Header graphic for print

China Law Blog

China Law for Business

China Expats Gone Bad. A Review Of Unsavory Elements.

Posted in Uncategorized

We are constantly barraged with emails from book publishers asking that we review their books on China. These emails usually ask whether they should send us the book and my usual response is usually, “sure, but we make no promises that we will ever read it or review it.”

Many months ago we received such an email regarding the book Unsavory Elements, a collection of expat accounts of living and playing in China. Amazon quite accurately describes this book as follows:

Westerners are flocking to China in increasing numbers to chase their dreams even as Chinese emigrants seek their own dreams abroad. Life as an outsider in China has many sides to it – weird, fascinating and appalling, or sometimes all together. We asked foreigners who live or have lived in China for a significant period to tell us a story of their experiences and these 28 contributions resulted. It’s all about living, learning and loving in a land unlike any other in the world.

Anyway, to make a long story about a book of short stories short, I read about half of the book and really liked it, but was having trouble finding time to read the rest of it and to review it.

Enter Christopher Cottrell. Chris has been living in China since 2003 and he has written on China for the Associated Press, Boston Globe, CNN, Fodor’s, Los Angeles Times, and South China Morning Post. He also launched That’s PRD in 2006 and edited the book Macau 2002-2012: 10-years of Gaming Success. Most importantly, Christopher has written the book review I had been meaning to write and his review follows.

 

Pouring over Unsavory Elements, an anthology of true stories about foreigners “on the loose” in China, readers of China Law Blog might be impressed not just by the high name recognition of its best-selling cast of contributors, but with the sheer levels of illegality and ethics it probes.

The authors and journalists who participated in this book of expat essays did not set out to write about impropriety in Chinese law. They simply wanted to tell their tales of some of the more colorful or trying moments that they experienced while living in China over the past decade.

Ranging from transactions and deeds that would raise the eyebrows of those enforcing America’s Foreign Corrupt Practices Act to stints in prison for drug dealing to flagrant violations of prostitution laws, what results is 300 pages of business and law school case studies written not in legalese but in literary prose, and what a read it is.

“What do we take away from this theme of foreigners who go to China only to become corrupted in a short time span?” Tom Carter, the editor of Unsavory Elements, discussed all this in a recent interview:

While it may appear to anyone perusing the pages of this book that these are simply chronicles of corruptible Caucasians in China, I’d hope that readers would glean a deeper cultural subtext, whereby we the writers are struggling to adapt in a pseudo-socialist society where laws are notoriously fluid; where invariably the only way to survive is to set aside our own Western black-and-white concepts of morality and ethics and learn to navigate the vague China Gray.

Indeed, one might take special note of the chapter “Playing in the Gray” by Graham Earnshaw, of the eponymous Earnshaw Books, publisher of Unsavory Elements and of the Shanghai Buzz weekly, the first foreign owned and operated publication in China since the founding of the PRC.

As Earnshaw explains:

For venues and marketing companies, Buzz represented an entirely new channel for contacting the market, and it worked well. So well, in fact, that one state publication in Shanghai, the Shanghai Star, started to feel threatened. They presumably tapped into their guanxi with the Shanghai government’s news and publications department, but, for a time, nothing happened. This was partly due to the puzzlement on the part of the communist officials, and partly due to a contretemps in progress at the time between the Shanghai propaganda authorities and Beijing-controlled China Daily, both eager to control the only official English newspaper in the city. Due in large part to the non-confrontational way in which (we) dealt with the Publication Bureau, and the way in which the Buzz content never overstepped any sensitive lines, we were never fined for having published an illegal publication in China, although we had of course broken every relevant law.

Earnshaw soon found a competitor, “In Shanghai,” founded by fellow British expatriate Mark Kitto (who also contributed to Unsavory Elements) and restaurateur Kathleen Lau. In Shanghai later became That’s Shanghai magazine, which went on to garner notoriety after it was wrested away from Kitto by State-owned media agencies. Kitto’s experiences have been chronicled on China Law Blog and elsewhere, but Earnshaw’s chapter in Unsavory Elements is seminal to understanding how foreign media began flourishing in China.

