BizChina
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Got an interesting email the other day regarding the language to use on a contract. It went as follows:
I was talking to someone who was bragging about how great their employment contract was yesterday, and he said "My contract is in both Chinese and English, and it says that in the case of a difference in the translation, the English language version takes precedence."Am I the only person who sees the potential abuses of this, when given to someone who cannot read Chinese? If the Chinese language version says the opposite, he's screwed, right?
If you choose to answer this question, please answer it on your blog. I'm sure everyone considering employment in China would like to know the answer.
The answer is yes, if the Chinese language version says the opposite of the English "he's screwed." And here is why. And this holds true for all agreements, not just employment contracts.
In China, Chinese language contracts take precedence over any other language, unless the Chinese language contract states that some other language controls. So if a contract is in both Chinese and English and the Chinese version says the Chinese language controls and the English language version says English controls, the Chinese language version will control. Even if the Chinese language version is silent as to which version controls, I am pretty certain the Chinese language version will actually control.
Years ago, my firm was representing Russian company that had an agreement with a dishonest American company (guess what people, it is not always the "foreigners" who pull this stuff). The English language version said that the English language version would control and the Russian language version said that the English and Russian versions had "equal weight." On one critical issue, the English language version said one thing and the Russian language version said either the same thing or something else, all depending on how one interpreted the Russian version. We argued that the Russian version said "something else" and the American company argued that, no, the Russian version, "of course" said exactly the same thing as the American version. We settled before a ruling, but I was not optimistic that our interpretation would carry the day even though we had an email from the American company that helped our argument.
I have written on this before but it bears repeating. If you are going to have your contract in multiple languages, make sure you know for certain which language is going to control. This means making sure you know exactly what all of your contracts say, whatever the language. Having two languages with equal weight is pretty much always the worst "solution" of all because all that does is increase the room for interpretation and delay it until there is a dispute. It is far cheaper and more sensible to get the meaning clear before signing a contract than to pay your lawyers to fight about it later.
For more on the language of your China contract, check out "China OEM Agreements. Why Ours Are In Chinese. Flat Out."
Read more: Dual Language China Contracts Double Your Chance Of Disaster.
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Just finished an interview with a reporter doing a story on Chinese drywall. I gave my usual speech on how there are three main aspects to protecting oneself from bad Chinese product: good relationships, good contracts, and good quality control monitoring. I then focused on the mistakes American companies typically make in their contracts with Chinese companies and why I thought that in most cases, the American companies would probably lose if they were to sue the drywall manufacturers in a Chinese court. For more on what it takes to protect yourself from poor quality Chinese product, check out "Chinese Takeaway -- Protection From Bad Product," "How To Protect Your Company From Bad China Product," "China Products: Forget Trust, Just Verify," "Defective Product Recalls In China. What's That?" "China Product Outsourcing Done Right: A Sort Of Guide," "China Products: Ya Want Quality? I Got Quality," "The Six (Not Five) Keys To China Quality," "Six More Keys To Quality Product Made In China," "Learning From China Product Recalls," "What Every Buyer Of China Product Must Do BEFORE Buying.""China Product Problems: What's Morality Got To Do With It? and "China Products: Quality Costs Extra."
Bottom Line: Doing business in China is not like doing business in Kansas and that means if you are buying product from China you must 1) know with whom you are dealing, 2) have a contract in Chinese that clearly spells out in painstaking detail the specifications of the product you are buying and, 3) have some sort of quality control.
Right after I got off the phone with this reporter, I opened a fascinating email from a reader asking me about a death sentence recently handed down by a Chinese court against against a British citizen. Here's the email:
This caught my attention and it seems like something you might blog about: "British man facing death for a drug trafficking conviction in China."I know criminal law is not your specialty, so perhaps you know a good criminal attorney who might be interested in writing on the subject.
