Don’t Sign Informal Documents on the Run in China

There is a right way and a wrong way to do business with China

There is a right way and a wrong way

I meet a lot of foreigners skipping through China on business. Many of them are delegates on trade missions or attendees at festivals or summits. They frequently allow their Chinese friends to pressure them to sign little documents while they’re in town. The foreigners think there can’t be much harm in signing short, “informal” documents with harmless sounding names like “LOI”, “MOU” or “HOA”. The artificial deadline tactic always seems to work for the Chinese whenever they try it on. Often there’s a kind of ceremony with officials in attendance and some nice banners in the background. Lots of photo opps. There may even be a banquet or two with the obligatory over-consumption of baijiu. More photo opps. It’s lots of fun and the foreigner goes home with a sense of achievement. They signed a deal in China!

Then we get two types of calls.

In the first type of call, the foreigner is shocked to find that their Chinese friends are resisting a long-form document by which the foreigner wishes to replace that harmless little LOI. The long-form is invariably written entirely in English and is full of common law irrelevancies and foreign standards that make it entirely unsuitable for China, not to mention disrespectful. Even if it ever gets signed it will take ages — ages during which there is good reason for the Chinese to stall in making any expected payments. Or the Chinese may even threaten to take action based on the foreigner’s negligence in the contracting process. But that’s all beside the point. The point is that the Chinese got what they wanted in their first pass so there’s no need for them to sign another document. The foreigner gave too much away in the beginning. My favorite examples in the film industry are the foreign producers who give away Greater China distribution rights without any mention of distribution costs and an appropriate waterfall. There are many more such examples across all industries.

Then there’s the second type of call.

The foreigner is disappointed that six months have gone by and nothing has happened since that harmless little LOI was signed. Emails are going unanswered. Phone calls unreturned. Suddenly, nobody speaks English any more. What the foreigner didn’t grasp was that the ceremony, with its banners and officials and photographs, was all the Chinese ever wanted from the relationship. There was no deal. The Chinese hit all their KPIs for that quarter by holding a little ceremony. The higher ups are happy and everyone in China has long ago moved on.

So, you need to decide from the outset whether you want an enforceable agreement or an unenforceable document. Do you want a real deal or do you just want to be able to tell people about some ceremony you attended.

If you want an enforceable agreement there is no reason why you can’t enter a proper agreement covering everything right from the start. Agreements in China tend to be shorter and less complicated in any case. That’s not to say that they can’t cover everything.

If all you want is an unenforceable document then you’ve got to wonder why you should sign anything at all. There’s an art to signing meaningless and unenforceable documents just as there is an art to signing something enforceable.

But is it really worth it?

One response to “Don’t Sign Informal Documents on the Run in China”

  1. Great advice as always.
    Love the chopsticks infographic. heh heh. In my early years in China it used to fascinate me that my friends would use different chopstick grips depending on what the social context was. It was explained to me that when you’re a kid you develop a habit of using chopsticks in one way or another and you tend to revert to that when you’re on your own or in an informal setting.

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