And if Earnshaw’s publishing experiences define China’s 5,000 shades of gray, editor Tom Carter profoundly illustrates Chinese culture’s darkest shades of pink. Mr. Carter is best known for his critically acclaimed book of photography CHINA: Portrait of a People, [Editor's Note: an absolutely gorgeous book] but his controversial essay in Unsavory Elements pertains largely to the seamy underbelly of prostitution.

Under Chinese criminal law, prostitution is technically illegal, though the U.S. State Department estimates upwards of 6 million women across China engage in this occupation.

Mr. Carter elaborates:

Pretty peasants looking to make easy money migrate to China’s major metropolises to work at karaoke parlors or massage parlors. Their plain-of-face counterparts in the countryside, however, are consigned to bottom-tier brothels, such as the ones my friends and I were standing in.

According to his essay, Mr. Carter escorted a companion, from Kenya, to a rural brothel staffed by teenagers. In raw and provocative prose unfit for quoting on China Law Blog, he describes the illicit offerings there.

Statistics show that crackdowns on China’s brothel buffet culture, including the most recent high-profile campaign in Dongguan in February 2014, do little to dissuade single men from patronizing prostitutes, but have they dampened the use of young Chinese women for business purposes?

Not if one reads Susie Gordon’s essay “Empty from the Outside.” This young English journalist arrived in China in 2008 and has been covering China’s business culture for local media. She is one of the newer voices this collection presents, and her expose in Unsavory Elements about the excesses of her wealthy business partner’s second-generation “fu er dai” sons, is a highlight of the book.

After China joined the WTO in 2001 and won its chance to hold the Olympics, the country witnessed a huge influx of foreigners and FDI. Many were businessmen and many were taken by their Chinese hosts to KTV (karaoke) to negotiate lucrative contracts in the persuasive company of prostitutes. Ms. Gordon writes:

He had two of the girls bring in a magnum of champagne, a little silver tray with slim white lines of powder that might have been coke but in all likelihood was ketamine, and pills nestled like candies in a brass bowl. At one point, I remember looking around at the girls, the men, the drugs, and the money, and wondering how long this utopia could last: the Chinese dream, in its second, prodigal generation.”

How long indeed. In the fall of 2013, Xi Jinping unleashed an unprecedented anti-corruption campaign that has resulted in the prosecution of some very high profile individuals and companies.

How, then, does one find transparency in China’s business and legal culture? And more specifically, how do foreigners side-step being brought along to brothels, or just say no to the narcotics in front of them, when doing business with the Chinese without wholly insulting their overly gracious (and easily offended) hosts?

These are looming questions that, unfortunately, the authors of Unsavory Elements do not attempt to answer. They simply present the rough and tumble experiences they have gone through as China has risen economically in the past decade. This book fundamentally underscores the variety of unseen personal risks foreigners in China start facing the moment they enter China.

China Patents And Trademarks. Close The Barn Door Before The Pigs Are Gone.

Posted in Basics of China Business Law, Legal News

Sorry for the farm analogy, but I just finished looking at my itinerary for an upcoming Iowa trip.

Got a call the other day from a U.S. company furious about a competitor in China who had registered both its trademark and its patent in China.

How’s that you say?

Let me explain.

This U.S. company had just started doing business in China when one of its competitors (a European company, BTW, not a Chinese company) sent the U.S. company a cease and desist letter saying that the U.S. Company was infringing on both the European company’s trademark and patent in China.

This did not sit too well with the U.S. company because the patent on which it was allegedly infringing in China was the same as a patent the U.S. company had in the United States and the same held true of its trademark. I was in the midst of trying to resolve a client crisis when this company called and in no mood to discuss the finer points of China IP law with them so I suggested that they go back to their US patent and trademark attorneys (two different law firms I learned) and talk with them about next steps.

What did this U.S. company do wrong so as to allow itself to be in this horrible predicament and what can it do now to try to resolve it? I will answer the second question first because that is in many ways the less important one.

