I was telling a client today how my law firm has done more than 200 Non Disclosure Agreements (NDA) with Chinese companies and our results very roughly approximate the following:

  •  100 Chinese companies signed what we drafted
  •   95 Chinese companies made one or more reasonable modifications and then signed
  •     5 Chinese companies angrily told our clients “this is not how business is done in China.”

I went on to say that we liked the second category the best because those were the companies that took the agreement seriously enough that they did not want to sign anything with which they were not fully comfortable. 

I then had a reveletion. Legitimate companies do not get angry when put to the test.

Let me explain.  

We are always preaching to our clients the importance of due diligence. We tell them to be sure to conduct business with only registered Chinese companies and that the best starting point for confirming whether a company is registered is to review a copy of their certificate of registration. Our clients often express concerns to us that this sort of request will offend their Chinese counterparty. Our response is that those who have the registration virtually always promptly provide it and those who do not have the registration get angry and talk of how the request is an insult. Tellingly, I cannot think of an instance where a company complained about having to provide its registration and then come up with it. In other words, their anger has always stemmed from their having gotten caught, not from the request itself.  

Am I on to something here? Is anger a good measure of a party’s intentions? How can it not be? What do you think?

  • I absolutely agree with you. It is “one of” the ways to measure the counterparty’s intentions. Good companies won’t mind to provide this document as well as to share information about their major foreign clients, which in my opinion is another important request you have to make to your potential supplier when sourcing from China. Bad companies will get angry or mostly stop talking to you after you ask for their business registration and say that you plan to verify its legitimacy with the department in charge of that.

  • Pepijn

    I think you are completely right. It is strange that so many people are influenced by the “insulting” argument. Why is this happening?

  • You’ve also described the fastest and cheapest way to screen commodity sourcing: ‘Send us your track record and related documents please……’ The ‘real’ sources always do, usually promptly….those that get indignant with the request….well, I’ll take the risk of a false negative on that every time….

  • Robert

    Never really thought of it this way either, but now that I have, I do think you are on to something here and that this test does work in a lot of areas, not just China. Nice observation.

  • Gordon

    How refreshing to see someone talking sense on the subject. Power to your elbow.