Just got an email from a long-time China hand and good friend of mine with the subject line: “Going to be seeing a lot more of these.” The “these” to which the subject line refers is foreigners being held hostage in China due to alleged debts. The email linked to US factory boss held hostage by workers in Beijing. To make a short story shorter, Chip Starnes, one of the owners of an American company went to China to work out severance packages with workers his company would be laying off and he ended up being held hostage. Starnes is quoted as being surprised by this:
“I feel like a trapped animal,” Starnes told The Associated Press on Monday from his first-floor office window, while holding onto the window’s bars. “I think it’s inhumane what is going on right now. I have been in this area for 10 years and created a lot of jobs and I would never have thought in my wildest imagination something like this would happen.”
I am not the least bit surprised.
As the article states, “it is not rare in China for managers to be held by workers demanding back pay or other benefits, often from their Chinese owners, though occasionally also involving foreign bosses.”
My law firm’s advice to our clients that are laying off workers in China or closing a facility in China or allegedly owe money to someone in China is to stay outside China. Regular readers of our blog know we took this position long ago and have never waffled:
- If you are in a debt dispute with a Chinese company, the best thing to do is not go to China at all.
- If you must go to China, think about using a bodyguard or two or three and think carefully about where you stay and where you go. Most importantly, be careful with whom you meet.
- Consider preemptively suing your alleged creditor somewhere so you can plausibly claim to have been seized not because you owe a debt, but in retaliation for having sue. If you are going to sue, carry proof of your lawsuit with you while you are in China.
Though China is relatively safe, one should absolutely not write off the possibility of violence in one’s business dealings in China. My law firm’s China lawyers have been called at least a half dozen times to help foreign companies navigate their way out of situations where violence was threatened or occurred. We tell our clients that if they owe money to a Chinese company or are involved in any sort of dispute with anyone in China (partner, employee, etc.), they should avoid meeting to discuss the dispute/problem anywhere other than in a neutral, very public place in the day time. A high end hotel lobby in Shanghai or Beijing is a good choice. Better yet, meet in Singapore or Tokyo or Seoul.
In other words, if you really think it necessary for you to go to China to try to resolve your company’s debt issues, at least seek to have the meeting in a hotel lobby in Beijing or in Shanghai, rather than in Xiamen in the conference room of the company to whom the debt is allegedly owed.
In Bo Xilai’s Lessons For Your China Business, [link no longer exists] we wrote of how arguing that a hostage does not personally owe the debt is usually not the fastest/best way to resolve these sorts of situations:
I say this because we have been involved in at least two cases where this was the case. U.S. company owes money to Chinese company. U.S. company ceases to do business and so its key figures assume the issue is resolved in that the company has no assets to pay any debt. They then get on a plane to a foreign country (one was a China case, the other was a Russia case) and they both get seized and “held hostage” until our lawyers negotiate their release. They wanted us to argue that they personally did not owe the debt; their companies did. Our response was to tell them “that would be an excellent argument if we had the luxury of filing court briefs and waiting months for a judge’s decision, but our goal here is to get you released as quickly as possible.”
We deal with this issue in its nascent stages all the time when we work with our clients to shut down their Chinese entities. We instruct our clients never to reveal they will be shutting down their China operations while anyone from the home office is in China. We also tell them that if they or their company ever wish to return to China, they should pay off all their debts and usually the best way to do that is to announce from outside China the plan to gradually shut down the China office and then, using that as leverage, negotiate down all debt. We stress that once a reduced debt is agreed upon, there should be a written agreement memorializing agreement to that and there should be proof of payment in that agreement as well.
All this is necessary if you want to formally close your China entity, which is, in turn, necessary, if you want to be able to return to China.
I cannot emphasize enough how serious this is and how little your Embassy or Consulate can do to help you or your people if they get held — note how in Starnes’ case US Embassy officials “stood outside the gate. China law actually allows for keeping people in China for the debts of their companies. And trust me when I tell you that the quality of accommodations in China quality can vary greatly.
China’s economy is pretty much universally regarded as slowing and as it does we can be quite sure hostage situations will increase.
So what is the single best way to avoid being taken hostage in China? Avoid going there at all.
Be careful out there. Please.