If it is going to have any chance of getting “its” trademark and “its” patent back in China, this U.S. company is going to need to pursue various actions in China to try to do so. On the trademark front, I am guessing (guessing because I do not have the facts to know for certain) that its best claims will be that the European company secured the trademark in bad faith (these are very tough claims) and/or that the European company must relinquish the trademark for non-use. On the patent front (and again I am guessing because the U.S. company was not clear on what sort of patent we were even talking about), its best claim will likely be that the European company’s patent should not have been granted because it lacked novelty.

The more important question is what should this U.S. company have done to have avoided the complicated and no doubt expensive situation in which it now finds itself? It should have filed for its own trademark and patent in China before its European competitor did.

We wrote about this many years ago in Getting A Patent In China. The China Patent Shuffle:

 

Kelly Spors, the Wall Street Journal’s spot on Q&A columnist on entrepreneurship and small business answered a question today on securing a China patent.

The question asked of Ms. Spors by a U.S. patent holder is whether it is “worth spending the money for a patent in China to prevent knockoffs from being made there?”

Ms. Spors says probably yes.

She starts out by noting that given “China’s reputation for meagerly enforcing intellectual property rights, getting a patent there may seem like a pointless expense. But you may kick yourself later on if you don’t.”

She then rightfully notes that in spite of the problems companies have in enforcing their patents in China, they are sometimes critical to prevent others from patenting YOUR product:

The big risk: If another company patents your idea first, it can turn around and sue you for infringement. It isn’t as much about “getting a patent in China as preventing other people from getting one,” says Siva Yam, president of the U.S.-China Chamber of Commerce, a Chicago-based organization that helps businesses navigate China. Mr. Yam says the Chinese government is trying to better enforce patents, so having a Chinese patent may be worth more in the future.

Mr. Yam recalls a few years back when a Pennsylvania company decided not to seek a patent in China since it was already selling the technology there. But a Chinese company later sought and received a patent on a similar technology and then sued the U.S. company, along with writing letters to its customers threatening to sue if they continued doing business with the firm. The Chinese company eventually backed down, but not before the U.S. company had spent ample time and money fending off the claims.

She says it also makes sense to get a Chinese patent if you are selling your product into the Chinese market and that a “patent will allow you to fight back if the manufacturer starts selling knockoffs of your product.” She then notes that if you are going to seek a China patent of that which you have already patented in the United States, you must do so within a year of filing your U.S. patent application, unless you get an extension by filing an international patent application.

She is absolutely right about this. The China lawyers at my firm have received countless phone calls from companies agonizing over whether or not to get a China patent until we end that particular agony by telling them that they are too late.

I am probably a bit less upbeat than Ms. Spoor on the benefits of securing a China patent because they do tend to be difficult to enforce in China. One of the Chinese lawyers with whom we regularly work is even of the view that getting a strong trademark and constantly updating your product militate against the need to get a patent most of the time. But this ignores the problem of someone else stepping in and registering “your” patent in China.

Though we are constantly seeing instances where Chinese companies swoop in and register someone’s US trademark in China, it is less common with patents and I think this is because it is generally considerably more complicated and expensive to register a patent than it is to register a trademark.

Bottom Line: f you are doing business in China or even just considering doing so, you should be looking now at what you can do to protect your IP (patents, trademarks, copyrights, trade secrets, etc.) in China.

China Law Blog Events This Month

Posted in Basics of China Business Law, Events

I will be speaking on China law twice this month and Mathew Alderson, our China entertainment lawyer, will be moderating a very important China film event this month as well.

I will first be speaking in Seattle on April 11, starting at 2:55 at a King County Bar Association CLE. My talk is entitled “China Law Basics.” My main goal in this talk before almost exclusively lawyers is to convince them that China law is not as similar to Seattle law as they probably think.

Then it will be Mathew Alderson’s turn, as he on Friday, April 18, will be moderating an AmCham event, Big Screen, Big Markets: US-China Relations in the Film Business, taking place from 8:00 to 10:00 a.m. at the China World Hotel in Beijing. AmCham describes this event as follows:

Speaker: Chris Dodd, Former United States Senator and Chairman and Chief Executive Officer of the Motion Picture Association of America

Moderator: Mathew Alderson, the co-chair of the AmCham China Media & Entertainment Forum.

AmCham China’s Media & Entertainment Forum and The Motion Picture Association of America invite you to attend an exclusive briefing with former United States Senator Chris Dodd during the Beijing International Film Festival.

