Tips for doing business in China
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The biggest mistake is believing that China has no laws. Take the necessary legal steps to protect your company in China

China Law Blog

A while ago, I was interviewed by Laurel Delany for her article, “Legal Tips for American Small Business Owners Doing Business in China.” Laurel wrote the book Exporting: The Definitive Guide to Selling Abroad Profitably, a truly excellent book on importing and exporting.

My interview (modified slightly) is below.

Laurel Delaney: What are the top five legal pitfalls for small business owners doing business in China?

Dan Harris: The following:

1. It’s a very different legal system. Little to nothing is implied.

2. You generally must register your intellectual property in China to protect it there.

3. You absolutely must have written contracts in Chinese with your employees.

4. For contracts in general, specificity is critical.

5. Foreign companies are under a microscope; you will be treated differently than domestic companies. Know your risks.

LD: What are the three essential elements to crafting an effective supplier contract with a Chinese company?

DH:

1. Jurisdiction of disputes should generally be in China. If you win a lawsuit in most countries outside of China (like the United States), you cannot enforce your judgment in China.

2. Be sure to protect intellectual property. You should make clear in your contract what belongs to you and what your supplier must do to protect your physical and intellectual property. Use an NNN Agreement or an NNN provision for this.

3. Be incredibly specific about all requirements. If it isn’t in your contract, the courts generally will not put it there by implication. Also, if it’s not in your contract, your supplier likely won’t do it.

LD: Is there a definitive statement that should be declared in a sourcing contract to ensure the buyer has a good chance of prevailing should there ever be an issue with the seller?

DH: Contract damages provisions are usually the best way both to ensure compliance and to increase the chances of prevailing in litigation. If there is ever litigation, is it better to take place in China or the United States? Almost always it makes sense to have your contract in Chinese with disputes to be resolved in a Chinese court. Winning against a Chinese company in a US court has virtually no value unless that Chinese company has assets outside China, and it usually doesn’t. Know how to sue a Chinese company before you write your contract.

LD: Based on your experience, what’s the single biggest mistake small businesses make when doing business in China? How do you overcome it?

DH: The biggest mistake is believing that China has no laws. American companies that believe China has no laws fail to take the legal steps necessary to protect themselves in China. Those companies end up without protections and they then end up with big problems.

LD: With all its challenges, why should small businesses do business in China at all?

DH: Because year in and year out, something like 90% of Western businesses doing business in China operate profitably in China and because China has 1.3 billion people, most of whom are getting richer every year.

This post was originally published on the China Law Blog.

Photocredit: Shutterstock.

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Dan Harris

About Dan Harris


Dan Harris is internationally regarded as a leading authority on legal matters related to doing business in China and in other emerging economies in Asia. Forbes Magazine, Business Week, Fortune Magazine, BBC News, The Wall Street Journal, The Washington Post, The Economist, CNBC, The New York Times, and many other major media players, have looked to him for his perspective on international law issues.

Dan writes and speaks extensively on Chinese law with a focus on protecting foreign businesses in their China operations and he has had the rare honor of being designated a ‘Super Lawyer.’ His China Law Blog, co-authored by HM Lawyer Steve Dickinson, is regarded as one of the best law blogs on the web today. The ABA Journal recently named the China Law Blog to its Blawg Hall of Fame (a designation given to the top 20 law blogs of all time).

Dan prides himself on his global connections. His indispensable network of top notch lawyers and business leaders around the world helps him stay abreast of the trends and events shaping international law today. He often draws upon this wealth of knowledge and know-how when advising his clients on their overseas enterprises.

Born in Kalamazoo, Michigan, Dan also spent part of his youth living in Aix-en-Provence, France and in Istanbul, Turkey. In his free time, he works out, spends time with his family and enjoys listening to BBC World as well as a little Springsteen.

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