The other day, I wrote on how I would be speaking at The Offshore Investment Conference Shanghai 2011.

My talk was on what it takes to avoid disputes with your Chinese counterpart. I discussed the basics on how to set up your contract/relationship with your Chinese counterpart in a way that maximizes your chances of not having a dispute and of prevailing in any dispute should one occur.  I promised to put up my PowerPoint after my speech and I am doing so now. You can find it here.
What do you think?
  • I was just struck by the item “Incredibly specific. Excruciating detail.” I wonder how possible that is in practice?
    I’m party to a negotiation right now between a Chinese and foreign company. The foreign company deals in big doorstop contracts; the Chinese company likes three-page outlines and a lot of “this is how things are done here”. The negotiations have been going on for over a year now, and both sides seem very committed, but the Chinese side said to me privately that the only reason they can put up with it is that they quite like the guy negotiating for the foreign company. If it had been anyone else, we would have walked away ages ago, they said. I do know that this Chinese company has another JV with a Japanese company, and the Japanese company accepted their 3-page quick-and-dirty way of doing things.
    How many Chinese companies are willing to sign and competent to negotiate big, detailed legalese contracts? Obviously the multinationals must be getting used to it, but I still see a lot of very sketchy legal documents flying around.

  • Dan

    You misunderstood what my outline meant by “Incredibly specific. Excruciating detail.” It did NOT relate at all to the legal side of the contract at all. It referred to the product or service you are buying or selling, which we usually put in an Appendix.
    Here is a story I often tell to illustrate this point (this comes from a previous speech I gave):
    Many years ago, I heard a story of an American who was renting an apartment in Shanghai. Now I am not even sure if this story is true or apocryphal, but it is such a good story to illustrate how Chinese judges and arbitrators view contracts it really doesn’t matter whether it happened or not.
    It was a nice apartment, that this American was renting, and it had a really nice expensive office chair (high end apartments in China are virtually always rented out fully furnished). One day, the really nice office chair broke and became unusable and the American tenant kept asking his Chinese landlord to replace it. But that wasn’t happening.
    The lease on the apartment eventually came up for renewal and the American refused to renew it unless the landlord put in writing that he would replace the really nice office chair. The landlord agreed and after the new lease was signed, he came by and put in a $2 metal folding chair.
    What would happen in the United States if this tenant were to sue the landlord over the landlord’s failure to replace the office chair with something pretty comparable? Anyone know?
    The tenant would win because the court would essentially write into the lease contract the provision that the replacement chair had to be a good office chair like the one it was replacing. What would happen if the tenant sued the landlord in a Chinese court?
    The Landlord would win because if you want something in your contract in China, you had better put it in there.
    Why is this chair story even relevant? It’s relevant because American companies time and time again fail to put enough into their contracts with Chinese companies. Instead, they just assume the courts or arbitrators will know what the parties intended and re-write their contracts accordingly. But it doesn’t work that way in China.

  • Gosh…I love the story. I’m sure gonna be on my toes when I sign any Chinese contract. Thanks for the advice.

  • I don’t get the relevance to offshore work. Its a completely different subject to whether a rental contract in Shanghai should make provisions for broken fixtures.

  • Twofish

    MacKenzie: I don’t get the relevance to offshore work. Its a completely different subject to whether a rental contract in Shanghai should make provisions for broken fixtures.
    It’s really not. Contracts both for goods and services are covered under the Contract Law, which states in Article 12 that
    Article 12 The contents of a contract shall be agreed upon by the parties, and shall contain the following clauses in general:
    (1) title or name and domicile of the parties;
    (2) contract object;
    (3) quantity;
    (4) quality;
    (5) price or remuneration;
    (6) time limit, place and method of performance;
    (7) liability for breach of contract; and
    (8) methods to settle disputes.
    Lease agreements are covered under Chapter 13.
    For various historical reasons going back to the Middle Ages and feudalism, US real estate law is a distinct branch of law from commercial contract law and is subject to rather different rules. American real estate law started in 1066 when William the Conqueror invaded England and then parceled out land to his followers. Commercial contract law started occurring around Henry II and was based on totally different foundations.
    Contracts and leases for moveable goods are subject to the Uniform Commercial Code whereas real estate law is based on different principles
    In China, real estate and personal property are covered under the same sets of laws. In the 1980’s, China had to basically built a legal system from scratch and so they had no reason to create two sets of laws.