As the chairman and chief executive officer of the Motion Picture Association of America, Senator Chris Dodd serves as the voice and advocate of the American motion picture industry around the world.

Senator Dodd’s highest priority is to champion the creative freedoms of filmmakers by safeguarding intellectual property rights, advancing technology-driven innovation and opening global markets to the uniquely powerful medium of film.

Senator Dodd also served as a senior member of the Senate Foreign Relations Committee and is a recognized expert on Latin America. During his tenure he interacted extensively with leaders throughout Europe, Asia, Canada and Latin America. Senator Dodd will give us a unique insight into US-China relations in the film business.

I then head to Washington D.C. where on Wednesday, April 23, I will be a panelist at the Dow Jones Global Compliance Symposium.  My panel is on “China: Making Sense of the New Bribery Crackdown” and it will run from 10:10 am until 10:50 am.  It is described as follows:

China’s anti-corruption campaign has highlighted risks for Western companies in their choice of business partners and hires and how they monitor third parties. Our panel of experts will apply their expertise from working in China to take the temperature of the nation’s business environment and how companies should approach it.

We hope to see you there….

Selling Your Product In China Through A China Distributor. Easy-Peasy.

Posted in China Business

For years now, we have been extolling the virtues of American and other foreign companies selling their products into China through distributors. Not saying that is the only way or even the best way to do that for many companies, but I am saying that it is increasingly a very good and relatively easy way to profit from China without having to incur the time and expense of setting up a company there.

For our prior posts on this topic, check out the following:

This post focuses on how to find the right distributor for your China product, something which is easier said than done.

In my experience and that of the other China lawyers at my firm, the best China distributors typically share the following characteristics:

  • They are relatively new companies, having been formed in the last 15 years.
  • They are privately-owned
  • They focus on a particular region of China
  • They have achieved success with their own products, similar to that which you are seeking to sell into China

In other words, they are the exact sort of company that is not the least bit desperate about partnering with a foreign company. That being said, how do you find these sorts of companies and convince them to take on and sell your product?

My cop out answer on finding the right China distributor is that you hire the right China consultant to find eligible companies. Alternatively, you figure out the China market for your product and/or similar products and you see who is already succeeding at it.

You convince them to market and sell your product by having a product that can do well in China and by setting up a relationship with the distributor that will allow it to do well by selling your product. The good news is that China distribution contracts are quite similar to U.S. distribution contracts as the core of any product distribution business is the same. The distributor wants to know that if it spends the time and money required to succeed at marketing and selling the product, it will garner a substantial share of the profits from that.

Go forth and prosper.

Four Common China Law Mistakes To Avoid

Posted in Basics of China Business Law, Legal News

I am now writing weekly on China law issues for the Above the Law Blog. In my first post, China Law Mistakes To Avoid — I’m Talking To You, I listed out “four common and egregious mistakes my law firm’s China lawyers often see American domestic lawyers make when representing their clients in doing business with or in China, along with a very brief analysis of what causes American lawyers to make each sort of mistake.”

Those four mistakes are as follows:

1. Many years ago, a lawyer in the Midwest called us to discuss his client’s desire to form a company in China. This lawyer did not even tell us that his client was in the room. The lawyer asked us the minimum capital the Chinese government would likely require his client put into a Chinese bank to be able to start a business (a WFOE) in China. Based on the nature and size of the business, we estimated $6 to $8 million. The lawyer asked us to confirm that a portion of the required $6 to $8 million could come from factory equipment not cash, and we assured him that it could. At that point, he said, “good,” because his client had already purchased $5 million in equipment and shipped it to China.

We then had to tell him those equipment purchases could not count because they had not been previously designated as going to the WFOE. The lawyer then complained about how his client could not afford to come up with another $5 million and how China was putting form over substance. To which we could say little more than, “yeah”…

This is just one of countless instances where an American lawyer has done poorly by his or her client by just assuming that the rest of the world views the law just as we do. China almost always places form over substance and it does that because it views giving its bureaucrats discretionary authority as also giving them the discretion to solicit bribes to influence the exercise of that discretion.

