Transacting Business in Today’s China

SUBSCRIBE

iTunes | Spotify | Google Podcasts | Amazon Music | Tune In | Listen Notes | Pocket Casts | Pod Chaser | Deezer | Stitcher

SHOW NOTES:

00:00:59 – Today’s big issue is what’s going on with the EU. …

Okay, that’s actually a surprisingly tough question because it changes every day. And by changes, I don’t mean things are vacillating up and down.

I mean pretty much every day something happens that makes it worse, and it’s hard almost to keep up. You’ve got the covet.

You’ve got what China is doing with covet, what cities in lockdown next, what cities in lockdown now you’ve got the bad relations between the United States and China. You’ve got the sanctions that are happening somewhat piecemeal. What is President Biden going to prohibit Americans from selling to China? What will China do in retaliation?

Today’s big issue is what’s going on with the EU. The EU is talking about how they’re going to respond to what came out. I believe it was yesterday, the UN report basically saying that what China is doing in Xinjiang constitutes crimes against humanity.

It is almost every single day that something comes down that makes things worse between China and the rest of the world. And I just went through all those things, and I didn’t even mention Taiwan because I forgot about it. It’s one of many.

00:09:48 – If you do that, it becomes very easy to predict what China is going to do.

I just think that China is a bad apple and it’s got nothing to do with politics and it has to do with reality.

I’ve been dealing with China for a long time, and in the last five years, my mantra has always been that if you want to figure out what China is going to do or how it’s going to act, by China, I mean the CCP, you should assume the absolute worst and then try to assume something even worse than that. And you’ll be right.

If you do that, it becomes very easy to predict what China is going to do.

That’s how, in December, I was able to predict these lockdowns, because that’s where I could see them going, china. People Laugh but for years, I’ve been saying, I mean, in, let’s say, 2005, everybody was talking about how China was the next big powerhouse, economic powerhouse, everything was going to be great.

I never really bought into that, because you never know on something like that. But over, let’s say, the last five years, I’ve been telling people, if you want to see where China is going, look at North Korea. And people used to laugh at that, and they don’t anymore.

00:28:23 – And if you say China or something general or something like that, then you’ll be criticized for acting like all Chinese think alike, which is, of course, absurd.

Right. And here’s something else, though. What’s so interesting is if you there are the people on social media who are essentially paid oftentimes by the Chinese government.

And if you say China or something generally or something like that, then you’ll be criticized for acting like all Chinese think alike, which is, of course, absurd. But on the flip side, the CCP encourages that belief, meaning they want the world to think that the CCP has 99.9% support. But that is not true, and that is not possible.

It’s impossible to know how many people truly support the current regime. But there were a lot of people who opposed she coming into office when he came into office. And those people haven’t all died or disappeared. There are a lot of people in China who do not like the way things are going.

It’s hard to put a number on it, but I’m guessing it’s anywhere from 40% to 55%. So when we look at it, it has not become North Korea. Look at Hong Kong.

Do you think that all of a sudden Hong Kong went from not wanting China in there to loving them? I don’t think so.

00:34:47 – If I have a contract for cutting-edge semiconductors and my Chinese counterpart violates that contract, then good luck, because the Chinese government really cares about that.

I mean, it’s really interesting because if you have a good contract with your Chinese counterpart and it doesn’t involve something of crucial significance to the Chinese government, meaning if I have a contract with a Chinese manufacturer to make rubber ducties for me and they violate that contract, I can sue and I will win.

If I have a contract for cutting-edge semiconductors and my Chinese counterpart violates that contract, then good luck, because the Chinese government really cares about that. So, shockingly enough, I haven’t seen any change in that over the years.

Where I have seen a change is not so much Chinese companies taking advantage of the Chinese government position on things because the typical Chinese company, privately held company anyway, they’re capitalists. They’re out to make money.

They’re not terribly political, so they don’t necessarily care. But the change that I have seen is there’s this view, and it isn’t really a contractual change so much, but there’s a view now in China that I should say a much greater view because there’s always been a little bit of this view that things could change tomorrow.

00:40:16 – Well, I want to have my lawsuit in Boston because I know I can win.

Okay, this shocks a lot of people and even disappoints people, but most of the time we advocate for putting the contracts in Chinese as the one official language and having disputes resolved in China.

The reason we do that is because China does not enforce most foreign court judgments, and it is not all that good at enforcing foreign arbitrations either. So people say, Well, I want to have my lawsuit in Boston because I know I can win. And I’ll say, yes, you’ll win in Boston, but winning a lawsuit is not the goal.

The goal is collecting on the lawsuit. But the other key is and that’s sort of an American Western way of thinking of contracts in emerging market countries, you need to focus on more than the ability to enforce a contract. I always say there are three benefits to having a contract. One is being able to enforce it by suing in Chicago or wherever. The other is fear.

As long as your counterpart thinks your contract will be effective, then it can be valuable, because a legitimate Chinese company is not going to want to get sued. So notice how I say legitimate.

00:48:46 –  So drafting a good Chinese language contract requires that, you know, the statute.

I’m going to start with the last part first. Drafting good and clear Chinese contracts is in many respects easier than drafting a good and clear English language contract. And that’s because the Chinese system and I won’t go into I won’t bore people with too much detail here, but the US. Canadian British system is a common law system.

That means that it’s based mostly on court decisions. China is a civil law system, which means it’s based mostly on statute. So 20 page US.

Contract, if we were to take it out and make it a, quote, unquote, China contract, it would probably be eight or nine pages, because a lot of what’s in the American or the British contract is total fluff and just confusing.

In a Chinese contract, all those provisions it’s successors assignees, et cetera. No, in a Chinese contract, there might be one word or two words that make that clear, and that’s how it’s written in the statute, and that’s how you pull up.

So drafting a good Chinese language contract requires that, you know, the statute. It requires that you understand that it is a different country. And so things like when we do distribution agreements in China, they tend to actually be very similar to distribution agreements anywhere else, except China has more freedom of contract, so the distributor is not as protected.

OTHER RESOURCES:

1) Enhanced Negotiating Strategies: This two-day seminar discusses the most intense negotiating strategies and tactics allowed without violating your ethics or morals

2) Valuation of Emerging Technologies: This seminar provides an in-depth review of more than 20 Valuation Methodologies

3) Solution Nation – The Book: Learn how the world’s most disadvantaged and destitute people stand to benefit from Israeli ingenuity.