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China Company Formation: Meet The New Hong Kong. Same As The Old Hong Kong
2009-09-23 19:28:00
Won't Get Fooled Again. My roommate my senior year in college was a Who fanatic. And when I say fanatic, I mean fanatic. This guy had lived a few years in London and he had the urban trench coat and the British accent down pat. Most annoyingly, the only beer he would buy was Guiness, which he would not even refrigerate. He did this knowing full well that neither I nor our other roommate would ever touch the stuff. He had about 1000 Who albums, and before you tell me that the Who never made 1000 albums, let me tell you that about 990 of those were bootlegs or "European editions," or whatever. He had the Who doing just about every song you can think of. Seriously. Sorry for the rambling, but I thought of the Who today when a reader sent me a China Daily article, entitled, "HK attracts record investment in 2008," and asked how much of this might be due to an increase in companies investing in China through Hong Kong . I do not know, but I am sure some of it is. Ten years ...
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Understanding China FCPA Risks. Who Is A Foreign Official?
2009-09-22 19:46:00
I am becoming obsessed with the Foreign Corrupt Practices Act (FCPA) because I see it as one of the the "most missed" things for United States companies doing business in or with China . The other day, I was interviewed by a news service reporter who asked me whether the FCPA is a big issue for my firm's clients. She was calling me to discuss a post I did earlier this year about a client who chose to walk away from a China deal out of fear of violating the FCPA. She asked me if this was common and whether my firm's clients are concerned about the FCPA. I told her this was actually the first time in years a client had even raised an FCPA issue with me and that clients never even broach the subject with us when going into China. I told her I am the only one who ever brings it up and when I do, clients are generally not terribly interested. I see this as a huge mistake, particularly since the US Department of Justice has made clear it intends to increase its pursuit of FCPA c...
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China Marketing And Branding. Reading The Tea Leaves.
2009-09-20 22:08:00
The DragonBeat blog has a great post, entitled, "Why foreigners are beating China ’s tea-makers on their home turf." The post is on why China has none of the leading tea brands worldwide, but what it says pretty much applies across the board to Chinese branding in general. The comments are interesting as well, with many of them complaining about how bad Lipton tea is and how the Lipton market is completely different from the market for Chinese tea. Wrong. If anything, Lipton is a classic example of great branding and of how a Western company has managed to take a ho-hum product (in this case, Lipton tea) and market it in such a way as to trump the market. When will there be a Chinese Lipton and who will that be?
More About: Marketing , Reading , Branding , Leaves

China Law Journals In English
2009-09-20 21:28:00
Chinese Law Prof Blog recently did a post on Chinese law journals in English . His list consists of the following journals currently in publication: Frontiers of Law in China . Peking University Journal of Legal Studies. No online edition, but you can subscribe here. Tsinghua China Law Review. This is brand new, but it shows tremendous promise. I was provided with its first issue and I was quite impressed. It reads like a legitimate U.S. law school law journal in pretty much every respect. The Tsinghua journal's Board of Editors is comprised of "students at the Tsinghua University School of Law, both Chinese law students and foreign students in the LLM Program in Chinese Law." I know its Editor-in-Chief, Carlton Willey, and I know how committed he is on making this Journal a must read for those doing legal business in China. I suggest you check it out.
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Everything You Always Wanted To Know About China's Education System.
2009-09-16 08:28:00
Teachingtips.com did an article entitled, "25 Surprising Facts About China ’s Education System ." (h/t to China Economics Blog) And though I am not prepared to say all 25 will surprise you, certainly most of them are at least pretty interesting. On top of that, each fact has a link to its source, which usually provides more interesting/surprising information.
More About: Wanted

The FCPA And China. Do I Need To Get All Loud On You?
2009-09-15 19:08:00
I spent my high school junior year living in Istanbul, where my father was teaching while on sabbatical. There was one other American family in our Bebek apartment building: the Richards. Adelle Richards was the matriarch of that family and there are three things I will always remember about her: 1. No matter how many times we told her we were from Kalamazoo, Michigan, she would always introduce us and refer to us as being from Illinois. Frankly, with her listening skills, I was just impressed she even remembered it to be somewhere in the Midwest. 2. When there was a small fire in our building and everyone was evacuated, she asked my father to run into her apartment to take something out, even though her husband was standing right next to her. My father actually did it, but the explanation for that will have to come in another post. And anyway, there ought to be a limit to one trashing per family per post. 3. I absolutely hated seeing her in any of our neighborhood stores b...
More About: China , Loud

