mostly with the legal industry and the second part dealt mostly with being a China lawyer. I am flipping the two around and providing the China portion today and I will be providing the legal industry portion the day after tomorrow.

 

Dan Harris is the founder of Harris Moure, an international law firm with offices in Seattle, Portland, and Beijing. He represents and seeks to protect companies doing business in China and other emerging economies in Asia. His work has been as varied as securing the release of two improperly held helicopters in Papua New Guinea, overseeing dozens of litigation and arbitration matters in Korea, helping someone avoid terrorism charges in Japan, and seizing fish product in China to collect on a debt.

Dan and colleague Steve Dickinson co-author the China Law Blog, which discusses the practical aspects of Chinese law and how it impacts foreign companies doing business there. China Law Blog has been a mainstay of ABA Journal’s Blawg top 100 law blogs, and in 2013 was named to the Blawg 100 Hall of Fame. It is an indispensable resource for lawyers and companies seeking to do business in or around China. Dan’s perspectives on international legal issues have appeared in such publications and media outlets as The Wall Street Journal, Forbes, Fortune, Business Week, The Economist, The New York Times, The Washington Post, CNBC, and BBC News.  

Last April Dan was a keynote speaker at the Oregon Law Review Symposium on Disruptive Innovation in Law and Technology, where he discussed how lawyers could better position themselves in the evolving legal marketplace. He talked about the aversion many lawyers have to marketing, as well as the need for lawyers to become more business-minded, which legal training traditionally hasn’t encouraged. You can find Dan’s paper from the symposium here (p. 881).

 

How did you get into doing China work?

We’ve done a lot of international maritime and international litigation work, and we were known as the firm that could get things done in Russia. The Wall Street Journal did a cover story on some very unusual work we did for Caterpillar Financial. The contract provided that if Caterpillar didn’t get paid, it could seize these three ships without having to go to a court. We spent about six months planning, went to Russia and got the ships out. It got a lot of press, and then everybody started hiring us for those things.

Soon China started entering into that equation. I ended up going to China on behalf of a big Singaporean fuel supplier that was owed a lot of money. We also arrested fish product in China from a Danish company that owed our client money. While in China I became friendly with a lawyer in Qingdao, and also realized that China was where it’s at. The same thing started happening in a host of other industries. Our clients who had been focused on Korea or Russia or Japan started getting serious about China.

I convinced a friend of mine, Steve Dickinson (who had headed up the international law group at a big firm where both of us had worked, but was now teaching Chinese law at the University of Washington) to get back into the real world. We sent him to China, and it just took off from there. It was amazing how quickly it happened. There was such a demand for a law firm that would help small- and medium-size businesses deal with China. These companies were lost.

How would you describe the ethos of the Chinese legal system?

China’s legal system is geared to achieve harmony. Harmony has a lot in common with fairness, but it’s not the same thing. It’s closer to the legal conception of equity: if you and I are in a lawsuit, equity is what’s fair for you, what’s fair for me, what’s fair for society, what’s going to cause the least amount of waves. That’s China.

Also, Americans are so focused on substance over form. The ethos of an American company, especially a tech company, is to “just do it” and then deal with any problems in the foundation later. That doesn’t work for China.

A lawyer once called me and asked how much capital it would take for his client to form a company in China. I said, “It’s hard to know, I’d have to check, but I’m guessing it would probably cost $5-10 million because you’re going to have to buy the equipment and that’s going to be a lot of money.”

He goes, “Right, but we’ve already bought the equipment. And we’ve already sent it to China.”

“You have?”

“Yeah. So we can use that equipment towards our minimum capital, right?”

“No, you can’t.”

“Well, we spent $10 million on that equipment. Are you saying we have to spend another $10 million on equipment?”

“I’m not saying you need to spend another $10 million on equipment, but I’m saying that the $10 million that your client has already spent isn’t going to count. For anything that you’re buying, you have to get approval – a valuation or an appraisal –  before it can count for the capital requirement. You haven’t done that, and you can’t do it after the fact.”

“Well, that’s ridiculous. That’s putting form over substance.”

Whenever lawyers say that to me, I don’t know what to say. What can I say? It’s Chinese law. It is putting form over substance, but Chinese law is a lot of times based on that. China does not want its bureaucrats to have much discretion, because with discretion comes bribery.

