Doing Business in China For Dummies®

Limiting Your Legal Risks

Legal risk is a pretty broad category in China, as it is anywhere. It can encompass everything from noncompliance with the law to losing control of your company or assets.

Chinese laws are often fairly vague and broadly worded. They can seem more like statements of principles than anything else. Lawyers in China are particularly fond of saying that the devil’s in the details. That’s because you often can’t see the real impact of a law until implementing rules and interpretations come out.

Minimum suggestions: We know what the law says, but . . . According to Winston Zhao, the partner in charge of Jones Day’s Shanghai office, one of the most frustrating parts of doing business in China is how unpredictable the legal environment can be. And by “legal environment,” he doesn’t just mean the laws; although laws and regulations themselves lead to unintended consequences, the more common issue is in implementation of laws and regulations. Zhao tells a story from the early 1990s that illustrates how officials’ varying priorities can affect their interpretations of the law. At the time, Zhao was assisting a client in setting up a pharmaceutical company in a southern Chinese city. After reviewing the application, some officials called Zhao to tell him that the social benefits the client projected paying were too low. Zhao double-checked the figures and confirmed that they complied with the amount set by law. When Zhao made this point to the officials, they responded ...