"Socialized" Medicine In China And The US. What's That You
2009-09-14 19:38:00
Mr. McGuire: I want to say one word to you. Just one word. Benjamin: Yes, sir. Mr. McGuire: Are you listening? Benjamin: Yes, I am. Mr. McGuire: Plastics.From the movie, The Graduate. "Where have you gone, Joe DiMaggio? Our nation turns its lonely eyes to you. What's that you say, Mrs. Robinson? Joltin' Joe has left and gone away." From the song, Mrs. Robinson, by Simon & Garfunkel Earlier this year, in a post entitled, China Has Health Care Too I talked about health care as one of the great opportunities for foreign businesses in China: A few months ago I was on a China panel at Northwestern's Kellogg Business School where, among other things, we were asked to list China's best opportunities. I stressed that because I am not a China business expert, I would have to answer the question based entirely on what I was seeing of my firm's clients and, based on that, I listed health care, technology, and food. If I had to pick just one of the three, I would pick hea...
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Topless Women, Rule Of Law, And Perceptions Of China.
2009-09-13 23:28:00
Matt Schivenza's always interesting blog has a new post up on nudity (well, sorta) in China , entitled, "Foreign Woman Removes Top At Beach in Qingdao, Causes Major Disturbance." The post tracks exactly what I was talking about this morning with a client. No, not nudity, but rule of law in China and how so many Americans misunderstand its extent in China and misperceive what China is really like. Bear with me here as I discuss the rule of law in China as the nudity discussion will follow. The client with whom I was having this discussion is a very successful and sophisticated international businessperson who has been doing business in China for around five years. He was telling me of how an American competitor of his had gotten into legal troubles and was on the verge of pulling out of China. My client told me he thought his competitor had brought the problems onto his company by believing he could get away with not following Chinese laws. We then talked about how when i...
More About: Women , Rule , Perceptions , Rule of Law

Love In China. Actions Speak Instead Of Words.
2009-09-12 10:08:00
I just love this post, "Saying “I love you” with a toilet: of indirect displays of love in Chinese families," over at the Speak ing of China blog. I love it because it perfectly illustrates how Chinese express an emotion (in this case love) differently than in the West. Differently, not necessarily better or worse. The post is about an American woman, married to a Chinese man, and how her in-laws show their affection for her by first installing a stand-up toilet, and then adding on rooms to their house. A Chinese client of mine (who has been living in the United States for probably 15 years now) told me of how her father never once told her mother that he loved her, but that her mother always knew from the way he acted. There has to be a way to relate this post to doing business in China and I would love (see how easy we Westerners are with that word) for someone to expound on it.
More About: Love , Words

Protecting Your IP In China -- The Basics.
2009-09-10 21:12:00
Stan Abrams over at China Hearsay is (or will be?) speaking on China intellectual property at an IP conference for SMEs in the Netherlands and he has mapped out on his blog what he is going to say. And here it is: 1. Register your IP as early as possible. 2. Don’t sacrifice IP protection for speed (i.e. don’t jump into the market before you take care of your IP). 3. Have a well-crafted, reasonable, and feasible China IP plan in place before anything goes wrong. 4. Do your homework (keep your eyes open for infringement and listen to your distributors and agents). 5. Check up frequently on licensees, distributors, agents, and manufacturers. 6. Avail yourself of all reasonable enforcement measures (after doing a cost benefit analysis of course), but understand the obstacles involved. Couldn't have said it better myself.
More About: Basics , The Basics

How China's Birthday And Shanghai's Expo Are Good For The Legal B
2009-09-09 12:58:00
I have to admit one of my favorite things is forming a China WFOE for foreign companies. I love them because co-blogger Steve Dickinson and our Chinese affiliated lawyers do all the work. I also love them because it is the rare WFOE that does not also need real estate, labor law, and IP assistance to go with the new company. They often require additional work as well, such as contracts, environmental compliance, government approvals, etc. In other words, the forming of one WFOE is almost always the forming of a long term and fruitful legal relationship. Which is why I have to admit to loving China's 60th Birthday celebrations and Shanghai 's upcoming Expo . Please allow me to explain. Every time China has a big event, (see the Olympic games for past proof), it starts tightening up on visas. Over the last few weeks, we are hearing more and more about foreigners getting stopped on the street or in their apartment lobby! So why is this a good thing for my law firm? Becaus...
More About: Legal

