By UpCounsel Business Transaction Attorney Lois Li
China, a global economic giant, has implemented many policies in recent years to open its doors to foreign investors and businesses. Many companies in North America and Europe are starting to conduct business in China, such as contract arrangements and joint ventures. This article will share some tips on contract negotiation in China, including strategic preparation, cultural awareness and key considerations of joint ventures.
Strategic Preparation
In order to become or remain competitive in China, companies should be familiar with China’s national, statewide and local foreign policies. These may include, but are not limited to, encouraged business sectors, tax relief and relaxed foreign exchange restrictions. Companies may want to explore beyond just the first tier city and look into opportunities to enter second or third tier cities, as local government at these cities might have more advantageous policies that benefit foreign companies and foreign invested companies.
Cultural Awareness
Fundamental to closing all business deals is knowing your counterpart. The Chinese typically view contract negotiation as the beginning of a long-term partnership. Instead of a one-time business transaction, the negotiation process provides the framework for building relationships and ensuring ongoing cooperation.
Whereas the Western style is typically task oriented and timeline based, the Chinese style tends to be more personal and takes practical matters, and not just absolute contractual terms, into account. This makes relationship building an essential part of reaching a deal successfully.Joint Venture
The Chinese government has implemented many foreign policies in past years in order to encourage economic growth. However, there are still many regulatory restrictions that apply to both wholly owned foreign subsidiaries and Sino-Foreign joint ventures. It is important to retain competent international law counsel to determine key aspects such as business section categorization (restricted, encouraged and permitted), regulation of foreign investment, tax planning, repatriation of profits and foreign exchange and potential impact of new Chinese draft law on foreign investments.
