David Dayton at Silk Road International has a great post on China lawyering, without trying to do so. His post, Reasons why a factory doesn’t want you to come see things, posits that if your Chinese factory does not want you to visit, something bad is afoot.
Dayton sets out the excuses he hears as to why it is not the right time for him to visit the factory and then he lists the following as the only possible real reasons:
Regardless of the words used, my experience tells me there are really only a few reasons why you can’t go into a factory to see your product for a scheduled QC visit (or any other reason):
1. They are not as far along in making the product as they should be.
2. They are not actually making the product.
3. They do not want you to see some part of the process for making the product.
4. They do not want you to reject the product or change their processes.
5. They are busy and have scheduled legitimate appointments with others on your requested day.
6. They are closed or are undergoing repairs/inspections/other issues that would not allow you to see the product on your requested day.
Dayton then talks about how since you are the one buying the product, you should be able to come visit and if the reason is numbers 5 or 6 above, you should be able to come out soon in any event. But since this is really a post on handling China legal issues, you will need to read Dayton’s post if you want more information on the factory side.
Dayton’s post is about the legal side in that we China lawyers constantly hear similar excuses and below are are some real world examples:
1. Our client is trying to buy a Chinese factory. We are conducting the due diligence and we determine the first set of books are totally rigged. We ask for the real set of books and we are told we already have it. We say “no deal” and then we are given a second, slightly better set, but not the real one. We ask for various documents the factory is absolutely required to provide the government to operate. The factory then goes and tells our client that we do not understand China and says there is no such thing as these documents and nobody actually provides them to the government. We tell our client how we had no issue in getting those exact same documents in our last five such deals and our client wisely chooses to walk away from this particular deal.
2. Our client is seeking to form a China WFOE and lease a factory in China. When forming a China WFOE, the WFOE-to-be’s lease must comply with various requirements for WFOE leases. Our China business lawyers tell our client we need proof that the landlord has authority to lease the factory and we set out the various documents that would prove that authority. The “landlord” tells our client it has approval from the mayor to lease the factory (it did) and that we foreign lawyers do not understand China and if we persisted in requiring these documents, the deal would be off. Our client said it would abide by our advice and the Chinese “landlord” then produced documents which showed that the property was actually part of a collective and could not be leased to a foreign entity. So again no deal.
3. Our client was looking to do a joint venture with a Chinese entity. Our impression was that the Chinese entity was not really interested in our client for the long term; it merely wanted to strip it of its valuable intellectual property. The deal the Chinese entity was proposing seemed almost too good to be true in that our client needed only to contribute its IP to the venture. We told our client that such a contribution would not be sufficient to make the joint venture legitimate (there has to be a monetary contribution from the foreign side in a China joint venture) and we counseled against going forward. The Chinese company (you know the drill by now) told our client we knew nothing about China and its laws and that the Mayor was behind all this (and again he was). We asked the Chinese company to come up with some law that would justify such a deal and they came back to us with a bizarre and incredibly tortured interpretation of statutes which actually forbid this. Our client (wisely) walked.
I am not saying the Chinese company that says you cannot see their factory or documents that day is always trying put one over on you, but I am saying that most of the time if you have a valid basis for wanting to see the factory or the documents, there is a lot to be gained and learned by sticking by your guns.
UPDATE: Just learned of this post, You Don’t Understand China, which sets forth what is so often meant when a foreigner is told that they don’t understand China:
- I’ve done something wrong, but it’s ok because I going to try to cover up my actions with my country’s culture, inadequate legal system or pervasive corruption.
- This is China, I’m Chinese, let’s just do what I want to do.
- I can’t be bothered to come up with a coherent argument or explanation, so let’s just attribute this problem to your ignorance.
- I know more than you, let’s keep it that way.
The post goes on to talk about how “you don’t understand China” gets said a lot in China “as a crutch to dismiss valid concerns by outsiders.”
I like how it then says that “[w]hen you do business in China, if you let anyone say this to you and get away with it, you probably deserve to lose your shirt.” The post also provides an excellent retort: “explain it to me:”
If after saying this you are told ‘no’ or confronted with a multi-layered attempt at obfuscation, then you know what you are dealing with. That person has no interest in helping you, which also probably means you don’t share a common objective. You will need to deal with that misalignment as best you can. If it’s important enough to you, it’s time to invest in finding someone who can answer your questions. This is where the high-priced consultants, or maybe different business partners, come in.
On the other hand, if your genuine interest in hearing an explanation about what you supposedly don’t understand is met by a real attempt to enlighten you, then you have found someone who cares enough about their relationship with you to foster it with knowledge. Dear readers, such colleagues, business partners and friends are worth their weight in gold. Find them and reward them.