Our First China Hummer Post. Our Silence Said It All.
2009-09-09 12:28:00
Virtually every week, somebody emails or calls me with the perfect (usually distressed) United States company for me to pitch to "all the people" I know in China . I have even gotten calls from government agencies asking me what they should be doing to lure Chinese businesses. Here is what I am seeing. Chinese companies looking to buy American companies are usually looking for a valuable technology or commodity or, to a much lesser extent, a strong brand name. If the company you are pitching has neither, the chances of a Chinese company buying it are really slim. People have told me that Chinese companies "have to be" interested in companies with really good marketing people. They tell me Chinese companies are terrible at marketing and so they obviously will be buying American companies that are good at it. That's true in theory, false in reality. There are a few oddball purchases and formations out there and those generally consist of the following. -- The wealthy C...
More About: Hummer , Post , Silence

China Sex, Mistresses, And Improper Payments, And What They Mean For Your C
2009-09-08 12:28:00
Yesterday, I wrote a post on how important contracts are in China . The post was about a China Daily article on what has been described as China's first foreign nail house. The China Daily article included an interview with CLB's own Steve Dickinson, who said the case really hinged on the lease agreement (i.e., the contract) between the landlord and the tenant. According to Steve, the lease itself would control whatever compensation the landlord would be required to pay the tenant for the tenant's eviction due to the building being demolished. The thrust of my post, entitled, "China's First Foreign Nail House. Dude, Where's Your Contract?" was that contracts are usually determinative in China. In response to this post, "Sean" asked this great question in the form of a comment: "So when is the contract everything, and when do you have to be worried about a judge ruling against you in the interest of "fairness" to the Chinese counterpart? ("Fairness" in terms of your prev...

Will Obama Soon Be Kicking China Tires?
2009-09-08 05:28:00
President Obama faces a September 17th deadline to determine whether to go along with the International Trade Commission’s recommendation to impose high tariffs on low end Chinese tires. The US has the authority to impose these tariffs under section 421 of China ’s complicated WTO accession agreement. There were six similar cases during the Bush administration, although in no cases were tariffs implemented, including four separate cases where President Bush himself shot down the commission’s prescription. This is the first China trade case for President Obama and it is therefore being watched very closely both in the United States and in China. Interestingly, the tire unions brought this case and the tire companies have been noticeably quiet, presumably in an effort to maintain their good standing in China as they try to capture a piece of the rapidly expanding Chinese tire market. It will be interesting to see how Obama plays this as he tries to avoid angering the Chinese be...
More About: Tires , Kicking

China's First Foreign Nail House. Dude, Where's Your Contract?
2009-09-07 18:58:00
Lara Farrar and Xie Yu have written an excellent article for the China Daily and AsiaOne on the recent controversy swirling around what is being called China's first foreign nail house case. The article is entitled, "1st foreigner 'nail household' in China," and it details the travails Tim Hilbert has been having in getting compensation from his landlord for the demolition of the Beijing building that housed Hilbert's restaurant, "Tim's Texas Roadhouse." This is an excellent article because, near as I can tell, it is the only English language article out there that actually correctly analyzes the legal issues. And yes, it is from the China Daily! The article starts out by setting the factual stage: Tim Hilbert may have been the first foreigner holed up in one of China's famous "nail houses" -- buildings occupied by stubborn tenants who refuse to leave despite the demolition of structures around them. But he told China Daily that he does not want to be tagged a "trouble...
More About: House , Dude , Contract , Foreign

