Fellowes "Brought to its Knees in China": Blame the Joint Venture?

China WFOE employees

Fascinating article by Matthew Robertson, Fellowes, American Stationary Giant, Brought to Its Knees in China. A couple of readers sent me the article and both commented on how it further proves what “you are always saying about Chinese joint ventures.” I am not so sure it does.

The article is about Fellowes, one of the leading manufacturers/sellers of paper shredding products, and of its joint venture problems in China:

There are few paper shredders in the world that can rip an A4 piece of paper into 2,000 pieces, and come with functions like SilentShred, SafeSense, and “100% Jam Proof”—and most that do have the name “Fellowes” printed on top. But consumers may soon be able to buy, say, the deluxe Powershred C-480Cx, without the Fellowes brand, because the company’s entire business in China has been stolen by its joint venture partner.

To make a long story short, Fellowes is accusing its joint venture partner, Jiangsu Shinri Machinery Co., Ltd., of having taken over the joint venture facility in China and continuing to churn out Fellowes product, but without the Fellowes brand name on it.

According to the article, the joint venture “would continue churning out shredders with the Fellowes’ name, using Fellowes’ proprietary machinery, while Fellowes controlled both those [joint venture] companies because it appointed the management, according to the terms of the joint venture agreements.

Wait a minute. Wait just a minute. As we are always saying, simply because a joint venture agreement gives the foreign company the right to appoint management does NOT mean the foreign company controls the joint venture. For more on this, check out co-blogger Steve Dickinson’s article for AmCham’s China Briefing Magazine, entitled, Avoiding Mistakes in China Joint Ventures. You may also want to check out my Wall Street Journal article, entitled, Joint Venture Jeopardy.

According to the article, for years everything was going well for Fellowes in China, but then in 2009, a power struggle ensued at Jiangsu Shinri and one brother took over from another and the “new” brother” “attempted to force through a series of radical changes to the joint venture contract, which would have shifted power, control, and profits to the Chinese side.” Jiangsu Shinri also illegally seized the joint venture “company seal and business license in an effort to force Fellowes to hand over its 100 percent-owned assets to the joint venture, including its production tools, which are the intellectual property of Fellowes.”

Jiangsu Shinru is also said to have engaged in the following tactics:

Zhou [the new brother] also insisted that Fellowes assign to the joint venture other business interests it had in China; he tried to raise the prices on the products by 40 percent; demanded that Fellowes invest an additional $10 million into the business; and he cut a $3 million payment dividend. When Fellowes demurred from carrying out those demands, he escalated the pressure.

The dramatic moment was in early August 2010, when Zhou, under the aegis of Shinri, blocked the gates of the joint venture facility with security guards and trucks, preventing people from going in and goods going out, effectively shutting down production. Shinri expelled and confined the managers, moved funds from the joint venture to a Shinri-controlled bank account, sent packing the 1,600 joint venture employees, and at night, drove a truck into the facility and stole Fellowes-owned injection molding tools, some of them weighing several tons.

The worth of the products already manufactured and blocked—what Fellowes in his testimony said are “feature-rich, IP-protected”—is $100 million. This includes 70,000 completed paper shredders, going to rust in the factory.

Shinri also won’t let Fellowes recover the over 1,000 custom molding tools, the fruit of decades of refinements of engineering designs, worth $10 million. And it is most probable, according to people familiar with the matter, that Zhou intends to obtain these high-value items in a fire sale enforced by the local court that he has influence over.

As one would expect, all of this has been disastrous for the business:

Because the shipments were blocked, the joint venture was unable to pay its suppliers—the 120 odd Chinese businesses that deliver all manner of metals and plastics that are the makings of the shredders. So 80 of these suppliers sued, and the joint venture became insolvent.

The Changzhou Intermediate Court has started proceedings to liquidate the joint venture, auction off all its assets, including the equipment, land, molding tools, and those unshipped shredders, to satisfy the debts of the joint venture accrued as a result of Shinri’s activities.

To counter this, Fellowes has mounted a Congressional letter writing campaign, but this has borne no fruit.