What is also fascinating is that American companies think of China as the wild, wild west far too often. We had a company that makes a product with chemicals in it, and it took them – I’m going to make this up because I don’t really remember – $3 million and a year to get U.S. EPA approval to use the chemicals in the product. They go over to China, they build this factory, it’s all ready to go, and then they call us up and say that they’re being blocked from bringing these chemicals into China.

They didn’t realize that they would have to get their chemicals independently approved in China. It cost them three or four more months. It never occurred to them that China would be like the United States. The U.S. is not going to say, “Oh yeah, go ahead, put those chemicals in this product because it’s allowed in Malaysia.” That’s not how the U.S. works. That’s not how China works, either. So you get this situation where people assume that China’s completely different from the United States.

Other times, they will assume it’s the same. Here’s where we see that the most: you can fire somebody in the U.S. for good reason, bad reason, or no reason at all. You can’t do that in China. We are constantly getting calls from companies that are being threatened by ex-employees because they fired them. China is a communist country. It’s got major workers’ rights. You don’t fire somebody without getting a settlement and release. You just don’t. It’s not the U.S., and American companies have trouble grasping that.

As best you know, how does China’s history and culture shape or inform its legal norms?

This whole idea of harmony is very much a Chinese cultural phenomenon. China has 1.5 billion people. They need to get along.

What’s fascinating about the Chinese government is that it’s not a democracy like in the U.S., but it does answer to its people. It does listen to its people; not on everything, but on a lot of things. Legitimacy is very important to the Chinese government, and its legal system helps them maintain legitimacy. It’s very tailored to its history, and to the future it wants to shape.

How would you describe the Chinese style of negotiation?

Well, it ain’t win-win. It’s win-lose. In fact, if you talk about win-win, they’re just going to think you’re disingenuous, and that you’re using it as a tactic to crush them.

They can be very tough negotiators, and Americans are not used to that. It’s a completely different style of negotiation.

As you’ve learned more about China, what has surprised you the most?

What surprised me was that if I were to pick a country China is most like, it would be the United States. I dealt with Korea and Japan for many years before I started dealing with China intensively, and it is more like the United States than either of them.

In Japan, Tokyo is everything. In Korea, Seoul is everything. They are homogeneous countries, and China is not homogeneous. It is a big country like the United States, and a lot of the ways that Americans look at the world, the Chinese do too.

You can become a really big company without ever really leaving the United States. You can become a really big company without ever leaving China, too. What happens with Chinese companies is that they get really big and really successful in China, and then they come to the United States and try to do the exact same thing and it’s a complete disaster. American companies are getting better at this, but they still tend to do it in China sometimes. Americans and Chinese have the most difficulty making adjustments because they really haven’t had to.

Is there something about doing business in China that lawyers believed to be true, but never was?

People will say you can’t trust the Chinese, and that’s never been true. A lot of times, what Americans view as dishonesty is either miscommunication or cultural differences.

Take something as simple as, “Can you get me this product in 30 days?” The Chinese manufacturer will say, “No problem.” But they don’t think it means, literally, 30 days every time. They think it means we’ll try to get it to you in 30 days; sometimes it will be 45. It’s a cultural difference. It’s not dishonesty.

China’s culture is much more relationship-based than ours. Once you’re in a good relationship with a Chinese company, there’s usually hyper-honesty. There are companies out there that have had 20-year relationships with Chinese companies that have worked beautifully, where there’s huge amounts of trust.  We have had 10-plus-year relationships with a number of Chinese law firms without even the slightest hitch.

You do have to look at the culture and the history in that it’s more difficult for Chinese to trust because there’s been so much rapid change.

What do peers in your practice area think, say, or do all the time that strikes you as wrongheaded?

I remember a bankruptcy trustee who hired us to get money in China. We got them some money, and it wasn’t all that hard. The trustee said, “Wow. I had always heard that there basically was no legal system in China. I just wish I’d come to you sooner, because I’ve probably had five other cases where we could have gotten money.”

There is a legal system in China. There are lawyers who believe there isn’t, that “of course we need to set up our contracts so that all disputes are resolved in a Chicago court because if we go to China we’ll get slaughtered.” They put that in the contract, and they’ve just harmed the client because there’s never a way to collect. Chinese courts do not enforce U.S. judgments.

So, that’s one belief that is wrong. Most errors stem from the belief that everything needs to be done the American way.

Looking at your practice area, what has been the biggest development in the last five years?

Things that American and European companies could get away with in China five years ago, they can’t anymore. China now has sophisticated tax and tax collection systems. China has gotten a flavor of what it means to collect taxes, and they love it. Like all governments, they want your money. And if you’re not going to pay them the money that they believe they are owed, they will make your life miserable beyond any conception of the word miserable.