The End Of The Recession? The View From Qingdao.
2009-09-07 08:48:00
Just received this email from co-blogger Steve Dickinson: I do my martial arts workout three mornings a week at the beach here in Qingdao. We have a great view of the entrance to the Qingdao port complex. Vessels intending to use the port must "park" for a while as they wait for a berth. For most of the summer, we would regularly see no more than five or six vessels parked and waiting. This Monday, I counted 23 vessels waiting for a berth. This means that the port is entirely backed up and there is simply no room for the vessels. This suggests that activity at the Qingdao port has suddenly increased, leading to a delay in shipments. The Qingdao port is the second largest container port in China. Its capacity is enormous and it is unusual for the port to back up in this way. This suggests that shipments out of China have suddenly increased in the past several weeks.http://www.phrmg.org/phrmg%20docume nts/honor/Hon_Eng.htm What are you seeing out there?
More About: The View , View , Recession

China Has 703 Million Cell Phone Users. The Middle Class Is Rising.
2009-09-06 04:28:00
703 million. (h/t Shanghaiist) Think about that for just a minute. That's about 2.5 times the population of the United States. More than three years ago (gosh, have we really been here that long??!!) I did a post on how China had hit 410 million cell phone users. In that post, I stated the following: I love this sort of hard number because to me it is a very accurate way to measure China's growth and increasing wealth, perhaps even more so than a more standard measure like per capita income, which can be easily manipulated and whose impact is heavily dependent on living costs. The way I see, it, if someone can afford a mobile phone, they are a legitimate potential buyer of Western products and a legitimate potential customer for Western retailers. The comments to that post (and some of our other posts) questioned the validity of the number. I recall someone saying that the number reflected the fact that many users had two phones. One for business and a "black phone" for ...
More About: Phone , Cell Phone , Cell , Middle

China Law On Term Employment Contracts.
2009-09-03 14:28:00
One of our clients is coming to the end of its contract term with the bulk of its China employees. They wrote Steve asking him some questions regarding fixed term employment contracts under Chinese law. Steve's reply is a made to order blog post, so here goes: Pursuant to Chinese law, you are permitted to enter into two fixed term contracts with an employee. The term of these contracts can be any fixed term that is agreed between the parties. Typically, in China, the term ranges from one to five years. At the end of the second fixed term contract, you have two choices. You can chose not to continue the employment relationship or you can chose to continue the employment relationship under an open term relationship. An open term relationship requires a written contract. This contract has no term. It terminates only under the following circumstances: 1) the employee voluntarily resigns, 2) the employee reaches retirement age or 3) the employee is terminated for "cause." Term ...
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On The Demise Of China Manufacturing.....Kidding!
2009-09-03 06:18:00
BBC radio news did an interview last night with the owner of a company out of Houston, Texas, who had moved his manufacturing from China back to the United States. Unfortunately, I tuned in way too late to hear the whole story, but I heard the following (I think): 1. His company pays its US employees $8 an hour. It was paying its China employees 50 cents an hour. 2. He had quality issues in China. He has pretty much zero defects in the United States. 3. His shipping costs from the new US base are considerably less, though he expects costs to run about $2.50 more per piece. 4. His company makes "Chi" brand hair irons. I was planning to tie this BBC story in to a post today on various "hidden" costs of manufacturing in China and why the decision to go there for manufacturing is not as simple as some seem to believe. Then this morning I came across an excellent post on this same story on an excellent blog I just discovered. The blog is China Manufacturing Blog. It is wri...
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Why Suing Chinese Companies In The US Is Usually A Waste Of Time.
2009-09-02 07:31:00
Ft.com has a fascinating and extremely sad story, entitled, "An accident shows how China treats consumers." (h/t This is China!) It's a great article, but the title is all wrong, at least if you are a lawyer. The title should be "An accident illustrates why it is (almost always) a complete waste of time to sue Chinese companies in United States Courts." I am sure that most of you will read this article and get all angry and ask, how can this be? I read this article and nod my head and think, been there, done that. That is because just about every month, I get a call from some lawyer, somewhere in the United States, calling me and expecting me to be really interested in the great case he or she is offering me. The case usually goes something like this: 1. I have a $16.5 million judgment against this Chinese company for securities fraud. We got the judgment from such and such US court and "all we have to do now" (I swear they nearly always say this as though they just did ...
More About: Companies , Time , Waste