I hate analyzing situations like this based on newspaper articles because in almost all instances, the article fails to answer key questions necessary for such an analysis. For instance, has Fellowes brought suit in China? If not, why not? Is it because what Jiangsu Shinru is doing is legal in China because the agreement(s) between Fellowes and Jiangsu Shinru were not drafted so as to prevent this sort of thing? Why are you painting the Chinese court as being so terrible for seeking to sell the assets of the joint venture at auction? It sounds as though the joint venture is at a stalemate and selling the assets may be the only legal solution at this point. Is that not the case? Are you aware that when there is this sort of a business stalemate the courts in most countries will often require the sale of the business? Why did Fellowes think bringing in some U.S. Congressperson would help in this situation? And again, why is Fellowes seeking to politicize this rather than handling it in the courts? Is it because it did not set itself up well enough with its contracts and its IP filings so as to be able to pursue a legal remedy?

The article talks of how Jiangsu Shinru is strong locally and implies that the local court does its bidding. Even assuming this is true, is this also going to be true of China’s appellate courts? If it is so clear that particular equipment belongs to Fellowes, why does Fellowes not at least sue for the return that equipment? Does Fellowes’ contract(s) with Jiangsu Shinru clearly set out that specific equipment belongs to Fellowes? The article implies Jiangsu Shinru is using Fellowes IP. Is that really the case? Is Jiangsu Shinru using IP in a way that violates the joint venture contract(s)?  Is Jiangsu Shinru violating Fellowes IP that Fellowes registered in China?

As regular readers of this blog know, we are not generally fans of China joint ventures. Our view is that if you as a foreign company are not required by Chinese law to form a joint venture with a Chinese company to accomplish your China plans, you would in most cases (but not all) be better off going it alone. In How China Joint Ventures: We Love Them AND We Hate Them, we made our views about China joint ventures clear:

We have developed quite a reputation for not liking joint ventures and that is not really true. Wary would be a better word for how we feel about them. I am always bothered when a client or potential client calls about their proposed joint venture and starts out by saying “I know you don’t like joint ventures.” Are we losing business because of this reputation, or maybe we are getting more because people believe that if we give the go-ahead on theirs, it really is as good as they think it is. Of course, we will never know, but we can at least try to clear the air. We like the appropriate and necessary joint ventures; we just think it is a big mistake to consider a joint venture as the default method for entering China.

Of all the China legal work done by my law firm, our work setting up and dismantling joint ventures is probably my favorite and certainly one of the most lucrative. We charge a flat fee for probably 90% of our China work, but for forming joint ventures, we always charge hourly. We charge hourly because setting up a China joint venture can range from fast and easy to difficult and contentious. It is the rare one that is fast and easy.

 *      *      *      *

Just to be clear, we love forming joint ventures, but only when they truly do make sense.

We also love taking apart China joint ventures that have gone wrong. And again, we love doing this not for because it is in any way a good thing for our clients, who usually are in dire straits when they come to us with their joint venture problems, but because resolving joint venture disputes is like a chess game, but at our hourly rate.

I am just not sure where exactly to put the Fellowes joint venture in all of this. I need more information. Nonetheless, the article is certainly worth a read as yet another cautionary tale on doing business with China.

40 responses to “Fellowes "Brought to its Knees in China": Blame the Joint Venture?”

  1. The source of this story, Epoch Time, is suspicious. It is run by Fa L. [well, you know]. However, I would really like to see the real facts of this case.

  2. Article: But consumers may soon be able to buy, say, the deluxe Powershred C-480Cx, without the Fellowes brand, because the company’s entire business in China has been stolen by its joint venture partner.
    If the goods were violating the law in some way, then Fellowes can get customs to seize those goods when they arrive in the US. My suspicion is that because Fellowes isn’t working with customs, that no laws were violated, and what we are seeing here is your standard ugly corporate divorce.
    Article: Shinri also won’t let Fellowes recover the over 1,000 custom molding tools, the fruit of decades of refinements of engineering designs, worth $10 million.
    My guess is what’s because Fellowes doesn’t own the tools. If the tools are owned by the joint venture and there is no contractual obligation to turn them over then Fellowes is stuck.

