Know the Rules of the Game in China

A veteran Canadian lawyer tells you how to get started doing business in the world's most populous nation

Written by Valérie Borde

When Montreal business lawyer Peter Mendell went to China in 1978 for the first time, the country was a year away from launching economic reforms that would lead to three decades of rapid development. The district of Pudong, just across the Huangpu River from Shanghai, was still only fields and dirt roads. Today, it can boast of five million inhabitants, 9,000 businesses and a gross municipal product equivalent to that Morocco.

Mendell believes that we ain’t seen anything yet. He’s become a seasoned China hand specializing in mergers and acquisitions and joint international ventures and a partner at Davies Ward Phillips & Vineberg. Mendell was instrumental in helping Abitibi-Consolidated (now Resolute Forest Products) in the acquisition of several facilities in Asia, including China. He who knows the country inside out, and predicts that there will be an explosion of even more business in the 21st Century, fuelled by continuing growth of the middle class. China will become a staple for Quebec businesses, he says. And the good news is that it is easier to do than it looks, provided you to master the rules of the game.

As a first crucial step, ensure that you do business with companies that are reliable and honest people—and that’s tricky to accomplish. “In Canada, you can easily check public records if, for example, a company or its officers have been in trouble with the law. In China, it’s almost impossible,” Mendell warns. Hire a private detective to investigate potential partners and then to prepare a detailed report, which will result in finding someone you trust. “Many companies I know have had a lot of trouble because they botched this stage,” he says. A well-respected Chinese law firm can help you with this.

Read: What Canada’s New Treaty with China Means to You

Don’t expect to conduct business remotely. “You will never succeed in China without having established a real relationship of trust with partners, which involves in-person meetings between top leaders,” Mendell says. “No need to send your subordinates. This can take months, during which you will need to visit China frequently. Show yourself and be very respectful: Don’t be late for meetings and learn the proper way to introduce yourself. The Chinese are very sensitive and you have to understand their culture if you want to succeed.”

Penning an agreement with a Chinese company is not that complicated, Mendell says. “Nowadays, many contracts between Chinese and Western companies are written and signed in English. The terms are no different from those found in other countries, including intellectual property. An agreement with a Chinese partner is no more difficult than one with a French or Brazilian one. “Still, navigating the maze of bureaucracy requires more time than what we are used to in North American,” Mendell says. “It’s not enough to fill in some forms, as in Canada, to incorporate. Many foreign companies prefer a status known as a “wholly foreign-owned enterprise” (known by the abbreviation WFOE and pronounced “woofy”). This will enable you to keep control over all corporate decisions.

This story originally appears in L’actualité

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