Americans and Europeans are getting in major trouble for this. We see it in two areas constantly.

An American or European company will hire, say, three “independent contractors” in China. The Chinese government will come to the American or European company three years later and say, “What are you doing? You have three employees but haven’t paid employer taxes for the last three years or withheld employee taxes. We’re going to say that you’re doing business in China because you have these three employees, so you owe company income taxes. And by the way, employer taxes and benefit taxes equal, like, 40% of what you paid them in salary for the last three years. And we’re going to charge you interest and a penalty. And if you don’t pay, we will shut down your business here and we may not let you leave the country.”

“What? They’re just independent contractors,” the Americans or the Europeans will argue. Well, guess what? If they’re not your cleaning person, or your plumber who’s coming to fix your sink for two days, and you’re paying them money and they don’t have a company, they are your employees.

The other thing is that Americans will set up a company in China that sells a service or a product back to the parent company in the United States. They set it up so that the company in China makes no profit. It is called transfer pricing. But the Chinese government will come in and say, “People don’t run businesses for no profit. We’re going to impute a 30% profit, and you need to pay the last three years’ taxes on that plus penalties, plus interest.” And the Americans freak out.

What you should do is bring on accountants who understand transfer pricing and they will figure out that the typical profit margin is, say, 6-10%, so maybe they put you down for 8%. The Chinese tax authorities will look at that and won’t mess with you. But if they have to come in and you’re making no profit, they don’t start at 8%. They come in at 30%.

That’s how governments always work. Americans need to start realizing that what American companies got away with five years ago, that era is no more. And the things Chinese companies down the street are getting away with? Well, you’re not a Chinese company.

Oh, and we are seeing a lot more disputes between foreign and Chinese companies that are no longer just getting shoved under the carpet. Both sides are realizing that it sometimes makes sense to litigate or arbitrate.

Looking out five years, what concerns you the most? What excites you the most?

It concerns me that American companies are getting on the wrong side of the Chinese legal system. But it also excites me because China’s legal system is becoming more developed, more advanced, and more secure – more real. That means an increased need for lawyers. Every time China tightens a screw our China lawyers get more work.

What also excites me is that I am seeing this happen to Chinese companies, too. That’s more important for China than that it just be happening to foreign companies. China does want to reduce corruption. Big Chinese companies pay their employees; they pay their employer taxes. A lot of them operate similarly to foreign companies, and it’s being pushed down to other Chinese companies.

What’s also exciting is the Chinese who come to the U.S. and then return to China. They are more international-thinking than typical Chinese. They go to Chinese companies and make them more international. But very, very slowly.

Is there work that you don’t really do a lot of today that you expect to see more of in the future?

Yes. That would be representing Chinese companies doing business in the U.S. or elsewhere. We’re very well equipped to represent them. We have around a half-dozen lawyers fluent in Chinese and we have two Chinese lawyers. We’re efficient and small, so Chinese companies tend to like us.

The problem is that we’re not willing to reduce our fees for them. A lot of firms will cut their rates to rock bottom to bring in Chinese companies, in the belief that they’ll be able to raise their rates later. We’re not willing to do that. We charge our regular rates to Chinese companies, and if they don’t like it they can walk.

A lot of them don’t like it, and our attitude is that we have plenty of business representing North American and European and Australian and even Korean and Japanese companies at these rates. We tell the Chinese companies to come see us in a year or two, and sometimes they do. We have not made any effort to bring in Chinese clients because it would take so much effort, and Chinese clients right now are very difficult clients.

Right now we prefer North American, European, Australian, South American, and Latin American clients. But I expect that’s going to change as Chinese companies become more international. It happened with Russia and Korea. We used to not like Russian or Korean clients because they tended to be unsophisticated in how they used lawyers. Now we love Korean clients, we love Russian clients, and eventually we’ll come to love Chinese clients.

What do you mean when you say Chinese clients are very difficult clients?

I’ll backtrack a little and tell you the problems American companies often have with Chinese lawyers.

An American company will hire a Chinese lawyer and tell the Chinese lawyer, “I want to do ‘A,’” and the Chinese lawyer will do “A.”

Three months later the American company will learn that no one’s doing “A” anymore. They’re all doing “B.” So it will go back to the Chinese lawyer and say, “Look, we did ‘A.’ Now everyone’s telling me that wasn’t a good idea.” The Chinese lawyer will then say, “Right, it was not a good idea.”