  3. The source of this story, Epoch Time, is suspicious. It is run by Fa L. [well, you know]. However, I would really like to see the real facts of this case.

  4. Article: But consumers may soon be able to buy, say, the deluxe Powershred C-480Cx, without the Fellowes brand, because the company’s entire business in China has been stolen by its joint venture partner.
    If the goods were violating the law in some way, then Fellowes can get customs to seize those goods when they arrive in the US. My suspicion is that because Fellowes isn’t working with customs, that no laws were violated, and what we are seeing here is your standard ugly corporate divorce.
    Article: Shinri also won’t let Fellowes recover the over 1,000 custom molding tools, the fruit of decades of refinements of engineering designs, worth $10 million.
    My guess is what’s because Fellowes doesn’t own the tools. If the tools are owned by the joint venture and there is no contractual obligation to turn them over then Fellowes is stuck.

  5. @ Stephanie
    Thanks for the link and thanks for reading the blog now that it is not a requirement of your job!! [Note: Stephanie was a legal assistant at my law firm before moving on to much bigger and better things with a top Washington D.C. trade group.]

  6. @ Stephanie
    Thanks for the link and thanks for reading the blog now that it is not a requirement of your job!! [Note: Stephanie was a legal assistant at my law firm before moving on to much bigger and better things with a top Washington D.C. trade group.]

  7. @ Dan
    “Who cares from where the article comes? We can and should judge it by its content.”
    Dan, normally I would agree but it’s a stretch to consider ET a reliable media outlet. Though ET does report quite a bit of factual news, they are known to have a very specific political slant that biases their reporting. It is also a little difficult to judge the content of the story when attribution is so muddled: “The Epoch Times spoke with a number of people familiar with the matter, under condition of anonymity because of political sensitivities involved.” Whenever I read that in a news article, especially one with unknown editorial guidelines (I can assume the NYT editors have strong standards for anonymous quotes–I can’t assume that about the ET), it calls into question the veracity of the reporting.
    A quick search of English language media found that this story has not really been picked up by a serious business news outlet, so there is little other information available outside of this ET story and Fellowes’ own Congressional testimony, which will obviously only tell their side of the story.

  8. @ Dan
    “Who cares from where the article comes? We can and should judge it by its content.”
    Dan, normally I would agree but it’s a stretch to consider ET a reliable media outlet. Though ET does report quite a bit of factual news, they are known to have a very specific political slant that biases their reporting. It is also a little difficult to judge the content of the story when attribution is so muddled: “The Epoch Times spoke with a number of people familiar with the matter, under condition of anonymity because of political sensitivities involved.” Whenever I read that in a news article, especially one with unknown editorial guidelines (I can assume the NYT editors have strong standards for anonymous quotes–I can’t assume that about the ET), it calls into question the veracity of the reporting.
    A quick search of English language media found that this story has not really been picked up by a serious business news outlet, so there is little other information available outside of this ET story and Fellowes’ own Congressional testimony, which will obviously only tell their side of the story.

  9. @ dan @ Richard
    It turns out ET didn’t lie this time, at least from Fellowes’ point of view. However, I run into S!#t fabricated by ET many times in the past.
    Please see the following links.
    Fellows’s testimony at Congress
    http://foreignaffairs.house.gov/112/fel033111.pdf
    Letter from Legislators to Chinese Ambassador
    roskam.house.gov/UploadedFiles/Ambassador_Yesui_Letter.pdf

  10. @ dan @ Richard
    It turns out ET didn’t lie this time, at least from Fellowes’ point of view. However, I run into S!#t fabricated by ET many times in the past.
    Please see the following links.
    Fellows’s testimony at Congress
    http://foreignaffairs.house.gov/112/fel033111.pdf
    Letter from Legislators to Chinese Ambassador
    roskam.house.gov/UploadedFiles/Ambassador_Yesui_Letter.pdf

