Earlier this year, I got a call from someone who wanted “a little help” with their Chinese joint venture (JV).  Seems this normally sane American company entered into a joint venture with a Chinese company they knew they could trust because some other company they knew had conducted successful business with them.

So the American company enters into a joint venture with this Chinese company and sends over a lot of money and NOW is getting cold feet because they have been asked to send over even more money.  My questions reveal the American company is a 25% owner of the joint venture and their partner has told them that unless they send over a larger sum “the entire deal is off.”  I ask who drafted the joint venture papers and they act like that was a stupid question.  They then tell me they used their JV partner’s lawyer in China.  I ask them if they had their own counsel review it before signing and they say “no.”   I say nothing and then they say that the Chinese lawyer told them it was not necessary because he knew Chinese law.  I ask them if the Chinese lawyer was representing them or the Chinese company and they say they do not know.

I tell them things look really bad, but we would be happy to review the paperwork and see if there is anything we can do.  They tell me they find it hard to believe their partner would be trying to push them out now since they always had “such a good relationship with them.”

We looked over their papers, told them it would likely end up costing them nearly as much money to try to clean up the mess as we could hope to recover and there were no guarantees they would ever get one penny back.  They did not retain us.

Is there an attorney out there doing China work who has not heard this story at least ten times?  I have heard this story at least ten times.  So would someone please tell me once and for all why, despite all the China horror stories, so many Westerners are convinced their situation is somehow different?  Is this what is meant by Chinese exceptionalism?

Andrew Hupert, a management consultant who writes the Diligence China Blog put it better (and more bluntly) than I ever could when he defined the word “Foreigner” as it applies to China:

Foreigner – That would be YOU.  Chinese outside of Shanghai tend to associate all westerners with America.

* * * *

Now, here’s the important thing.  The average Chinese person has a weird love-hate thing going with America.  On the one hand, they think you are super-human in terms of your intelligence, strength, power and ability.  One the other hand, they consider you an inferior life-form — something akin to a reasonably clever dog who has been trained to walk upright and wear a tie.  There are probably all sorts of long-winded sociological theories for explaining this bizarre phenomenon.  Do you really care about any of them?  The business ramifications are that your counter-party may spend a lot of time kissing your ass, but will try to screw you over as quickly and severely as possible.  (Just like back home!  One of the few familiar aspects of business here.)  Also, Chinese think all Americans are rich and incapable of learning even the simplest facts about doing business in China.

I am actually much more of an optimist than Mr. Hupert in that I believe there are plenty of Chinese businesspeople who see the value in establishing a long term relationship based on full honesty, yet at the same time, I am also of the view that until you have done business with someone for many years, there is no good way to know the honesty of the person with whom you are dealing.  And remember, discerning this is even more difficult when dealing with someone in a foreign country with a different culture and language.

And do not for a minute think this is confined to China.  My firm right now is tracking more than two million dollars that “disappeared” in Russia.

So what is a company to do?  What does it take to succeed at doing business in China?  First off, THINK.  That’s right, think.  Secondly, do not do anything you would not do in any other country.  Just because your Chinese partner and/or your Chinese partner’s lawyer tell you this is how things are in China does not mean you have to believe them and it certainly does not mean you have to abandon your common sense.

I am not going to get any more specific in this post because I am convinced that if American companies would follow these two simple admonitions, their sending money into black holes overseas would nearly cease.

  • I’m pretty amazed about this company’s use of the Chinese company’s lawyer. Do you think any of this lack of good sense is related to thinking of the Chinese as a simple, hardworking people? I.E. underestimating their capabilities?
    For some reason, I’m reminded of the fact that Western businessmen were supposedly taken in by numerous Nigerian sp@mmers back in the day because they just assumed that the offers received showed that the Africans involved weren’t very smart.
    In any case, it reminds me of the classic music industry ripoff, “Kid, you’ll need a lawyer to look over your contract, but you’re in luck. You can use ours!”

  • Clyde —
    Thanks for checking in. Interesting question. I always attributed it to the Westerner thinking he (and it is almost invariably a he) is so smart, but now that you mention it, there almost has to be a bit of what you are saying in all of this because one has to ask smart in comparision to what.
    I love that music industry quote. Just wish I had known of it before I posted as I would have used it.

  • Ursula

    Politeness costs little (nothing), but yields much…