Part3 Of Dan Harris’ Article On How To Negotiate With Chinese Companies

Above the Law in the states have re-published the third part of this useful series…

How To Negotiate With Chinese Companies (Part III)

This is Part Three of a four-part series on How To Negotiate with Chinese Companies. Part Two is here and Part One is here. In this post I will discuss yet another common technique Chinese companies use to drive foreigners mad during the contract negotiation process so as to get what they want from the negotiations: the by now famous “China is different” tactic.

China is different. Chinese companies will often seek to justify a contract demand by stating that “China is different.” It is shocking how often foreign companies fall for this tactic and accept the China-side proposed terms.

China is different in that every country is different from every other country. But in terms of laws and regulations — and this is especially true of contract law — China is not all that different from other countries. Chinese laws are mostly based on foreign models and they are also further constrained by China’s participation in the World Trade Organization (WTO), the World Intellectual Property Organization (WIPO), the Convention on the International Sale of Goods (CISG), and other international standards-setting bodies and conventions. In most respects, China’s laws hew closer to international standards than those of the United States, which has a reputation for “going it alone.” China’s laws are based on the civil law standard, while ours are based on the common law. So what often seems to a U.S. investor as an unusual legal provision is often nothing more than the difference between a common law approach and a civil law approach.

We deal with the “China is different,” tactic by putting the Chinese side to the proof. We request that it direct us to the Chinese statute or regulation setting out this difference.

My law firm recently represented a U.S. magazine publisher looking to license a magazine title and some of its content to a China publishing house. Our client owned the China trademark for its magazine title and its plan was to grant the China publishing house a limited license to use that trademark. The Chinese publishing company insisted that this could not work and that our client would instead need to transfer ownership of the trademark to the China publishing house and then when the contract terminated, the China publishing house would transfer the trademark back to our client.

We then suggested to our client that it request from the China publishing house a cite to the law requiring such a deal structure. Our client did this and the Chinese side said that because the applicable laws are only in Chinese and because our client was represented by American lawyers, there would be no point in providing it with the cite. We told our client to tell the other side that we had countless lawyers (including native Chinese lawyers) who could read Chinese and to just give us the cite. The Chinese said that would still not work because our client did not have any licensed Chinese lawyers on its legal team. We pointed out that we actually did have a Chinese licensed lawyer on our team (this should never have been relevant in the first place) and suggested that our client again insist on getting a cite to the law. At this point, the Chinese publishing house told them that there was “no specific law” on this, but the Chinese government required it.

The deal eventually closed with our client giving the China publishing house a limited license to use its trademark in China and not transferring title.

When a Chinese company argues that “China is different,” it usually means little more than that it wants the foreign side to accede to its unreasonable request. Your response to the “China is different” tactic should be to demand to see the law requiring the unreasonable condition. And when the Chinese side starts claiming that the government will not allow something, you should be clear that “if your government will not approve the deal as we wish it to be done, we will not do the deal.”

A decade or so ago, foreigners were generally prohibited from buying real estate for personal use in China. When China first changed this law — and before foreigners started catching on to the change, it was not uncommon for Chinese women (every call that we got involved a Chinese woman) to convince their American boyfriend to buy a condominium in the girlfriend’s name. The girlfriend would insist that it would still belong to the American guy, but it had to be done this way because he could not own it in his own name. Then when the couple would break up five or six months after the condo purchase, the American boyfriend would contact us to sue the girlfriend to get “his” condo back.

We turned down every single one of these cases. Just think for a moment about how this case would play in a Chinese court. The girlfriend would explain how the boyfriend had gifted her the condo but now wanted to take it back after the break-up and all of the official documents would reflect this. The boyfriend would then need to explain that his buying the condo for his girlfriend was actually all part of an elaborate scam to circumvent a Chinese law that did not even exist at the time of the scam. Really?

The next time your Chinese negotiating counterpart tells you that “China is different,” seek verification before you move forward.

Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at [email protected].