  11. One thing to point out here is that if Fellowes can’t get anyone other than the E. Times to publish the story, they have to be pretty damned desperate. Either Fellowes has someone that is totally incompetent at media relations and ET was the only one that they talked to, or else they tried to get other newspapers interested and no one else would publish. One thing that occurs to me is that someone at NYT, WaPo, the Economist, or Bloomberg got the story, talked to the Chinese end of the JV, and concluded that there was no story here.
    I find reading ET to be extremely useful. It’s like a Perry Mason episode. You *know* that Perry Mason in the end will confront the witness on the witness stand and show that his client is innocent. The interesting part is seeing how they go about doing it.
    I *know* that the ET are going to conclude that the Chinese government is evil and needs to be overthrown. What is interesting is to figure out *how* they come to that conclusion. The same goes with the China Daily. I *know* what the conclusion is going to be. It’s amusing and interesting to see how they get to that conclusion.

  12. Testimony: In January, 2009, Shinri illegally took possession of the company seal and business license to gain control over the company’s transactions.
    In China, the person that has physical control over the chop is the legal representative of the company. This is something that you need to remember when doing JV agreements.
    Testimony: The joint venture agreement with Shinri provides Fellowes with the right to manage the day-today operations of the joint venture. Additional agreements provide that the injection molding tools and all intellectual property belong exclusively to Fellowes.
    Uh-oh. If those “additional agreements” were not part of the JV agreement, then they are legally worthless. Also unless the agreement has the chop of the JV, the JV can argue that they were personal assurances of the Zhou Liqun which do not bind the JV.
    Testimony: If such conduct were to have taken place in the United States, we are confident that a court would have immediately entered a temporary restraining order against Shinri to prevent it from its continued illegal activities.
    And you can do the same thing in China. The problem is that if you go to court claiming that the machines are yours, and then the opposite side presents evidence that they are not, the judge is not going to order seizure of the machines. Article 98 of the civil procedure law allows you to undertake advance execution if “the relationship of rights and obligations between the parties concerned is clear and definite”.
    At one point, I can imagine the judge telling Fellowes, before I lift a finger I want you to give me the agreement with the JV corporate chop that indicates that you actually own the machines. If Fellowes can’t produce the paper, then at that point the judge looks at Fellowes, and says “so what do you want me to do?”

  13. One thing to point out here is that if Fellowes can’t get anyone other than the E. Times to publish the story, they have to be pretty damned desperate. Either Fellowes has someone that is totally incompetent at media relations and ET was the only one that they talked to, or else they tried to get other newspapers interested and no one else would publish. One thing that occurs to me is that someone at NYT, WaPo, the Economist, or Bloomberg got the story, talked to the Chinese end of the JV, and concluded that there was no story here.
    I find reading ET to be extremely useful. It’s like a Perry Mason episode. You *know* that Perry Mason in the end will confront the witness on the witness stand and show that his client is innocent. The interesting part is seeing how they go about doing it.
    I *know* that the ET are going to conclude that the Chinese government is evil and needs to be overthrown. What is interesting is to figure out *how* they come to that conclusion. The same goes with the China Daily. I *know* what the conclusion is going to be. It’s amusing and interesting to see how they get to that conclusion.

  14. Testimony: In January, 2009, Shinri illegally took possession of the company seal and business license to gain control over the company’s transactions.
    In China, the person that has physical control over the chop is the legal representative of the company. This is something that you need to remember when doing JV agreements.
    Testimony: The joint venture agreement with Shinri provides Fellowes with the right to manage the day-today operations of the joint venture. Additional agreements provide that the injection molding tools and all intellectual property belong exclusively to Fellowes.
    Uh-oh. If those “additional agreements” were not part of the JV agreement, then they are legally worthless. Also unless the agreement has the chop of the JV, the JV can argue that they were personal assurances of the Zhou Liqun which do not bind the JV.
    Testimony: If such conduct were to have taken place in the United States, we are confident that a court would have immediately entered a temporary restraining order against Shinri to prevent it from its continued illegal activities.
    And you can do the same thing in China. The problem is that if you go to court claiming that the machines are yours, and then the opposite side presents evidence that they are not, the judge is not going to order seizure of the machines. Article 98 of the civil procedure law allows you to undertake advance execution if “the relationship of rights and obligations between the parties concerned is clear and definite”.
    At one point, I can imagine the judge telling Fellowes, before I lift a finger I want you to give me the agreement with the JV corporate chop that indicates that you actually own the machines. If Fellowes can’t produce the paper, then at that point the judge looks at Fellowes, and says “so what do you want me to do?”

