China Business

China Hostage Situations: What You Need to Know

China Hostage lawyers

I spoke last week at a Berkeley Law School class regarding hostage taking in China. I presume I was brought on to speak about this because I helped Professor Chris Carr write an academic article on hostage taking in China, Commercial Hostages: Local vs. Foreigner Business Disputes in China.

At my Berkeley talk, I divided China hostage situations into the following three categories:

1. Legal hostage taking in China

China actually allows foreigners to be blocked from leaving China if there is a pending lawsuit or a court judgment or arbitration award against the foreigner or the foreigner’s company.

2. Quasi-legal hostage taking in China

These are the cases where someone merely alleges that a foreign company or person owes them or their company money. In our experience, these allegations are always sufficient to give the local police an excuse to look the other way or even assist in the hostage taking.

3. Completely illegal hostage taking in China

These are the cases in which there is clearly no legal basis for holding a foreigner (or anyone else) hostage. These are the situations where someone falsely claims that a foreign company owes them $100,000 because they were injured while working there, or the cases where a foreign teacher is held hostage because a child was injured in a classroom of a Chinese teacher or where someone is held hostage for 100 percent legally choosing not to go forward with a business deal. We have been involved in episodes involving all of these facts and in our experience the local police always look the other way.

4. Hostage taking in China is incredibly common

To sum up, hostage taking of foreigners is incredibly common in China and the police will pretty much always either look the other way or assist. It is difficult to know how common hostage taking is in China, but a friend of mine who works at a risk consultancy in Shanghai (which is widely regarded as one of the safest cities in China for foreigners) tells me that his office averages around five hostage situations a month. If you Google “hostage taking in China” you will get 15,800,000 results.

We used to write about China hostage taking here on the blog but we stopped because it only got people angry. I bring this up because back when we did write about this, we would get 1-2 calls pretty much every month regarding China hostage taking a month. With everyone now realizing the very real risks of doing business in China, I am writing this post figuring the anger will be less this time and — quite frankly — because we do a bang-up business helping companies figure out their kidnapping risks and helping them to mitigate those risks.

There is though a bit of good news on the China hostage front. With way fewer foreigners in China now than previously, and with those who remain taking a generally more jaded view of China, it definitely feels like foreigner kidnapping has gone down in China. But just to be clear, I attribute this decline to these two things only, and certainly not to any conscious effort by anyone in China to reduce their number.

5. Hostage Taking in China is often done to collect on an alleged debt

In addition to my Berkeley Law School experience spurring me to write this post, the below email (greatly shortened and summarized) was also a catalyst:

American company had WFOE staffed with people with US passports. Company had financial problems and needed to file for bankruptcy in the United States. The company sent one of their executives to China to advise their suppliers that they were declaring bankruptcy and would be unable to pay their outstanding balances but these suppliers should file claims in US bankruptcy court.

As you can imagine, the Chinese suppliers did not take this well, and they stormed the office and are now holding the US citizens hostage – literally. It has been days now and neither the police nor the embassy will help to extract the people.

The whole thing was obviously not handled properly from the start but it also has turned ugly pretty quickly.

I’ll let you know how this turns out. I’m not involved. Just hearing most of this second-hand from a friend at the company.

I hope to write you a happy ending to this story when/if it resolves itself in a safe way but I am not so sure that day will ever come Have you encountered similar experiences?

Here was my response:

Oh yes we have. Many times. But if we had been retained, our advise would have been so different that I would like to think things would have never reached this point. We would have told this company to get ALL of its personnel out of the country before letting suppliers know (from far far away) that it had just filed for bankruptcy and that payment would be slow, at best.

We actually blogged about a client in a similar situation in “China, We Have A Problem. A Mostly True Story. The key takeaway from that post is that the very first thing we emphasized was the need to get everyone out of town.

Many years ago, I had a similar situation where our client was alleged to owe money to a Vietnamese company. The Vietnamese company had shipped product to our client which we contended was defective and for which my client refused to pay. My client absolutely had to go to Vietnam to meet with other clients and he and I were both very concerned about what might happen to him there. My advice was that he not go, but he insisted that he absolutely needed to go.

That being the case, we decided the best approach would be for my client to sue the Vietnamese company in a US court, alleging the Vietnamese company owed my client money for defective product. Our thinking was this might help insulate the client from problems in Vietnam. If the Vietnamese company tried to have my client imprisoned for his company’s alleged debt, we would at least be able to point out that there was an ongoing dispute between the two companies and that the Vietnamese company was seeking to act against my client in Vietnam not to collect on an unpaid debt, but in retaliation for my client having sued. My client went to Vietnam without incident and a few months later we were able to settle all claims. We heard through the grapevine that the Vietnamese company had actually been intimidated into inaction by our lawsuit.

Way back in 2009, I wrote a post, with the somewhat tongue in cheek title, “Owe Money To A Chinese Company? No Need To Pay. It was on how foreign companies need not worry much about Chinese companies pursuing them overseas for unpaid debt. The gist of the post was that if you need to prioritize who to pay, you should put your Chinese creditors last. Even so, I stressed that this equation applies only if you do not have a “real presence” in China:

This is not to say, however, that foreign companies that do not pay may not face repercussions other than a law suit. For example, if you are a foreign company with a real presence in China, not paying a Chinese company might end up causing you real problems in China and you must consider this before choosing not to pay. Just by way of example, we represent a large Chinese manufacturer in an industry where there are only around five companies capable of manufacturing this particular product. Our Chinese client is owed millions by a US company and that US company figured it would not need to pay. What this US company did not figure was that our client would alert the other manufacturers of the non-payment and now none of those manufacturers will make product for this US company either. Once the US company started running out of product, it started paying our client again. On the other hand, if you have but a small presence in China and you can switch your manufacturing over to some other country….

I should have also made clear in that post that if you are not going to pay your Chinese company what it alleges you might owe it, neither you and everyone else in your company should leave China and not return until the alleged payment issue is resolved. This is the sort of thing I write in response to every single email I get from someone with a dispute with a Chinese company.

So what should you do if you have people being held hostage in China right now? You have essentially two choices. One, you organize a SWAT team to free them. Or two, you negotiate and then pay for their release. We have helped clients many times with both of these methods and, quite frankly, I much prefer the first one. You will though need to work with the US embassy in most cases because these hostages have been stripped of their passports and you will need a new one if your former hostage is going to be leaving China via airplane — but there are even alternatives to that.

What do you think?