BizChina

By Will Freeman Will Freeman is a staff member of Dragonomics Advisory and is a guest contributor to Dragonbeat blog this week. China’s rare earth miners, if you believe a flurry of recent newspaper articles, have the world’s producers of high-tech equipment by the short and curlies. A draft plan by China’s Ministry of Industry and Information Technology [...]

My firm is constantly getting asked about what it takes to set up a branch office in another city in China. In other words, you already have your WFOE in place in, let's say, Shanghai, and you decide you want to open another office in Qingdao. Or it could be the reverse. What do you do and how easy is it to do it?

I thought of this today because a client wrote me on this and I figured I might as well put my response up here for everyone, so here goes:

Setting up a branch office is really pretty easy. You apply to the local office that handles business licenses and the like. The process for a WFOE seeking to open a branch office is pretty much the same as it is for a Chinese company seeking to open a branch office.

It usually takes only a month or so to complete but can go a bit faster if you want to pay for someone in the particular city to try to speed it up for you.

The exact details vary from city to city, but in general they are going to want to make sure that you have a proper physical office in both cities, that you have a local bank account, and that you are set up to pay local taxes.

That's it.

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."

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.