Yesterday, in Would the Last Foreign Company in China Please Turn Off the Lights, Part 2, I discussed the recent arrest of Meng Wanzhou and Chinese government threats by the Chinese government against the United States and Canada for that arrest. A lot has been written about how China may retaliate against US and Canadian businesspeople should Ms. Wanzhou not be released soon.
I noted China’s foreign ministry’s response to Meng Wanzhou’s arrest, assuring foreigners that if they abide by China’s laws they will be fine:
China’s foreign ministry has said: “China always protects the legitimate rights and interests of foreigners in China. But they should also abide by all Chinese laws and regulations.” See this Financial Times article, Chinese and US executives worry after Huawei CFO’s arrest. Right now anyway, I pretty much take them at their word, but this is a double-edged sword. This means that if you are abiding by Chinese law you should be fine, but it also very likely means that if you are not, you are likely at great risk.
I then listed the following seven things which foreign companies should do to avoid finding themselves at cross-purposes with the Chinese government:
1. If you are doing business in China without a Chinese company (and by China, I most emphatically do not mean a Hong Kong or a Taiwan company), you had better be damn sure you do not need a company, especially since the odds are that you do. Doing Business in China Without a WFOE: Will the Defendant Please Rise.
2. It means paying whatever taxes you or your company might owe. See China Taxes, Getting Legal, and Some Good News.
3. It means having your visa and the visas of all of your employees in good order.
4. It means not deciding you are operating legally in China based on some crap you’ve read on the Internet that feeds into your desire to believe that you are.
5. It means protecting your company from your China employees because the odds are good it will be one of your China employees who leads to your downfall either by reporting you to the authorities or by suing you and thereby exposing something you are doing that you should not be doing. Trust us on this one. Please. See China Employer Audits: The FAQs.
6. It means that if you are not 99.99% certain you are operating in China completely legally you either immediately do something to change that or you immediately leave the country and you take all of your foreign employees with you. And if for some reason you don’t care about one or more of your foreign employees getting into big trouble in China, note that people who go to jail for something that their company do have a tendency to sue their company.
7. If you are in a dispute with anyone in China regarding money, you should consider paying it and getting a valid and legally sound release in Chinese making clear that you paid it. See Maybe Owe Money To China? Don’t Go There. Or you should consider immediately leaving China.
I then promised we would today “discuss some specific factors our China lawyers look at to determine the level of risk people and companies face in China.” More specifically, I am going to address what to do to avoid being detained in China.
Let me start by noting that one of the things our international lawyers have long done is provide companies and individuals an assessment of their risks of going to China or staying in China. We call this our “China detention risk assessment package” and it involves our gathering up the facts as to why the person is going to China, what the person has done that might increase or decrease their risk of being held in China, and where exactly that person will be going in China and with whom they will be meeting and why. We tell them right up front that we will never tell them there is no risk in going or staying in China because there is some risk in whatever we do, including just crossing the street. And yet, even the risk of crossing the street can vary based on a number of factors, including (as you can see by the video on crossing the street in Vietnam), the country. We have done these sort of risk assessments for a whole host of countries, but in the last fifteen years, I estimate about 90% of them have been for China or for Russia.
In doing these risk assessments we look at the following, among other things (For various reasons, I do not want to reveal everything):
1. What has our client done? Who might it have angered?
2. Who exactly is our client? What exactly does our client do? Is what it does overall good or bad for China to which he or she will be going? To what countries is he or she tied?
3. Where in Greater China will our client be going? Some cities in the PRC are riskier than others. We’ve dealt with Hong Kong, Macau and Taiwan? We’ve looked at the odds of someone getting seized in Cambodia for problems in China.
4. What about having the meeting somewhere near China? Is that possible, and if it is, where will the risk be lowest of China exerting its authority? How can we minimize the risk of our client inadvertently finding him or herself in China? We once had a client concerned about China, but badly needed to go to Vietnam. We researched airlines and routes to try to determine the one least likely to divert to China in an emergency.
5. What can our client do to reduce its chances of being detained in China before going there? Oftentimes there is quite a lot that can be done.
Whenever we write about China detentions or China hostage situations, we get a slew of emails from people saying we are exaggerating this risk. In this post we have been as careful as we can be not to quantify anything so as to avoid such a claim. But if you think this is rare, we urge you to Google “China hostage” and “detained in China” and read for about an hour. That way you can estimate the frequency, not us.
What though do you do if you are already in China and you have a problem? Generally, you get out as quickly and quietly as you can and you enlist qualified help in doing so.
The bottom line is be careful out there, even when just crossing the street.