  15. A good way to avoid JV and other risks in emerging markets is to understand the true cost of offshoring and thus decide to produce the products in the U.S. With clear evidence of the fragility of global supply chains, Chinese and other LLCC (Low Labor Cost Country) wages rising rapidly, the U.S. $ declining and oil soaring, this is the perfect time for U.S. companies to reevaluate their offshoring strategies and bring some of the sourcing home. To help companies make better sourcing decisions the non-profit Reshoring Initiative, http://www.reshorenow.org, provides a free Total Cost of Ownership (TCO) software that helps them calculate the real offshoring impact on their P&L.
    Readers can help bring back jobs and simplify their supply chains by asking their companies to reevaluate offshoring decisions. Suppliers can use the TCO software to convince their customers to reshore (Related terms: backshore and onshore).

  16. A good way to avoid JV and other risks in emerging markets is to understand the true cost of offshoring and thus decide to produce the products in the U.S. With clear evidence of the fragility of global supply chains, Chinese and other LLCC (Low Labor Cost Country) wages rising rapidly, the U.S. $ declining and oil soaring, this is the perfect time for U.S. companies to reevaluate their offshoring strategies and bring some of the sourcing home. To help companies make better sourcing decisions the non-profit Reshoring Initiative, http://www.reshorenow.org, provides a free Total Cost of Ownership (TCO) software that helps them calculate the real offshoring impact on their P&L.
    Readers can help bring back jobs and simplify their supply chains by asking their companies to reevaluate offshoring decisions. Suppliers can use the TCO software to convince their customers to reshore (Related terms: backshore and onshore).

  17. I agree with Harry Moser completely. Fellowes used to be a totally American company. They worked over their American work force, and are now complaining when China works over them. Their chickens have merely come home to roost.
    I live in Massachusetts, where Evergreen Solar took millions in (state) tax breaks to build a factory, which they are now moving to China. I hope Evergreen re-evalutates its plans.

  18. I agree with Harry Moser completely. Fellowes used to be a totally American company. They worked over their American work force, and are now complaining when China works over them. Their chickens have merely come home to roost.
    I live in Massachusetts, where Evergreen Solar took millions in (state) tax breaks to build a factory, which they are now moving to China. I hope Evergreen re-evalutates its plans.