There is, of course, little information on the case, and there are a lot of open questions. Namely, I am wondering what sort of evidence is admissible in a Chinese court to prove mental illness, ie: can the defense actually submit British medical records (obviously with an official translation)? Do Chinese courts normally execute someone considered mentally ill? My understanding of Chinese criminal law is that the death penalty is basically on the table for all "heinous" crimes committed by a person over the age of 18 and a non-pregnant female. So, even if the court were to accept that the defendant is mentally ill, it would have no bearing on the applicability of the death penalty.
If the defendant is genuinely ill, I would find it morally reprehensible to execute the man. However, it seems to me that the death penalty in China takes no account of mental illness, and the law is the law. I suspect that a mentally ill Chinese citizen might also receive the death penalty for this crime, regardless of mental state. All in all, this seems like one more case of foreigners (namely the politicians involved, lawyers, and the Telegraph) misunderstanding Chinese law and expecting special treatment for a British citizen.
Do you have any thoughts on the matter?
I do not know Chinese criminal law well enough to have any thoughts on this from a legal perspective, but I am running the email for two reasons. One, because it starkly highlights how China is not the West and also because I too would love to get some answers to this reader's questions.
Read more: China Criminal And Business Law. You Are Not In Kansas Any More.
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Businesses are secretive. Some more so than others. My firm has a long history of representing companies in the international fishing business. Fishing companies are almost laughably secretive. I say laughably, because they try to keep things secret that the whole world already knows about. Just the other day, a Russian fishing client of ours was in our office revealing the secret of how they had recently switched to using so and so as their new agent in Pusan, Korea. I promised secrecy, but I then pointed out that two people had already called me to ask me why the switch had been made. Another time, a US based company told me that they now had a couple of vessels in the Russian fishery, but that I should be sure not to let anyone know. I went to my office and printed out a couple of articles saying the same thing.
I mention all this because the fear of piracy in China is similar. Everyone is afraid of piracy in China, but really only a small percentage of companies need worry much. Yes it exists, of course, but how much impact does it really have no your business?
With very few exceptions, my firm's China clients have either not been hit with piracy in China or they are too focused on making money from their own products to worry about it much. I do not mean to minimize the problem in China because it is most certainly there, but it is not nearly as much of an impediment to profits as believed. I am writing about piracy today because Shaun Rein just came out with an excellent Forbes article on the subject and I know from our own discussions that our views on it generally coincide. The article is entitled,"How To Deal With Piracy In China" and its subtitle is "It needn't be an insurmountable problem for your business."
Shaun is right.
The article starts out talking about how piracy is an issue of wealth, not morality. I agree. Shaun sees piracy in china declining as china's consumers get wealthier. I agree.
Shaun then calls on how companies selling their software and DVDs in China need to change their sales and pricing strategies. I sorta agree. I say sorta because my firm represents a number of gaming and educational software companies and rather than selling their products on disks, their methods (which have worked pretty well for the most part) have been to sell the product in digital format online with all sorts of security measures. Can these security measures be hacked? I am sure they can. Are these companies making good money nonetheless? I think they are. I know that sometimes companies are very reluctant to lower their prices in one country (let's say China) for fear of angering their customers in other countries. That is certainly a valid consideration and one that every company needs to weigh.
Shaun then talks about how the "the piracy situation has gotten markedly better in the past three years" in the luxury goods arena and how by "the end of next year, China will overtake the U.S. as the second-largest market, after Japan, for genuine luxury products."
Shaun then discusses the results from his company's comprehensive China consumer survey regarding luxury goods:
The vast majority of them told us they would buy nothing but genuine luxury products if they could afford to. Most said they already buy what real items they can and then match them with fake ones.A 24-year-old secretary in Shanghai said, "Right now I can't afford to buy all real Gucci, so I save to buy a real Gucci bag and match it with fake shoes. But I'm not fooling anyone with the fake stuff. My friends can tell. As soon as I have enough money, I'll buy only real products."
Consumers value the real thing when it comes to luxury items, unlike with DVDs and software. Fakes don't bring them the status they aspire to. Therefore luxury goods companies shouldn't waste time and money suing or raiding vendors of fake goods. They should build flagship stores, penetrate third- and fourth-tier markets and launch marketing campaigns that truly connect with the Chinese to create brand loyalty.
