The Three Most Basic Rules for Doing Business in China

Newsweek just ran a story on problems one might encounter while engaging in medical testing in China. Entitled, Meds and Miracles,[link no longer exists] this article is necessary reading for anyone doing business in China, not just those doing medical testing.

I strongly suggest you read it. Twice.

China has become a worldwide center for medical testing. My law firm’s medical testing clients tell us they are in China because China has a large number of people capable of administering their tests, recording the results, and collating and analyzing the data, and all at low cost. They also tell us China makes for good testing because their test subjects are, for the most part, literate, responsible, and stable. Our clients tell us they are not in China to circumvent any medical testing standards. I believe them because none of them have ever made any effort to avoid any legal requirements.

Newsweek’s article is about an AIDS medication test put on by Viral Genetics, a California company. The article appears to me to portray this company as either unethical or incompetent. It may be neither, but I urge you to read the article to decide for yourself.

According to the article, Viral Genetics conducted a drug trail in China without first securing the necessary approval from China’s State Food and Drug Administration (SFDA):

Viral Genetics also bears some of the blame for ethical lapses. All drug firms working in China should hire outside experts to monitor procedures, says Xiaomei Li Reckford, the local CEO for Quintiles, a clinical-research organization that specializes in conducting human trials. Without an unbiased third party, she says, “how could you trust the data?” Viral Genetics CEO Haig Keledjian disputes any suggestion that VG was underhanded in obtaining data from its trial. The company wasn’t aware that the SFDA should have approved the trial, he says, and he relied on Ditan Hospital, one of China’s best medical institutions, “to cross the t’s and dot the i’s.” “We thought we were in China being a hero,” he says.

The article does not reveal if Viral Genetics ever employed its own lawyers in China to determine what approvals, if any, were necessary. In any event, it appears Viral Genetics fell for one of the oldest tricks in the book of international business: it went along with its local partner without verifying the laws and the facts on its own.

The bottom line here is that you should never rely on your local partners when it is your reputation, your freedom, your business, or your actions on the line.  Ever.

Your local partner (partner is loosely defined here to include anyone with whom you are doing business) does not care about your business as much as you do and there is no reason to believe it knows all of the laws that apply to you as a foreigner.  Nor should you ever rely on promises by your local partner that “everyone does this” or that it has sufficient clout to cover for you should you get caught.  A local Chinese company is no more your China lawyer than the company with whom you do business in Peoria or Barcelona is your United States or your Spain lawyer.  Do you really think just because someone is a local he or she knows all the legal requirements for you to conduct business in his or home country?

I was talking with an international lawyer friend the other day and we listed out what we saw as the following as the three most basic rules for doing business in a foreign country:

Rule Number One. Do not sign a foreign language contract unless you know exactly what it says as you will be bound by that contract.

Rule Number Two.The last person you want as your translator on a contract is the person with whom you are contracting.  So for example, if you do not know Chinese, bring on someone you trust completely to translate for you. Better yet, hire a lawyer fluent in Chinese.

Rule Number Three. Do not use anyone as your lawyer except your own lawyer.

Read the article.  Then read it again.

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