  19. I’m the author of the article that was the subject of this post. I hope my remarks don’t come too late. I saw some criticism of The Epoch Times here and wanted to respond to it, but I haven’t had a moment to sit down and write something until now (well, I did forget several times).
    Hopefully the people who took the time to share their thoughts will see these few notes. I’ll clarify how the information was obtained and then comment briefly on The Epoch Times in relation to this thread and the issues the story raises.
    I heard about this story from reading a congressional testimony a couple of months ago that mentioned this case. It piqued my interest. I called the offices of the Congressman who had made the remark (Manzullo) and got speaking to his media people. I called Fellowes and they said they weren’t speaking to media. I spoke to their media person a couple of times, but she would say nothing about the case. I met James Fellowes when he gave the testimony. He would not talk to me then, either. Perhaps because of the friendly manner in which I introduced myself, or perhaps due to my natural good looks, he allowed me to take a photo of him. That’s the photo you see in the article. After the hearing I shared an elevator with him and half a dozen others (those small congressional elevators—it was crowded). We said nothing. After getting out we parted ways and he wished me luck. That was it. They didn’t “get” me to cover the story, and Fellowes probably wouldn’t have even busted the case open if it weren’t for the invitation to testify from Manzullo’s office. They were holding a hearing on the topic and they were familiar with his case. I’d have heard about the story but would have been unable to write about it properly if it weren’t for the testimony.
    Why did no other media cover the story? Good question. I find it odd, too. I was initially concerned that I’d be scooped, but it seems no one really cares. Maybe this is old hat by now. Maybe it’s just not part of the script. In any case, these are stories I’m interested in telling.
    There were three sources of information: the testimony (which is public); “people familiar with the matter” who helped with the letter writing campaign, that is, associates of James Fellowes in the U.S. (the man himself would not talk to me, but the curiosity of an associate that does not work for that company was piqued by something I mentioned to Fellowes when I met him, which I’ll mention in a moment) and certain congressional staffers; and a bit of basic sleuthing in Chinese on the Shinri and New United websites and on the web in general. The anonymous sources, whom I met with in DC (where I’ve been based since last September when I took up this job), were able to clarify some of the details that I found unclear in the congressional testimony, and gave a survey of the general efforts by Fellowes to get U.S. people to do something about the case. That was pretty much in the form of letter writing.
    When I met James Fellowes, after shaking his hand I told him I was aware that a number of high-level Party officials have visited the Shinri factory. This struck me as a significant fact. Someone with Fellowes then asked to talk to me outside. That was one of the “insiders.” I think if Fellowes had wanted to make a political fuss about this they could have done a much better job. The information about high-level Party guys visiting the factory is quite interesting, and I had already mentioned this to Fellowes’s media spokesperson, just from the perspective of being friendly, and they did not really pay attention. If you know China then you know it would only be a word from one of these officials (Li Keqiang, Wen Jiabao, Li Changchun, Meng Jianzhu, take your pick) to get Mr. Zhou to nicely give all the stuff back. Dozens of letters from U.S. officials have been sent. Is it likely that if there were sincere efforts in the Party to prevent these things happening, this case would have happened? To me these visits in the context of the takeover implies that the CCP is fine with this behavior. I do not make that claim in the article. I just present the information I found in a bit of simple Internet sleuthing.
    So let me repeat: Fellowes did not cooperate. I was unable to obtain any of the primary documentation, such as the JV contract, which I could have then shown to an expert or a lawyer for an opinion. I just reported what I discovered.
    Richard, you say the “attribution is so muddled,” but what is muddled about the way I identified the anonymous sources? It is unclear how what I write here is any different from what any journalist writes when they get inside information that they only got on condition that they wouldn’t say where they got it from. What I detect here is an allergic reaction to the words “Epoch Times,” not a genuine complaint about problems with the content of the story.
    The story had problems though, the biggest being that it did not say what it did not know. I found this out when I saw Dan’s post, which I thank him for. This is the first story along these lines that I have written. Next time I will be able to state that, having not seen x, y, and z, such and such is unknown. That is important and it helps the reader understand the limitations of the article they are reading. The only reason this information was not in the article is because I did not know it.
    However, I believe the story stands on its own merits. Some of the comments suggest that The Epoch Times fabricates news in order to reach a preordained conclusion. Firstly, of course we do not fabricate news. The real issue is that Western media have often done a poor job of reporting China because they report through a lens of Western expectations. The expectations don’t fit the reality and so the underlying story is often missed. We stand out because we recognize that we are talking about a mafia-like organization, the CCP. Reporting that recognizes and documents this character of the CCP does not require fabricating or twisting anything—the reality is there for all to see, if they are capable of taking an honest look at what is going on. Also, I think that if anyone were to regularly read our reportage, on China or whatever other topic, they would soon be disabused of their prejudices. While you’re reading, if you have any comments or questions about our China articles, just email chinareports@epochtimes.com, an email account I monitor. Or, email me directly at matthew.robertson@epochtimes.com. Phone is fine, too.
    Best,
    Matt.

  20. There is two sides to every story and somewhere in between is the truth. I know the Chinese side of the JV felt that Fellowes were trying to run the business at a defecit. This is why the Chinese were wanting to raise prices with the cost of raw materiels and the like rising. There is clearly more to this story than the Fellowes side of it.
    It is a rather incredible story however this didn’t happen for no reason.

  21. There is two sides to every story and somewhere in between is the truth. I know the Chinese side of the JV felt that Fellowes were trying to run the business at a defecit. This is why the Chinese were wanting to raise prices with the cost of raw materiels and the like rising. There is clearly more to this story than the Fellowes side of it.
    It is a rather incredible story however this didn’t happen for no reason.

