In yesterday’s post, we briefly talked about the rash of legal problems lately besetting foreign companies doing business in China and of how foreign companies must avoid the temptation to assume that their Chinese staff have all China legal issues covered.

This post addresses the resistance foreign companies (and their lawyers) often face from Chinese staff when the foreign company seeks to comply with Chinese law. This resistance typically stems from Chinese staff who believe that “Chinese laws are stupid and unrealistic and routinely ignored.” They are of the view that if “we follow all of these laws we will not be able to compete with all of the Chinese companies that do not.”

Here’s the really scary thing: your Chinese staff is often correct and we could cite example after example as to why. How can you compete when your WFOE pays employees for a 40 hour work week yet your Chinese competitors are paying the same for 70 hours of work from their employees? How can your WFOE get the big contract without discretely giving a white envelope (usually in a briefcase) to the decision-maker just like all of your competitors do?

I do not purport to have the answers to these somewhat intractable questions so instead I will quote from what one of our lawyers told a client the other day. This client was told of concerns that we had about the people with whom it was doing business and instructed to retain us to make sure that none of these people were on any sanctions or prohibited entity watch-lists. The client responded by saying that no matter what we might find about the people and the companies, he didn’t see how his company would not go forward with the sale. “It’s three and a half million in sales,” he said. To which our China lawyer in charge of that matter responded by saying, “right, but I really think you need to weigh that against a potential three and a half years in jail. For you. Oh, and you might end up having to spend that time in both a China jail and a U.S. jail because you can be prosecuted by both countries and I’m not sure whether the U.S. will give you any credit for time served over in China.” He retained us to do the search, and fortunately, everyone checked out.

If you are serious about bringing your China business into compliance it will not be pain free or inexpensive. But hey, it beats the alternatives.

  • Ward Chartier

    What would happen if a law abiding international company in China made a complaint accompanied by evidence to the correct authority that an indigenous Chinese competitor was acting illegally? I was once tempted to do this, but could not obtain irrefutable evidence. I’d be interested to read others’ experience.

  • Nathan KAISER

    my usual comment to this standard question from clients: Well, then some business you just don’t do. Not all business that can be done should be done.