China And Doing It By Heart. One Day You Are In And The Next Day You Are O
2009-08-31 06:48:00
Just read a great post over at Seth Godin's blog. The fact it was a great post is not the least bit unusual for that blog, but that I can relate it to legal work in China (well sorta, anyway) is. The post is entitled "The problem with doing it by heart" and its gist is that people sometimes become such creatures of habit that they fail to question and analyze and maybe even modify the way they do things. The post concludes with the following lesson: The next time you or one of your people starts rattling off the obvious truth by heart, wonder about whether it's obvious because it's true, or true because it's obvious. So true. Many years ago at my old firm, a young immigration lawyer (who was always to angry about something) complained to me how a litigation lawyer in the firm had been dissing him. The immigration lawyer had gone to the litigation lawyer with a question on court procedure and the litigation lawyer told the immigration lawyer he did not know the answer and ...
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China Honey, You Are An Adulterer. Can You Stand By YOUR Labels?
2009-08-29 18:28:00
A couple of Chinese "executives" were recently found guilty in Seattle Federal Court of having imported and distributed adulterated (well it at least sounds like adulterer) and mislabeled honey into the United States. The honey contained "ciproflaxin, an antibiotic that is used to fight bacterial infections but in rare cases can cause tendon damage and is barred from the food supply." The honey was also mislabeled as having come "Russia, Ukraine and possibly Poland" even though it really came from China . This all reminds me of a couple very good clients who were subjected to full on federal investigations. To camouflage the client, I am going to be very vague here, but I assure you that you will get the gist. Here are the stories: Client 1 is engaged in a very profitable business shipping food product to China, where it is combined with other product, processed, and then shipped to the United States. One day, around a dozen federal agents (from various agencies) show up, ...
More About: Labels , Honey , Stand

Manufacturing In China. Because There Are 1.3 Billion People There.
2009-08-26 17:38:00
I expected the routine this morning from a Wall Street Journal article entitled "LG Display Plans Plant in China ." I expected it would say that LG was going to be manufacturing in China either to save costs or, more likely, to diversify its manufacturing. But the following line from the article gave me an ah-ha moment: "China's LCD market is growing rapidly, so we felt it's necessary to manufacture LCDs from the region in the long run," said LG Display spokesman Park Sang-bae. Ah-ha! Now I know many of you have already realized this (and on one level, so had I), especially those of you in the business of buying and selling product, but China manufacturing is in its second wave. China's first wave was strictly for cost savings; its second wave is for internal consumption. In a backward analysis brought on by this article, I realized that many (maybe as many as three quarters of them) of my firm's clients who we have been helping go into China are going there more to sell t...
More About: People , Manufacturing , Billion

China: Where East Eats West.
2009-08-26 00:38:00
Whirlwind China entrepreneur and friend Sam Goodman has a great and blissfully short book out on how to do business in China. I say blissfully short not because I did not like his book (because I did), but because its shortness is one of its strengths. Most people wanting to learn the ins and outs of doing business in China neither want to nor have the time to read an encyclopedia on the subject. They want something that gives them a full overview of the basics in a hard-hitting and relevant way. Sam's newly released tome, Where East Eats West , is that book. Sam is a somewhat rare beast in China: an experienced and successful expat entrepreneur. Sam started a chain of cafes in 1997, called Beijing Sammies. Sam built these cafes into a real business and then sold them in 2003. His book does a great job distilling what he learned from those experiences. The book consists of a series of many very short, very informative, chapters. Though I see this book's highest and bes...

Foreign Corrupt Practices Act in China. September 3, 2009, Teleconference.
2009-08-25 17:43:00
Stafford Publications is putting on a teleconference on the Foreign Corrupt Practices Act (FCPA) in China . Before I talk about that though, there is one thing I have to get out of the way. Every time I see a very British name like Stafford, I cannot help but smile and remember a hometown friend of mine who named his business "Tafford." My friend's business has become quite successful on a national level and my friends and I still always effect a very British accent whenever we discuss it. Now here's the funny part, my friend came up with the name from an expression we back then: Take a Flying F--k On a Rolling Donut. That equals TAFFORD. Get it? Sorry. Anyway, this teleconference will be on September 3 and it features really good people and it will be focusing on the following: This seminar will examine recent FCPA enforcement focused on business activity in China, discuss the unique FCPA challenges of conducting business in China, and outline strategies for effective ...