  22. Dear all,
    My name is Wang Chengwei, legal advisor of Jiangsu Shinri’s parent company. Some facts regarding this joint venture I would like to share and clarified here:
    Since 1998, Shinri has started the R&D, production and sales paper of paper shredder, laminator and binding machine. In 2005, the sales paper shredder of Shinri reached 2 million sets, with a sales value at 700 million RMB and net profit at 120 million RMB.
    In December 2006, Shinri established a joint venture with Hong Kong Fellowes, equity ratio of two sides was 50%:50%. In the meanwhile, the U.S. Fellowes also has played a role as the debtor of the joint venture.
    In the respect and trust of Hong Kong Fellowes, the members of management team of joint venture are mainly from Hong Kong Fellowes. Shinri only appointed a financial officer to the joint venture. Other senior and middle management were all either appointed or hired by the Hong Kong Fellowes.
    Since December, 2006(after the establishment of this joint venture), Hong Kong Fellowes sell the joint venture’s products lower than cost price credit to its overseas affiliates, the profit of the joint venture declined annually. According to the annual audit report of the joint venture, the actual net profit margin was 6.3% in 2007, 5.6% in 2008, and 5.1% in 2009. The actual loss was 24.87 million RMB in 2010 with a loss rate of 7.5%. ( if bad debts was included, the loss would have been even bigger).

  23. Nice article. You share important information for many industrial. A quick search of English language media found that this story has not really been picked up by a serious business news outlet, so there is little other information available outside of this ET story and Fellowes’ own Congressional testimony, which will obviously only tell their side of the story.

  24. Nice article. You share important information for many industrial. A quick search of English language media found that this story has not really been picked up by a serious business news outlet, so there is little other information available outside of this ET story and Fellowes’ own Congressional testimony, which will obviously only tell their side of the story.

  25. Dear all,
    My name is Wang Chengwei, legal advisor of Jiangsu Shinri’s parent company. Some facts regarding this joint venture I would like to share and clarified here:
    Since 1998, Shinri has started the R&D, production and sales paper of paper shredder, laminator and binding machine. In 2005, the sales paper shredder of Shinri reached 2 million sets, with a sales value at 700 million RMB and net profit at 120 million RMB.
    In December 2006, Shinri established a joint venture with Hong Kong Fellowes, equity ratio of two sides was 50%:50%. In the meanwhile, the U.S. Fellowes also has played a role as the debtor of the joint venture.
    In the respect and trust of Hong Kong Fellowes, the members of management team of joint venture are mainly from Hong Kong Fellowes. Shinri only appointed a financial officer to the joint venture. Other senior and middle management were all either appointed or hired by the Hong Kong Fellowes.
    Since December, 2006(after the establishment of this joint venture), Hong Kong Fellowes sell the joint venture’s products lower than cost price credit to its overseas affiliates, the profit of the joint venture declined annually. According to the annual audit report of the joint venture, the actual net profit margin was 6.3% in 2007, 5.6% in 2008, and 5.1% in 2009. The actual loss was 24.87 million RMB in 2010 with a loss rate of 7.5%. ( if bad debts was included, the loss would have been even bigger).