“Then why did we do ‘A’?”

“Because you told me to do ‘A.’”

It drives American companies nuts. If you had called up an American lawyer, he or she would have said, “Why do you want to do ‘A’? We do ‘B’ 99% of the time. Let’s talk about it.” When somebody tells me they want to do something, I don’t just say, “Yes.” I ask them 10 questions because I want to make sure that’s the right way to go.

The typical dynamic between Chinese companies and Chinese lawyers is, “I’m the boss. You’re my scrivener.”

One time we were brought in to help a Chinese company. Twenty years ago it had formed an American company, and then that American company had formed a Chinese company. It’s called a “roundtripper.” China once gave all sorts of preferences to foreign companies; Chinese nationals would form American companies, then go back to China to get the preferences. Not legal, but it was very common.

This Chinese company had gotten huge. They had a company in the United States that was formed by somebody’s cousin, had never paid taxes, and maybe had aspirations of going public. They needed to clean up their act. It was hugely complicated, and we brought in an international accounting firm to help on the tax side.

My colleague Steve Dickinson is based in China, and one of the lawyers we work with there invites him out to lunch. Steve is thinking, “That’s weird. This lawyer never invites me to lunch.” Steve goes to the lunch and the client’s there, and the client has this idea on how to solve the problem in about 1/10 the time and at about 1/100 the cost of what we have said needs to be done.

Steve tells the client (nicely, I presume), “Are you kidding me? You know nothing about U.S. laws, you know nothing about U.S. taxes, you’re not a lawyer or an accountant in China, and you think you’ve just solved the problem? Give me a break.” Why was Steve brought to this lunch? Because the Chinese lawyer knew it was absurd, but he just was not comfortable telling this to his client because that is not his role.

When Chinese companies come over here to the United States, they often want to tell us exactly what to do. Once we took on a case where as soon as we were paid, the Chinese company told us how we were going to handle it. We told them that what they were asking us to do would be the dumbest thing we could possibly do. (I talked with about 10 other lawyers and they were like, “Seriously?”)

“No, we need you to do that,” the Chinese company said.

We responded, “Nope. Here’s your money back.”

As lawyers, we can’t have that. Our reputations are on the line. We’re not going to do something that makes us look silly and just wastes the client’s time and money. We’ll do things for clients even if we disagree, but not when it’s absurd or unethical.

How pervasive is suspected Chinese hacking of law firms?

I don’t know. I just assume that they’re getting into my computer when I’m over there. Before we did a lot of work with China, we did a lot of work with Russia. Our Russian clients would never talk to us about anything important on the phone because they assumed they were being bugged. I always assume the worst and prepare for that.

It’s not just the Chinese government that does these things. It goes on from company to company, and from country to country. I have no idea how much, but are law firms immune? Absolutely not.

What special precautions does your firm take when you’re operating overseas?

We generally do not keep data on our computers. We keep it in the cloud, and we don’t access it when we’re overseas. We also don’t allow access to much of our data from any location other than our own offices. If our lawyers want to get on our network, they have to show up from certain ISP addresses. It makes things more difficult – if they’re at home and their home ISP has not been cleared they can’t get onto our network – but it’s a necessary security measure.

What is it about China that continues to mystify you? What would you like to learn more about?

What’s fascinating about China is that there is no Chinese archetype. China is not monolithic. If you spend a month in Shanghai and come back to the U.S., you’ll describe China in one way that has no reality for most of the rest of China. It is an incredibly diverse country.

That’s what’s exciting about China, and that’s also what’s exciting about the United States. In fact, China has a ton of minorities, just like the U.S.

But what we have over China – and I’m stealing this from a vice president at Microsoft who talked about this – is that China is not diverse in the way the United States is. A company like Microsoft, if it’s having an issue regarding, let’s say, Ethiopia, it can call together ten Ethiopians in Redmond, Washington, and figure out what to do. We have people from so many different countries who want to be here and on whom we can rely to bring their different views. China’s not even close to that level.

I have known so many Americans who have gone to work for Chinese companies to lend an American perspective, and they’re not listened to at all. China is still much more China-centric than the U.S. is U.S.-centric.

What’s a formative experience that has shaped how you make decisions or see the world?

