Dispute resolution is an evolving art form in China

Last updated on July 2nd, 2019 at 09:08 pm

History is littered with the bodies of those who could not agree about what was said vs. what was meant.

Holy books seem to be a favorite, but contracts, wills and constitutions take a close second. Now, mix in different languages, cultures, thousands of miles, companies and people you do not know.

When doing business in China, there are two related things you should keep in mind: dispute resolution and communications. They have one common thread: what you “understand” doesn’t matter.

Dispute resolution

Thirty years ago, there were was nothing that we would recognize as a formal dispute resolution system in China. All judges were appointed by the government, all lawyers worked for the government, 99 percent of the cases were criminal. Twenty years ago, most disputes were handled by mediation, politics, violence or not at all. Ten years ago, China’s fledgling court system was still ill-equipped to handle trade disputes. Lack of knowledge and experience and a tendency to have ex parte chats with the judge tended to put things up for grabs.

Today, Chinese courts are handling large caseloads. What they lack in terms of sophistication they make up for in speed and cost.

The formula is simple; ignore everything except what was said in the contract. This means that it’s not about what was meant, but what was said, and said clearly. Chinese judges are not interested in subtleties and testimony, especially from a bunch of foreigners who want to explain what they meant.

The key to a Chinese contract is to divide the responsibilities between the parties (they like to use the Party A, Party B approach), and then clearly state what the penalties will be, if either party fails to live up to the terms. Make sure you use a lawyer/law firm that has written and successfully defended contracts in China, or be prepared to take your chances. Do not just use standard clauses and contracts from the United States. They are based on years of interpreting U.S. statutes and cases. They may not be effective in China.

An example of a specific clause:

If the (Chinese manufacturer) fails to follow the exact specifications, attached hereto, or deliver the goods by (date certain), the (Chinese manufacturer) must pay a penalty of three times the value of the entire shipment within 10 working days to the (U.S. company). If the entire amount is not paid on time, then any unpaid amounts shall accrue interest at 5 percent compounded per week until paid.

If the Chinese supplier violates this clause, you have a good chance of prevailing in a Chinese court in a much shorter time and at less cost than in the United States.

By now, you may be thinking this does not sound so bad, plainly written terms outlining who is responsible for what, clear consequences for failure and quicker less expensive enforcement. This may be great if you are sourcing or supplying goods and services, but is more difficult when it involves joint ventures and situations where the business relationship has to grow and adjust. Unfortunately, that depends on picking a good partner and learning how to communicate with them. Picking a good partner would take a book, so let’s look at communications.


So what is an effective business communication style in China? For me, dealing with Chinese companies clients and companies on a daily basis, it has meant being extremely literal and direct. For example, in my everyday work, people will often define the target by walking around it. The subtlety of language and meaning is beyond mere direct interpretation. In a land where “next time” can mean, “no,” “maybe” or “next time,” to communicate effectively, you need someone with both the language skills and Chinese business experience on your side.

In addition to translating the words, they have to give you an accurate sense of what the underlying meaning is. I use two interpreters: one to translate the words, the other to record and transcribe the conversation. Unfortunately, no two interpreters will agree exactly about the meaning. I generally talk separately to the oral translator, then the written interpreter, form a hypothesis and then test it by putting what I understand in writing. I then send it out as a meeting synopsis, with a request for written confirmation. When/if I get response, I am ready to go to the next step.

You may think I am talking just about business negotiations with other parties, but it also applies to my internal communications with my Chinese clients. Surprised? You shouldn’t be. Before I can work, I need to know what the work is. To communicate, I use memos, briefings, PowerPoints, written agendas and pound away until each issue has been addressed and signed off on. Does it annoy my Chinese clients? Stylistically, yes, but they understand I am trying to translate their goals into a working strategy.

So what should you do?

From the moment you enter China, you should think, talk and negotiate literally and get it all in writing. The idea that you can out-Chinese the Chinese by being obscure and tangential will end in tragedy. When it comes to disputes and communication in China, what you understand does not count.

Einar Tangen, formerly from Milwaukee, now lives and works in Beijing, China. He is an adviser to Heilongjiang Province, Hebei Province QEDTZ, China.org.cn, China International Publishing Group, Beijing Baotong and DGI DESIGN. He is also a weekly public affairs commentator for CCTV News’ Dialogue and the author of “The Kunshan Way,” an economic development history of China’s leading county level city. While in Milwaukee, he was a partner at Jackson, Morgan and Tangen, president of E-Tech and a senior vice president at Stifel Nicolaus. He chaired various boards in Milwaukee and was a member of the Federal Home Loan Bank of Chicago. Readers who would like to submit questions or suggest areas of interest can send an e-mail to steve.jagler@biztimes.com.

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