Way back in January, 2006, in a post entitled, "Faked in China -- Protection is Possible," I had this to say about counterfeit consumer goods in China:
Like everywhere else, those in China who can afford the real thing, prefer to buy the real thing. As Chinese wealth increases, and as more and more Chinese companies seek to protect their own brands, counterfeiting will decrease. This is what happened in both Japan and Korea, both of which were at one time, notorious for counterfeiting.
At this point, I do not believe the increased sale of luxury goods in China has anything to do with a decrease in sales of counterfeit "luxury" goods in China. In fact, I would expect sales on both fronts to rise in tandem for quite some time. But, the increase in luxury goods sales does prove out what both Shaun and I have been saying for a long time and that is that though China does have piracy, that has never stopped most good companies from doing just fine.
UPDATE: I just read a comment from someone who says this post is overly simplistic for ignoring the harm counterfeit products, such as medicines and food, cause China's consumers. Though I would not use the word simplistic, I would wholeheartedly agree with the thrust of the comment. This post completely ignores the impact on consumers; it is written strictly from the perspective of harm to foreign businesses. It was written this way not to in any way minimize the huge problem this comment raises, but simply because I wanted to bite off only this small part of the apple.
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A reader sent me a link to a post from the very controversial blog, Atlas Shrugged. The post is entitled, "A Case of Perjury: Mohamed Bary's Vast Web of Lies." The gist of the story is that the Sri Lankan parents of a 17 year old Rifqa Bary are being denied the return of their daughter by a Florida judge because the family has been unable to document that they are in the United States legally. It appears the judge is denying the daughter's return both for immigration reasons and because her parents' credibility has been so damaged by their apparent history of immigration untruths.
The reader asked me if I am aware of anything like this having happened in China or the United States with Chinese businesspeople and whether "something like this" can impact one's business in China.
HECK YES it can.
I am aware of all kinds of instances where one's immigration status has harmed a business.
Many years ago, I was involved in an international litigation matter involving two Russian fishing companies. One of the key witnesses for the Russian company on the other side was a woman who had secured a US visa based on her extensive education and experience in the fishing industry in Russia. She had secured this visa by claiming a college degree from one of Russia's best fishing institutes and by claiming to have spent many years working for one of its largest fishing companies. Somehow or other, my firm's Russian paralegal extraordinaire had acquired a copy of this person's visa application and had noticed that her college degree from a college in Town A had been stamped by someone in Town B. My paralegal told me this was the equivalent of a Harvard degree with an official Yale stamp on it. In other words, it could never happen if the degree were not a fake.
Our next move was to depose this person and depose her we did. At her deposition, we asked her a whole series of questions intended to make clear we knew she had lied to get into the country. Among the questions we asked were the following:
1. Who was your favorite professor? She said she had no favorite. 2. Name one of your professors. She said she could not remember any. 3. Name one professor at the entire college. She said she could not remember any. 4. Who was your best friend at college. She said she was too busy studying to have had any friends. 5. Name one fellow student at your college. She said she could not remember. 6. List the classes you took. She gave some sort of vague answer. 7. Name some of the buildings on the campus. She could not remember any. 8. Describe the campus. She gave some incredibly vague description.
We asked the same sort of questions regarding the fishing company at which she had allegedly worked in Russia and we got the same sort of answers. It was fun.
And guess what, this key witness for the other side never showed up to testify at trial, which greatly strengthened our case and probably helped us prevail. I have no doubt her failure to appear stemmed from her fear of her illegal immigration status being exposed.
A few years later, I was contacted by a Russian-American company that wanted my firm to sue an American company over a debt. I pushed my client about skeletons in his and his company's closet and he admitted he was in the United States on a student visa and so should not have been working at all. We talked about how his bringing this case might expose him to visa issues and how he should think long and hard about bringing the case. He chose not to and I assume this meant he would be walking away from a not insubstantial debt.