I lived in France for a year when I was in fourth grade, and I lived in Turkey for a year when I was in 11th grade. So, living overseas definitely shaped me. My parents obviously shaped me because they were the ones who took me overseas. They were the kind of people who found it exciting to go to new places that were different. What also has shaped me is meeting all different kinds of people from different parts of the world.

I love the United States. I describe myself as patriotic even though that’s old-fashioned. But we don’t have a lock on things and it’s not good for us to think that we do. It drives me crazy when Americans say stuff like “we have the best healthcare system in the world,” or “we have the best food safety system in the world.” People think we’re the least corrupt country in the world. None of that’s true.

It’s an arrogance that can be destructive – we’re the best; we don’t have to work at it. I’m not saying we should become like China or Denmark or whatever, but I am saying we can and should learn from other countries.

How do you clear your head when life gets hectic?

I enjoy life. I work out every single day. I love eating good food. I love being with my family. I love watching basketball. I love traveling for fun. I love traveling for work. I go to movies. I binge watch TV shows. I voraciously read and listen to the news.

I learned early on not to stress out. When I first started practicing law, I went to a movie and the entire time I was thinking about a particular case. I didn’t enjoy the movie and I didn’t accomplish anything in terms of work, either. What I realized is that either you do one or the other. You go have fun or you work, but if you try to combine the two, it’s not going to work. You really do need to focus. If you have time to go to the movies, enjoy the movie or don’t go. Make your time count. That reduces stress.

Want to get money out of China. Keep calm and don't panic.
Want to get money out of China? Keep calm and don’t panic.

Last week I wrote a post entitled, Getting Money Out of China: What the Heck is Happening?  The post focused on how the China lawyers at my firm have in just the last week or so received more communications regarding difficulties in getting money out of China than in the last year. Since that post, the number of such communications has only increased, which actually could be due to the post.

In an effort to solicit more information on the state of China money transferring, I put the post up on our Linkedin China Law Blog Group page. In response to our posts, we have received a slew of comments and even a bunch of emails from people offering to help in getting money out of China. I deleted all of the comments and none of our China attorneys have responded to any of the emails.

And here is why.

Far too many China money couriers are scam artists, especially those who “carry” for foreigners. There are a million ways to get money out of China illegally, mostly involving fake invoices and literally carrying gobs of money to Hong Kong and elsewhere. Huge amounts of money illegally leave China every year and presumably much of that money gets out without anyone getting scammed. There are all sorts of “trusted networks” that enable these funds to leave.

But as a foreigner or as a foreign company you almost certainly do not have the ability to tap into such a trusted network and you should not be fooling yourself on this. Over the years, our firm has been contacted or heard from truly reliable sources about the following such getting money out of China scams:

  • A U.S. company came to us many years ago after having given two million dollars in cash to an American lawyer who operated (still operates as a matter of fact) in China. This American company was having trouble getting its money out of China and the American lawyer assured them that his plan was completely legal and would cost only $100,000. Now whether this American company truly believed the plan was legal is another question, of course. The plan was to have a trusted and connected person take the cash to Hong Kong, deposit it into his own bank account and then wire the $1.9 million to the American company’s U.S. bank account. The money disappeared and we were retained to get it back. Our advice ended up being that the risks to the American company in exposing this lawyer and trying to get the money back were too high and the company literally walked away. We were concerned that the American company would have to pay taxes and penalties to the Chinese government on the funds and, most importantly, we were concerned that exposing what had happened might lead to the company being shut down and company personnel being arrested.
  • Every so often, we are contacted by an American or a European or Australian company that sought to shut down its China operations improperly. For the right (but difficult) way to close down a China WFOE, check out How To Close A China WFOE Without Going To Jail.In an effort to avoid having to sit down with the China tax authorities and pay all past due (and oftentimes some not due) taxes, these companies had hooked up with someone with a “better idea.” The better idea is to send the China WFOE’s remaining funds out of China as payment for services provided to the WFOE by a company overseas. This scheme typically involves drafting a fake contract and invoice for the services not actually provided to the WFOE. This scheme is typically carried out by a Chinese citizen with a company outside China drafting the contract and issuing the invoice. The Chinese citizen has usually offered to do the deal for 10 to 15 percent of the funds, to be paid after the funds hit the Chinese citizen’s company outside China. I’m guessing most of you have by now guessed why our China lawyers get calls on these deals. Right. The money goes to the company outside China and the American or European or Australian company never gets a penny and it now wants us to pursue the scammer for their money back. My firm has actually taken on a few of these and actually managed in some cases to get some money back (talk about both parties falling off a cliff negotiating), but our strong advice is never to do such a deal.
  • Thanks to China having increased its tax collection efforts against foreign companies, we also are more often finding ourselves dealing with a variant on the situation above. Here is an amalgamation of what we are seeing. Owner of China WFOE calls us from his (because it has always been a male) home country to tell us that its China WFOE is in the process of going through a tax audit in China. The WFOE owner “may” have done some things improperly in China and wants to know whether he should return to China to assist in the audit. Our answer is always something like the following: “if you ‘may’ have done something improperly in China, you absolutely should stay away from China.” We then learn that the WFOE owner was convinced by one of its own Chinese employees to submit false fapiao and (it has always been “and” not “or”) to send money out of China using false contracts and false invoices. It is now pretty clear that the Chinese tax authorities know exactly what the China WFOE did and they are just lying in wait for this American (because every time it has been an American) to return to China to “complete” the audit. The American wants to know what to do and pretty much every time, they ask if we know anyone who might be interested in buying their WFOE. To which my response is something like the following (minus most of the incredulity and the sarcasm added below):

