Negotiating in China: Partners in Crime

If an American counter-party asked you to issue a fake receipt, forge a contract or commit fraud, you’d probably tell him ‘no’ and then terminate your relationship with him. At least I hope you would. Yet when many newly arrived westerners are asked to do the same type of things in China, and a surprisingly large number actually do it. This is NO A GOOD IDEA.

China has laws.

The days of back-room deals, special favors for connections and outright bribery are largely over for run-of-the-mill transactions. (Ok, there may still be a lot of corruption and back-channel deals at higher levels, but if you are reading this for business entry information then you shouldn’t be dealing with that sort of thing yet.) China has a new legal system that it is very proud of. So proud, in fact, that they are excited about showing it off to their new foreign friends. Trust me, you don’t want to see it close up.

Not everyone does it.

You’ll be told that everyone breaks the rules. That the government expects you to cut corners. That no one does the paperwork. That you’ll never be caught. Well, they don’t, it doesn’t, they do, and you will. Plenty of Americans evade taxes and break laws in the US, but that doesn’t make it a good idea. You certainly wouldn’t recommend that a newcomer to your town start his new venture by committing fraud and forgery. Well, don’t be that guy in China.

What’s good for them may not be good for you.

Yes, your local lawyer, accountant and partners have had a ripping success evading the authorities and living by their wits. But that doesn’t mean it will work for you. The Chinese government is very sensitive about foreigners it perceives to be exploiting China or taking advantage of Chinese people– and breaking business laws will put you in that category.

What’s your defense going to be?

Ok, so let’s say that you allow yourself to be persuaded by a local partner or consultant that everyone in China does, in fact, routinely break the law and violate regulations. And then you get caught. What exactly is your argument going to be? Are you really going to go before a judge and say, “the laws here are a joke, the system is corrupt and violations are rampant?” I’m no legal expert, but that seems to me to be a great way to get on a judge’s bad side.

Making the money and keeping the money are two different things

Another issue in China is the exit strategy. You may be able to buy the property, you may be able to sell the product – but collecting the money, selling the business and getting the money out are all much different things. You will see the same bureaucrats on the way out that you saw on the way in – so you’d better have all your paperwork.