2. A lawyer calls us with an airtight $2 million dollar breach of contract lawsuit against a Chinese company. This lawyer had drafted a contract calling for disputes between her client and the Chinese counter-party to be resolved in Boston Federal Court and she had already sued the Chinese company in Boston and secured a default judgment against it. She was now seeking my law firm’s help in domesticating the judgment in China, and It was clear she expected us to jump at the opportunity to take the case on a contingency fee basis.

That is until we told her that China does not enforce U.S. judgments. Ever.

She then came up with the idea that we start all over by suing the Chinese company again in China. We had to tell her that could not work because the Chinese court would have two strong grounds for throwing out that lawsuit. First, improper jurisdiction because the contract clearly called for the lawsuit to be in Boston. Second, res judicata because the entire case had already been tried (and won) in Boston (the proper jurisdiction). I have no idea how she explained all this to her client.

American lawyers commonly assume that what makes sense for a domestic transaction necessarily also makes sense for an international transaction. Boston would have made sense in the above instance if the counter-party had been in Los Angeles, but the rules and the issues are different when doing business internationally.

3.  Lawyers often call us for “tips” on handling an arbitration in China (usually with CIETAC). We always quickly ask whether the contract calls for the arbitration to be in English or whether the lawyer calling us (or some other lawyer) on the case is fluent in Chinese. This virtually always elicits a really long silence and then they say something about how they had just assumed that their case (usually set for hearing in a month or two) would be in English.

If you do not specify that your China arbitration is going to be in a language other than Chinese, it will be in Chinese. This mistake stems from the American lawyer’s inability to grasp that China is not all that different from the rest of the world. I mean, would anyone ever think that an arbitration in Kansas City is going to be in Chinese even though the contract calling for arbitration there is silent on the language of the arbitration?

4. American lawyers often call us on behalf of their client who has received a product from their Chinese manufacturer, claiming that the product does not meet the contract specified quality. We then determine that the specified quality to which they are referring is “reasonably good quality” in such and such industry. To their surprise, we immediately beg off working on the case and we then have to tell them how there really is no such thing as “reasonably good quality” in a country where you can buy a 30 cent t-shirt that falls apart after its first washing. And/or we tell them of the U.S. company that had us call a Chinese factory from whom the U.S. company received a million dollars worth of laptop bags whose handles were not strong enough to hold a laptop. The Chinese factory’s explanation was that if our client had wanted laptop bags strong enough to truly hold a laptop, our client should have ordered the $6 bags, not the $3 ones.

This mistake stems from the American lawyers’ belief that the U.S. way of looking at the law applies universally, when it does not. China is a civil law country and a phrase like “reasonably good quality” is almost meaningless.

What have you seen out there?

How To Handle Chinese Negotiating Tactics. Part Five.

Posted in China Business

It is not unusual when China lawyers get together to talk about Chinese company negotiating techniques. It also is not unusual for at least one person to describe them as inscrutable. In an effort to make them more scrutable (that is actually a word, BTW), we bring you part Five of our series on How to Handle Chinese Negotiating Tactics. Part one is here, part two is here, part three is here, and part four is here.

This part 5 is based on a post by my friend Andrew Hupert, entitled, Negotiating with Chinese in your Home Market, and though it is tilted towards negotiating with Chinese citizens seeking to purchase a house in the United States, its five tips for better negotiating (set forth below with my comments in bold) have some relevance to any sort of deal with a Chinese company, particularly those involving the Chinese company seeking to do a deal in the U.S.

1. Get the lawyers and bankers out of the room in the early stages. Americans tend to lead with the contractual details and legalese. Chinese in the US aren’t as relationship-oriented as they are back in the mainland, but it’s still intimidating and off-putting to them. Relationships lead to transactions. I agree, which is why our China lawyers usually advise our clients not to have us in the room for early stage negotiating. Chinese companies do use lawyers on bigger deals and you too should have your own China attorney working for you as well but it does generally make sense to keep him or her in the background.

2. Don’t ask where the money comes from (until you have to). Due diligence is important, and you will have to check out your Chinese counter-party when transacting in the North America or Europe. But tread carefully on the “sources of income” issue. A lot of the money showing up to buy US real estate and high-value assets comes from corruption or money transfers that bend or break PRC capital control laws. When the counter-party is from mainland China, you have to find other ways to qualify buyers, and put off the due diligence until later. Very true. 