Wait, let me get this straight. You have a WFOE in the middle of a tax audit in China that you know will reveal that the WFOE has for years been engaging in money laundering and tax fraud. In fact, you are so concerned about what this audit will find (or really, has already found) that you are hiding out in the United States because of it. And yet you want to know whether I will go to any of my clients to see if they might be interested in buying this now dying WFOE? Do you really think there are people out there dumb enough to buy such a company without conducting any due diligence on it and thus fail to realize that they are buying into nothing but financial and maybe even criminal liabilities? More importantly, do you really think that I am going to push this turd onto one of our existing clients? Just out of curiosity, why would you think my law firm would do this?

Just don’t let any of the above happen to you. Especially now. Or ever. Don’t panic and do something stupid.

 

Come to AmCham's Media and Entertainment event on January 12 in Beijing
Come to AmCham’s Media and Entertainment event on January 12 in Beijing

Mathew Alderson, our firm’s lead China entertainment lawyer, will be moderating an AmCham event in Beijing on January 12. AmCham describes this event as follows:

Media and Entertainment Forum Co-Chair Mathew Alderson will moderate an exclusive lunchtime presentation given by Ms. Dai Huang, Vice President, Distribution Sales and Production, Greater China, Sony Pictures Television. As head of distribution sales for China, Dai manages TV, new media, IPTV, VOD and format program syndication across all Sony Pictures Entertainment portfolios. As head of television production, she manages all scripted and unscripted production business in China. Dai executive produced the upcoming hit comedy “Xin Hun Gong Yu,” a groundbreaking Chinese remake of the classic American sitcom “Mad About You”, airing on Dragon TV and Youku Tudou in January 2016.

Dai will be discussing trends and developments of interest to her in her work. These include remaking and localizing TV formats for China and bringing Chinese IP and Chinese stories to the US and European markets.

China’s entertainment sector is clearly on the rise and this event will no doubt prove most interesting. As evidenced by her bio below, Ms. Dai Huang will be bringing a wealth of China media experience to her talk:

Based in SPT Beijing Office, Dai has served as the Vice President of distribution sales and production for Sony Pictures Television (SPT) in Greater China since 2015. As head of distribution sales, she manages TV, new media, IPTV, VOD, and format program syndication across all Sony Pictures Entertainment portfolios in Greater China. As head of television production, she manages all scripted and unscripted production business for SPT in Greater China region. Dai executive produced the upcoming hit comedy “Xin Hun Gong Yu”, a groundbreaking Chinese remake of the classic American sitcom “Mad About You”, airing on Dragon TV and Youku Tudou in January 2016. Apart from localizing overseas TV series and formats into local Chinese shows, Dai oversees the process of bringing successful Chinese IP and stories to the American and European market.

Dai had served as Executive Director for SPT since 2011. During her tenure, she has successfully produced a number of popular unscripted formats, including Jiangsu TV’s “Raid the Cage”, CCTV’s “Dancing Nation”, and Zhejiang TV’s “Dr. Oz”. Prior to joining SPT, Dai worked at Viacom and Entertainment Rights now Dreamworks as Manager in charge of Program sales.

After receiving her Master’s degree in International Journalism at Cardiff University, Dai started her professional career in Hunan Broadcasting System as a producer and journalist.

Registration starts at 11:45 a.m. and the event will run until 1:30 p.m. For more information and to register in advance click here.