  26. I’m the author of the article that was the subject of this post. I hope my remarks don’t come too late. I saw some criticism of The Epoch Times here and wanted to respond to it, but I haven’t had a moment to sit down and write something until now (well, I did forget several times).
    Hopefully the people who took the time to share their thoughts will see these few notes. I’ll clarify how the information was obtained and then comment briefly on The Epoch Times in relation to this thread and the issues the story raises.
    I heard about this story from reading a congressional testimony a couple of months ago that mentioned this case. It piqued my interest. I called the offices of the Congressman who had made the remark (Manzullo) and got speaking to his media people. I called Fellowes and they said they weren’t speaking to media. I spoke to their media person a couple of times, but she would say nothing about the case. I met James Fellowes when he gave the testimony. He would not talk to me then, either. Perhaps because of the friendly manner in which I introduced myself, or perhaps due to my natural good looks, he allowed me to take a photo of him. That’s the photo you see in the article. After the hearing I shared an elevator with him and half a dozen others (those small congressional elevators—it was crowded). We said nothing. After getting out we parted ways and he wished me luck. That was it. They didn’t “get” me to cover the story, and Fellowes probably wouldn’t have even busted the case open if it weren’t for the invitation to testify from Manzullo’s office. They were holding a hearing on the topic and they were familiar with his case. I’d have heard about the story but would have been unable to write about it properly if it weren’t for the testimony.
    Why did no other media cover the story? Good question. I find it odd, too. I was initially concerned that I’d be scooped, but it seems no one really cares. Maybe this is old hat by now. Maybe it’s just not part of the script. In any case, these are stories I’m interested in telling.
    There were three sources of information: the testimony (which is public); “people familiar with the matter” who helped with the letter writing campaign, that is, associates of James Fellowes in the U.S. (the man himself would not talk to me, but the curiosity of an associate that does not work for that company was piqued by something I mentioned to Fellowes when I met him, which I’ll mention in a moment) and certain congressional staffers; and a bit of basic sleuthing in Chinese on the Shinri and New United websites and on the web in general. The anonymous sources, whom I met with in DC (where I’ve been based since last September when I took up this job), were able to clarify some of the details that I found unclear in the congressional testimony, and gave a survey of the general efforts by Fellowes to get U.S. people to do something about the case. That was pretty much in the form of letter writing.
    When I met James Fellowes, after shaking his hand I told him I was aware that a number of high-level Party officials have visited the Shinri factory. This struck me as a significant fact. Someone with Fellowes then asked to talk to me outside. That was one of the “insiders.” I think if Fellowes had wanted to make a political fuss about this they could have done a much better job. The information about high-level Party guys visiting the factory is quite interesting, and I had already mentioned this to Fellowes’s media spokesperson, just from the perspective of being friendly, and they did not really pay attention. If you know China then you know it would only be a word from one of these officials (Li Keqiang, Wen Jiabao, Li Changchun, Meng Jianzhu, take your pick) to get Mr. Zhou to nicely give all the stuff back. Dozens of letters from U.S. officials have been sent. Is it likely that if there were sincere efforts in the Party to prevent these things happening, this case would have happened? To me these visits in the context of the takeover implies that the CCP is fine with this behavior. I do not make that claim in the article. I just present the information I found in a bit of simple Internet sleuthing.
    So let me repeat: Fellowes did not cooperate. I was unable to obtain any of the primary documentation, such as the JV contract, which I could have then shown to an expert or a lawyer for an opinion. I just reported what I discovered.
    Richard, you say the “attribution is so muddled,” but what is muddled about the way I identified the anonymous sources? It is unclear how what I write here is any different from what any journalist writes when they get inside information that they only got on condition that they wouldn’t say where they got it from. What I detect here is an allergic reaction to the words “Epoch Times,” not a genuine complaint about problems with the content of the story.
    The story had problems though, the biggest being that it did not say what it did not know. I found this out when I saw Dan’s post, which I thank him for. This is the first story along these lines that I have written. Next time I will be able to state that, having not seen x, y, and z, such and such is unknown. That is important and it helps the reader understand the limitations of the article they are reading. The only reason this information was not in the article is because I did not know it.
    However, I believe the story stands on its own merits. Some of the comments suggest that The Epoch Times fabricates news in order to reach a preordained conclusion. Firstly, of course we do not fabricate news. The real issue is that Western media have often done a poor job of reporting China because they report through a lens of Western expectations. The expectations don’t fit the reality and so the underlying story is often missed. We stand out because we recognize that we are talking about a mafia-like organization, the CCP. Reporting that recognizes and documents this character of the CCP does not require fabricating or twisting anything—the reality is there for all to see, if they are capable of taking an honest look at what is going on. Also, I think that if anyone were to regularly read our reportage, on China or whatever other topic, they would soon be disabused of their prejudices. While you’re reading, if you have any comments or questions about our China articles, just email chinareports@epochtimes.com, an email account I monitor. Or, email me directly at matthew.robertson@epochtimes.com. Phone is fine, too.
    Best,
    Matt.

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