3. If there are kids involved, it’s all about education. If you are involved in real estate, then know your schools. Good public schools in the neighborhood a huge plus – since mainland Chinese are the last known people on earth to respect the US education system. Know the stats, be familiar with extracurricular options and have detailed info on private and public options in the neighborhood. Don’t worry so much about parks, recreational and athletic facilities. Even if the kids plan on making use of them, the parents still feel they gain face if their kids look like studiholics. In The Chinese Are Coming, Part XII. To A Public School Near You, we wrote about how a U.S. education can be a big factor in whether or not a deal gets done.

4.  They see themselves as international elite but still want access to Chinese stuff. Don’t go too heavy on the Chinese culture available in the area. Mainlanders with money see themselves as part of the global elite, so their buttons are aspirational purchases and acceptance by the dominant group. They respond to “you are joining the 1% status” much more than they do to “familiar Chinese masses in Manhattan.” Your job is to know where other Chinese 1% shop and access familiar services (particularly if they are traveling or living with elderly parents), but spend your time talking about the European and Ivy League neighbors and colleagues. Good cultural tip, overall.

5. Be a real American. When Japanese money came to the US in the 80s, all the brokers and headhunters took Japanese lessons and treated their counter-parties like trauma victims who would were about to break down from terminal culture shock. Chinese clients and buyers aren’t like that. They know they’re overseas, and probably worked hard to get here. When Westerners pretend to be Chinese, they dilute their value and risk embarrassment. Chinese clients come from a society where insider knowledge and connections are tied to success and effectiveness. When you are competing with an American-Chinese or mainland Chinese agent or salesman, your advantage is that you are a “real American” and can steer your mainland client through this strange and hostile market environment. Very good advice.

What do you think?  More tips?

China Product Sourcing. How To Check On Your Potential Supplier.

Posted in China Business

Had a long conversation with a client this morning about what we as China lawyers can do to quickly and cheaply try to figure out whether a China manufacturer is on the up and up. This below is essentially a rehash of that conversation as it is a list of the steps we typically take to smoke out the fake manufacturer or a broker claiming to be the manufacturer.

1.  A Chinese language internet search. This oftentimes is enough to determine that the company is not likely to be real or that if it is real, it is not a good company with which to do business. It is amazing how often the fake China company has a website in just English, with no Chinese. This is a tell. We also sometimes can learn a lot by

2.  We call the phone number on the Chinese company’s website and/or send a fax to the fax number, to see if those check out. If they do not, we have learned a lot.

3. We search government records to make sure that the company is actually registered. Depending on the town in which the company is located, this is not always possible, but most of the time it is. Some people simply ask the Chinese company to provide its business license, and that no doubt can be helpful. But we have seen so many fake licenses that we usually prefer to simply bypass that and go right to the government source.

4. If the company registration checks out, we send someone to look at the factory to make sure that it is still there and, if possible, ask people in the area about that factory.

The above will not definitely tell you that the factory produces good product, but it will at a very low cost increase your odds. If more is needed either because our own research is inconclusive or because so much is at stake, we bring in a consultancy specialized in China due diligence.

What do you do to scope out your China manufacturers?

China Income Taxes For Expats

Posted in China Business, Recommended Reading

One of our China lawyers got an email from a loyal reader today, suggesting that we write about expat income taxes in China, and including a link to a site that did exactly that. The site is that of SJ Grand, a Financial and Tax Advisory Service with offices in Beijing, Shanghai, Shenzhen and Paris.

The article is entitled, Individual Income Tax for Expatriates in China: Overview of PRC Individual Income Tax and that is exactly what it is: a really good and helpful and surprisingly comprehensive overview of the income taxes expats face these days in China. If you want to know more about China income taxes for expats I urge you go read it.

China Law Enforcement Efficiencies Rising

Posted in China Business

Just read an FCPA Blog post, entitled, China law change would blacklist work safety offenders. The post is on how “China’s lawmakers have reviewed a draft amendment to the workplace safety law that will increase oversight, impose harsher punishment, and slap a ban on new projects for offenders.

