Dan Harris posted a great article which gives a short and sweet look at the legal issues foreign business entities often face in China.
The bottom line is not to make assumptions. China is DIFFERENT. It is different to your home country and it is, most likely, different to the stereotypes you have heard about it.
There are two keys to not getting burned by China’s legal system . The first is to not assume China’s legal system is anything like ours. The second is to not assume China’s legal system is any different from ours.
Another point Dan makes is that foreign companies often do not think about all the details they expect to be covered when writing contracts. The unquestioned assumption is that should outside arbitration be necessary later on, their intent will be obvious to an objective observer.
American companies time and time again fail to put enough into their contracts with Chinese companies. Instead, they just assume the courts or arbitrators will know what the parties intended and re-write their contracts accordingly. But it doesn’t work that way in China.
I thought Dan’s last point was very well put.
But the biggest mistake American companies make in assuming Chinese law is different from the law here in the United States is when they assume that China will not enforce its laws against them because they are bringing a couple thousand jobs to China or because China is not enforcing those same laws against Chinese domestic companies. Both of these assumptions are wrong. For foreign companies, China is pretty much just like the United States in that NOT following the law is a very dangerous way to operate a business.
Those new to business in China sometimes have the impression that the law is more “flexible” here. That’s not true. The law may be different in places, and it may be applied or enforced differently, but the law exists and it is still, well, the law!
One way I personally had to consider China’s law was as Imports Oriental’s HR manager. Our production manager, accountant and I spent hours going through the provisions of the local labor laws (the laws for the specific area in which we were employing our workers) to see what we could or could not do. When an employee needed to be let go, we checked carefully to ensure we provided for them according to the relevant laws. When employees requested that certain labor insurance provisions were not paid for them, we checked to see if it was legal to do so. When shifting to per hour work, we checked to see what requirements were stipulated in the labor laws.
I learned a lot in these law-searches. Some of the finer details of the law were common-sense to me, whereas others I would not have thought of. That is precisely why it’s important to research the applicable laws for whatever you’re doing – what seems fair to you and what the law requires are NOT necessarily the same thing!
What about you? Have you come across things in China’s laws that took you by surprise?