We have had to tell a number of foreigners in China the same thing when they have sought our help in collecting on a debt in China or in suing their Chinese partner for having run off with what the foreigner thought was its own business. If you or your business are not legal in China, you have pretty much foreclosed your ability to sue anyone, no matter what they do to you.
A handful of times (usually during periods of stepped-up visa enforcement), my firm has been contacted by foreigners with illegal businesses in China who have either been denied re-entry into China or have been told to leave. These people are desperately seeking our help to get them back into China. They are desperate because their profitable China based businesses cannot function without them. The odds of our being able to help them are slim.
One of the most underrated benefits of having a Wholly Foreign Owned Entity (WFOE) in China is that entity's ability to hire foreigners and those foreigners' ability to secure Chinese work visas (Z visas). These companies are legal and they have standing to sue and since their employees are working in China legally on Z visas, they have nothing to fear by testifying on the company's behalf.
One of my favorite stories is when I went to Papua New Guinea to help a Sakhalin Island client secure the return of two helicopters. When I landed in Port Moresby, I was asked if I was in the country as a tourist or for business. The tourist visa was something around $35 and the business visa was something around $350, but I said "business'' and I paid the much higher fee. I then flew to Goroka where I met the next day with the governor of the Eastern Highlands Province, Malcolm "Kela" Smith. I was told "Kela" means bald man. The first thing Mr. Smith did when I met with him was to check my passport. When it revealed I was there on a business visa, I could sense a change in his view of me. Though he never confirmed this to me, I am convinced that had my passport revealed I was in PNG on a tourist visa, Mr. Smith would either have had me thrown out of the country or he would have refused to meet with me because I was in the country illegally. Kela Smith ended up meeting with me and with my client and within a day or two we had a deal whereby my client would get his helicopters back.
The bottom line is that if you are going to be doing business in a foreign country, particularly China, it pays to do so legally and it pays to have the right visa.
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Real-estate database operator China Real Estate Information Corp. proved there still is interest from U.S. investors in Asian growth companies.
Friday, in its debut on the Nasdaq Stock Market, the company's shares were at $14.20 in 4 p.m. composite trading, up 18% from the initial-public-offering price of $12.
The Shanghai company sold 18 million American depositary receipts at the low end of its expected price range of $11.80 to $13.80 a share, which was set by underwriters Credit Suisse Group and UBS AG.
China Real Estate was a surprise turnaround in an otherwise unremarkable week in the U.S. IPO market. On Tuesday, rail-line operator RailAmerica Inc. fell 8% on its first day of trading. Friday, RailAmerica closed at $14.26, up 25 cents, or 1.8%, but that still was below the IPO price of $15.
There was some concern that China Real Estate would be another dud, especially after China online-gambling company Shanda Games Ltd.'s flop in September. Shanda, which had generated a lot of pre-IPO buzz, fell 14% on its first day of trading and still is below the $12.50 IPO price, closing at $10.32 on Friday, up five cents, or 0.5%.
China Real Estate operates a database and analysis system on residential real-estate developments, with real-estate developers as its major clients; it has the largest market share in its niche, according to Frost & Sullivan.
While the real-estate market in the U.S. still is depressed, China's has rebounded from its 2008 downturn, with many cities experiencing an increase in prices and transactions, according to the company's prospectus. The rebound has occurred alongside a rise in the volume of bank loans made as China responded to the global economic crisis.
The market has recovered to the point that it rose above 2007 levels in the first half of 2009, according to company co-Chairmen Xin Zhou and Charles Chao.
"Since the financial crises, the Chinese government's policy has been toward protecting economic growth and employment levels, so the real-estate market should be a big beneficiary of these policies," Mr. Zhou said during a telephone interview.
Revenue and earnings at China Real Estate have been increasing throughout the global economic slowdown. In the first half of 2009, revenue rose 62% to $31.2 million and net income rose 53% to $11 million.
China Real Estate is being carved out of parent E-House (China) Holdings Ltd., which continues to hold a 51% stake in the company; all proceeds raised will go to China Real Estate.
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