And it got me to thinking. About how computerized China is becoming and on how what foreign companies do in one arena/location in China can have a lasting (lifetime?) impact on what they do in another.  Let me explain by using a concrete example.

Ten years ago, if you were the Managing Director of a WFOE and your home office told you to close that WFOE by walking away from it without paying any outstanding taxes, outstanding wages, or outstanding debt, you as an individual would almost certainly be able to continue living and working freely in China. Sure, if the WFOE had been in a small town, you would have had to move to some other city in China to continue doing business in China, but once in that new city, you would have been able to pretty much do as you pleased. Indeed, you almost certainly could have opened another WFOE, with you as Managing Director.

But things have changed, and this draft amendment on workplace safety is just another example of that change. China is sick to death (pun intended) of its workers getting injured or dying and it is cracking down on unsafe employers. This crackdown consists of increasing fines for unsafe workplaces and stepping up criminal prosecutions. But more importantly (at least for purposes of this blog post), this amendment also includes a “plan to blacklist offenders of work safety rules and make their offenses public. Blacklisted companies will be restricted from obtaining land-use permit, project approvals, bank loans, and insurance.”

That’s what I’m talking about.

Whereas a company shut down in one city might have once been able to re-open elsewhere in China without much problem, that has become more difficult, both for the company and for its owners/officers/directors. Sometimes for legal reasons and sometimes for reputational reasons.

Our China lawyers are seeing this sort of thing in various sorts of situations. Where we most often see the Chinese government acting against individuals for what their previous company did is in the tax arena. In the last year, we have gotten a couple phone calls from Americans denied entry to China for a company at which they held a high level position having failed to pay its company taxes. We recently negotiated a settlement for an individual who headed up a China WFOE that required the American parent of that WFOE to pay its outstanding WFOE taxes in China. Our client (the individual) wanted that deal so that he would be free to return to China to work.

Our China attorneys also often see “nationwide” problems in the product sourcing arena. What happens there is that an American company gets bad product from its China product supplier and therefore does not pay the remainder of the amount owed (usually 30 to 70% of the total product price) to is China supplier. The China supplier then submits a claim to Sinosure (this is the insurance company that insures pretty much all exports from China. Sinosure then contacts the American company in an effort to seek payment for the remainder that is owed. The American company then tells Sinosure that it has not paid and will not pay because the product quality was bad. In turn, Sinosure then refuses to provide export insurance coverage for any exports to that American company from any Chinese manufacturer/supplier. As you can imagine, this scenario presents all sorts of problems for the American company. Note: if you ever face this sort of situation, do not do nothing, thinking it will all just go away.

What is happening in China to cause this better/braoder enforcement?  Better data management. Now if you fail to pay taxes in Dalian or Qingdao or Chengdu, the guy who approves your visa through San Francisco has a much better chance of knowing about it. And these improvements in data management are only going to accelerate.

Bottom Line: What you do in one place in China is simply far more likely to have permanent repercussions on you everywhere in China. It is that simple.

What are you seeing out there?

China Film Event. Beijing, April 18.

Posted in Events

On April 18, from 8:00 a.m. until 10:00 a.m., AmCham China’s Media & Entertainment Forum and The Motion Picture Association of America will be putting on a “briefing with Chris Dodd,” former senator from Connecticut and now chairman and CEO of the Motion Picture Association of America.  Senator Dodd will be giving his “unique insight into US-China relations in the film business.”

Mathew Alderson, co-chair of the AmCham China Media & Entertainment Forum and a China entertainment lawyer with my law firm, will be the moderator of this event, which is being titled, “Big Screen, Big Markets: US-China Relations In The Film Business.”

Senator Dodd’s talk will take place at the China World Hotel, 1 Jianguomenwai Street, Chaoyang District, Beijing. 北京市朝阳区建国门外大街一号 and the schedule will be as follows:

7:45-8:00 AM – Registration
8:00-8:40 AM – Presentation
8:40-9:00 AM – Q&A
9:00-10:00 AM – Discussion and networking

For more information, please contact Serena Liu at sliu@amchamchina.org.