Six hugely common China law problems AND their solutions
By Dan Harris
I was talking with one of our China lawyers the other day about how we constantly get the same emails and phone calls from Western companies with China legal problems that either cannot be solved at all or cannot be solved at a fee that will make sense. We then discussed how so often these problems could have been avoided had these companies contacted us (or some other experienced China-focused law firm) early enough.Very briefly, the below are six of the most common problems our China attorneys see, all of which can almost always cost-effectively be avoided by doing “the right thing’ early on.
If you are doing business in China or with China, this post is for you!
1. The Problem: “The Chinese government will not allow the company that owes us money to send us the money.” This has become a huge problem in the last year, as China consistently steps up its capital controls and tightens the spigot on money leaving China. The Solution: There are essentially four types of deals when it comes to money leaving China: One, those that will be allowed without government pre-approval and with little documentation. Two, those that will be allowed without government approval, but with specific documentation required. Three, those that require government pre-approval. Four, those that will never in a million years be allowed. To avoid problems, you should before you enter into any China deal know the category of your transaction and act accordingly. For more on how to get money out of China, check out the following:
- Getting Money Out of China: It’s Complicated
- Getting Money Out of China: It’s Complicated, Part 2
- Getting Money Out of China: It’s Complicated, Part 3
- Getting Money Out of China: It’s Complicated, Part 4
- Getting Money Out of China: It’s Complicated, Part 5,
2. The Problem: “We paid our China manufacturer to a new bank account and it is now claiming it never received our payment.” This is the China bank switch scam and there are many things you can and should do to avoid becoming yet another victim to this. The Solution: Read How to Conquer China Payment Scams for the complete list of exactly what you should do before paying your China supplier, or really any foreign company for anything.
3. The Problem: “We are part-owners of a China company but we have never received any of the profits.” There are two typical explanations for this situation. The first is you think you are a part owner of a Chinese company, but you aren’t. Believe it or not, this situation is incredibly common and we see two common variants of it. One is where the foreign company thinks it is part of China Joint Venture and it simply isn’t, usually because no Joint Venture was ever actually formed. The other is one we are seeing constantly these days (mostly in the tech sector) where the foreigner (including foreign companies) thinks it has ownership in a Chinese company when the law clearly forbids that. For more on this situation, check out the China Stock Option Scam. The second situation is where the foreigner does have ownership in the Chinese Joint Venture, but the Joint Venture has been structured so that the foreign company will never see a penny. For more on this situation, check out China Joint Ventures: The Tide is Out. The Solution: Have an experienced China lawyer look at your ownership documents before you invest time or money into your venture. It is nonsensical to do otherwise, and using the same lawyer as your China “partner” is lunacy as well.
4. The Problem: “Our branded products are showing up on Alibaba and various other online China shopping sites.” This one is simple. When I get this call, I first ask if the company on the other side of the line has a registered trademark in China. If it does, I assure the caller that we will almost certainly be able to remove the offending products in a week or two. But if the company has no trademark registered in China (especially if it also has no trademark registered in any other country), I tell them that if nobody else has already registered their trademark in China, we can do so for them and then in about 15-18 months we can almost certainly get the offending products removed. The Solution: Submit your application for a China trademark now. See China Trademarks. Register Them In China Not Madrid.
5. The Problem: “Our employees are threatening to sue us for ______” The reasons for the potential (or real) lawsuit are many and varied, but most of the time the problem could have been avoided with advance planning and a thorough HR audit. The Solution: Almost all employee problems can be prevented or at least mitigated with good employment contracts, good employee rules and regulations, and astute handling of employee problems. Make sure your HR documents are in good order and never fire anyone, or reduce anyone’s pay or change anyone’s hours without first getting an okay to do so by someone who truly understands China employment law. We have yet to conduct a China HR audit without finding a whole host of things that can be done to minimize future employer-employee problems. See Six Common Myths About China Employment Laws.
6. The Problem: “My China manufacturer just sent us terrible product.” I hardly need describe this problem as it is so well known. The Solution: There are three keys to getting good product from China: 1. A good supplier. 2. A good contract 3. A good QC program. For specifics, check out Having Your Product Made In China: The Basics on Protecting It and You.
Dan Harris is founder of the Harris Bricken law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes ChinaLawBlog.com as a source of China legal and business information.
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