China's Big Political Picture Writ Small For Business.
2009-08-23 19:18:00
I am not generally a fan of extrapolating the way a country conducts its politics to the way its enterprises conduct its businesses even in China where so many businesses are government owned. I am not saying it cannot be done, but I generally find it too complicated for too little value. David Dayton, a guy who truly knows the way China conducts its manufacturing, just came out with an analogy laden post, entitled, "Rio Tinto and Urumqi as Corporate Culture Lessons,"linking China's recent handling of its Western region with how its factories treat foreigners. Though I am dubious of the value (beyond entertainment) of making this linkage, I am convinced Dayton is spot on regarding Chinese factories and I am going to focus on that. Dayton sees China using the following four step process to deal with its problems out West: 1. Round them up. 2. Insist everything is okay. 3. Identify a common enemy. 4. Show them the money. 1. Round them up. Anyone against the factory will be...
More About: Business , Political , Picture , Small

China's Border Disputes And Use Of Force. A Serious Analysis.
2009-08-23 17:48:00
The Sun Bin blog has a fascinating and thoughtful post analyzing how China handles border disputes and when it uses its military. The post, entitled "China's Policy in Border Disputes ," mostly consists of an interview with Professor M. Taylor Fravel of MIT, whose academic focus has been on Chinese territorial disputes and its use of force. This is an interesting and important post and I highly recommend it.
More About: Analysis , Force

China Food Safety. Don't Blame Legal.
2009-08-22 10:37:00
Thought provoking post over at TwoFish's Blog, entitled, "Best and the worst – The Sanlu Settlement." The thesis is that China 's handling of payments to those injured by the Sanlu dairy food poisonings was handled better than would have been the case had Sanlu been in the United States and been subject to a class action suit. TwoFish makes some valid points, which points are certainly more sophisticated than some commentators who fly over to China for a week and come back proclaiming that if only China allowed tort claims (it does) just like in the United States, all (or at least nearly all) food safety problems would be solved there. TwoFish says China handled Sanlu "quite well" and he challenges those who are "critical" to "explain what the Chinese government could have done better:" As I said above, as far as the actual settlements and consequences, I do think that the Chinese government handled things quite well, and I’d like for people that are critical of the leg...
More About: Safety , Food , Legal , Food Safety

China: No Brands No Cry. What Does Peoria Say?
2009-08-22 08:22:00
Since my using references to Bob Marley songs seems to play so well (see here and here)..... Anyway, just read an excellent and blunt blog post on Chinese brands over at the perpetually insightful Silicon Hutong Blog, entitled, "Brand Reality Check." The post uses a Tom Doctoroff article in AdAge (subscription required) as the starting point for arguing China will "not be producing a bevy of global brands at any time in the near future." I completely agree. Silicon Hutong convincingly makes the following argument against those those who might list the few fairly well known Chinese companies as proof that China can develop great brands: Those who disagree with Tom (and manage to eschew ad hominem attacks) point out that Haier has managed to build a global brand entirely without marketing. While that point would be debatable (if you could buy a Siemens fridge for the same price as a Haier fridge, which would YOU buy, and why?), let's not go there. Instead, let us grant fo...
More About: Brands

Hiring In China. The Seminar. September 24, 2009. Seattle.
2009-08-20 04:26:00
On September 24, 2009, I will be speaking on China labor law issues at Seminar International's Hiring in Asia Seminar in Seattle . I will be sharing the podium with Dave Parker, CEO of 9spaces, a leading China-focused human resources research and services company. Together we will be discussing hiring and retention in the Software Engineering, Manufacturing Services, and Shipping industries. Dave will focus on the business side and I will cover the legal side. In addition to our talk on China, Chris Gootherts, Microsoft's Staffing Manager for China and Thailand will be presenting with Darryl N. Johnson, the Former U.S. Ambassador to Thailand, on "Choosing the Right Country and the Right Services: Recruiting West to East." Chandrakiran Malarapa of Prithvi Information Solutions, Shaalu Mehra of Perkins Coie LLP, and Madhu T. Rao, an Associate Professorat Seattle University's Albers School of Business, will all be talking on Hiring in India. Davis Bae, immigration lawyer extr...