• Chinese Binding Agreements?

    by  • September 8, 2012 • IRIS Commentary

    Very often a foreign company getting into an agreement with a Chinese counterpart will find that when an agreement is signed, it seemed that the Chinese will want to alter the signed agreement, over and over again. Foreign companies should realise that in most instances, the signed agreement is just the starting point towards a serious cooperation and the Chinese see it that way. This is one of the reasons why Chinese agreements are very general and not particularly specific.

    Many companies would also have experienced how quickly a Chinese counterpart would sign an MOU, realising that it is non-binding and later work towards another agreement, and another, and another…for the umpteen time until it gets down to the formation of the JV company, only to find that there is no agreement after all. In the process, monies would have been expended, perhaps even expensive feasibility studies conducted, many Chinese dinners with Mao Tai drunk with lots of toasting to the future ecetera.. and at the end of the day, still no deal.

    So when does a deal become binding on the Chinese?

    IRIS Corporate Services team have over 50 years of direct Chinese experience in negotiations, representing both foreign and Chinese parties in China and internationally. Our basic approach and advice  is very simple ie. don’t come to China or deal with the Chinese

    • if you think you can outsmart them via the terms & conditions of an agreement
    • if you just have money and think that as a competitive edge
    • if you’re not thinking of the longer term and trying to build friendship and relationships
    • if you don’t employ Chinese staff and train them or just want comparatively cheap labour

    Whatever agreements you sign with the Chinese will likely be unraveled or will be side-stepped. There is no binding agreement in these cases. Finally and reluctantly, its usually see you in court!

    However, come to China

    • if you have something to offer that they don’t have and want eg. technical know-how, western culture, training, product, raw materials especially metals, coal, oil and agri-commodities
    • if you want to genuinely create a win-win situation

    In these situations, an agreement that you sign will be a binding agreement as it is finally not dependent on the details contained in the agreement but instead it will be on the individuals of the company and their relationship and trust with you. This does not mean that details are irrelevant in a market driven economy.

    IRIS Corporate Services can advice you on how to do business in China.