china law

"Nuggets of Truth From a China Hand"

A western business partner may need to reevaluate his/her concept of timing when entering the Chinese business sphere. Western businesses are most often used to strict deadlines and a fast negotiation pace. It may be necessary to modify this when discussing business with a Chinese partner. Consultations and negotiations have a tendency to be prolonged and in general Chinese negotiators will use more time than their western counterparts.


It is widely recognized that the Chinese believe in building a relationship with the prospective business partner before building the actual transaction. On the contrary, for westerners the transaction itself tends to be the first and most important matter on the plate. In order to avoid misunderstandings in the negotiations it is important to acknowledge this difference. This concept of relationships or guanxi is a Chinese tradition that has been part of the business culture for centuries, however it is also important to note that it is not the only thing that matters when doing business in China, especially with the current rapid development of the legal system. Many foreign investors have this misconception. Even though guanxi is an important part of business in China westerners, who engage in it should realize that guanxi obligations are real and it is therefore important to tie those connections at the right time and with appropriate people in order to avoid difficulties.


This is another area of business where western and Chinese investors tend to have conflicting or at least different views. Generally foreign investors like to use a standard contract and simply reformatting or adding the new matters and clauses to fit the circumstances. The Chinese counterpart may regard the contract as a sign that the two parties have reached a trusting relationship rather than having signed a binding document and may request further concessions after a signing. In any case one of the most important things to remember is to document everything. This will ensure that there will be less or no problems a years down the line regarding rights and obligations, especially if the management personnel has changed since the beginning of the business relationship. When negotiating the contracts it is important to have a person who understands Chinese culture and language. It is important to have person present in meetings and negotiations who can read the participants body language and who can determine which person holds the real power. Generally the best combination is to have at least one Chinese and one foreign representative present in a meeting. Often, to the Chinese counterpart, a foreign participant represents a sign of commitment by the foreign company.


Knowing the game In order to have successful negotiations and closing a deal that you are happy with remember the cultural differences and use them to your advantage. Do your best not to lose face or make the Chinese party lose face, especially important in this regard is to respect the internal hierarchy. Make sure that at least one person is absolutely prepared regarding every aspect of the business deal, as well as take care not to reveal technical information ahead of time before such relevant documents have been signed and agreed to. If you as the foreign investor have traveled to China, be patient and prepare to have enough time for the negotiations in order to avoid time pressure from the Chinese partner or the home office. Finally, it seems simple but many forget: if you are not happy with the deal make clear that you have the option to take your business elsewhere or that you are willing to accept failure rather than making a bad deal.