In this short video, I’d like to give you eight tips about doing business in China.
Tip #1. Never rely on your Chinese friends to provide interpreting services. Always use your own independent interpreters. If you don’t do this, what will happen is you won’t really know what’s going on, and this applies to conference calls, zoom calls, and of course face-to-face meetings. Unless you do this, you may end being privy to, or a participant in, a discussion about yourself or your project without really realizing what’s going on.
Tip #2. Do proper due diligence about your Chinese partner. Find out through company searches what they’re lawfully allowed to do in China and then make sure that matches what you expect them to do, or what you want from them in your deal. This is a relatively straightforward and cheap procedure now in China.
Tip #3. If you have any pre-existing registerable intellectual property, such as a trademark or a copyright, make sure you register that intellectual property as early as possible in China. The Chinese systems for registration work quite well and if you avail yourselves of them early enough, you can avoid a lot of problems further down the track. So, don’t fall in the trap in assuming that none of these intellectual property systems work in China. They do work, pretty well, and you can avail yourselves of them and get the protection that you need, or the protection that will help you in your deals.
Tip #4. If you don’t know what shape ultimately your deal will take, enter into a bilingual non- disclosure agreement or NNN agreement—non-disclosure, non-use, or non-circumvention agreement. This will give you a safe place to play so that you can discuss and disclose the materials and information that are necessary in order for your Chinese partner to truly understand you and to understand your project, and then you can work out an appropriate deals structure.
Later on in this video I’ll talk about the requirements for entering into a formal contract.
Tip #5. Avoid informal short form documents. For cultural reasons, the Chinese like these short- form documents. They like letters of intent. They like heads of agreement. They like the world of generalities. Foreigners tend to prefer the world of specifics and particulars. What happens is, when we’re presented with a short-form document, it looks harmless, it looks innocuous, but once you sign a document like that, in China it’s very difficult to escape it. You are, for better or for worse, committed to or signed to, or a business partner of the Chinese company with which you signed that agreement. So, avoid those kinds of documents, even if you’re under pressure, particularly if you’re under pressure to meet a deadline or to satisfy some photo opportunity for a banquet.
Tip #6. In working up your documents, in working towards a signed contract, start with a non- binding, not-for-signing English language term sheet. Make it clear. Again, non-binding, not-for- signing. Work out all the salient features of your deal, all of the deal contours, and then—only then—when you’re satisfied with that, move to a bilingual version of a non-binding term sheet. Finally, when you’ve nailed all of the points and worked out all of the issues, move to a bilingual long-form agreement, a formal agreement, and only sign the one agreement. Don’t sign anything else prior to the agreement.
Tip #7. Always choose Chinese language in combination with English in your agreements. D a bilingual, dual-language agreement. The reason for this is that although there’s no requirement that legal documents be written in Chinese, what happens ultimately in a dispute with Chinese parties in China is that you need a translation if you’ve only entered into an English language agreement. And if, at the point you need a translation you are already suffering from a misunderstanding, or in the midst of a dispute, you’re unlikely to be able to agree on a translation because it’s likely that the point that you’re arguing about is to do with some form of expression used in the English agreement. Furthermore, if you’re at a formal stage of dispute resolution, the Chinese decision-maker will appoint a translator. You may find that you end up with a poor- quality translation. So, if you can’t agree with a translation, it’s very hard to get an enforceable contract.
Tip #8. This is the most important one. Make proper choices of law and jurisdiction. If you’re dealing with a privately held Chinese company, the most appropriate choices of law and jurisdiction will be Chinese law as the governing law and Chinese courts as the forum. When you’re dealing with State Owned enterprises or government agencies, it’s more appropriate that in addition to choosing Chinese law, you look at arbitration for your dispute resolution. The reason for this is that, ultimately, you want your contract to be enforceable, and if you make the mistake of choosing foreign law—the law of California, the law of England and Wales, the law of New South Wales—you will find that it’s necessary for lawyers in one of those jurisdictions to initiate those proceedings and get a judgment in your favor. And the next step is to bring that judgment to China and try and enforce it. And unfortunately, practically speaking, most of the time if not all the time, Chinese courts will not enforce foreign judgments.
I hope these tips have been of some use. I haven’t been able to go into a lot of detail, and what I’ve said is not necessarily for people who’ve already got a lot of experience in China. I’m happy to take further questions and take queries. My contact details will come up in a further slide, and you can reach me there.