Chinese Company Lawyers – Harris Bricken Sliwoski LLP

“Let’s kill all the lawyers.”
William Shakespeare.

Okay, so we lawyers are not the most loved people in the world. I get that. But, I cannot resist noting that U.S. surveys consistently show that even though the overwhelming majority of people dislike lawyers, they overwhelmingly like their own lawyers. In other words, our own clients love us.

I do not know what percentage of Chinese citizens hate lawyers but I do know that Chinese companies typically are unwilling to pay the legal fees necessary to secure competent counsel.

I’ve heard lots of reasons for why this is the case, with the following being the most common.

In China “the law” is essentially whatever the Chinese government says it is. As an example of this, if some new kind of business is started in China that is so new to the CCP’s slow-moving bureaucracy that it hasn’t figured out whether it should be legal or illegal, it may be “tolerated”. Your business may be tolerated, then the Chinese government says it is “illegal”, or it may be tolerated, then the government says it is “legal”. Then it might switch from “legal” to “illegal” and told to shutdown almost overnight. This happens, and continues to happen all the time. See e.g., China’s Tutoring Ban Leaves a Trail of Debt, Anger, and Broken Dreams.

Here’s another example. The Chinese government says that new businesses in China have to list their “business categories” and the business they are in. Think about it; does this make sense? From a business point of view, it makes no sense. Let’s say your Chinese company registered as a consulting business but it now needs to do a marketing survey for a client who wants to enter the Chinese market. So though it makes perfect business sense to do this sort of survey, the Chinese bureaucrats and regulators prevent it from doing so, because in their view government regulators categorizing businesses makes more sense.

Among Chinese business people, there is a large degree of frustration at these sudden changes which come out in the morning, and may change before the sun goes down. For Chinese entrepreneurs, this is the face of the law.

So, in order to succeed, Chinese companies spend large amounts of time avoiding the regulators and getting warned, or even shut down. If a regulation comes from Beijing and their company is in Guangzhou, the Chinese company will go talk with Hangzhou city government officials to avoid getting crushed because local Chinese officials have the power to “interpret” the law. Sometimes this means ignoring what Beijing says, without openly confronting Beijing. Not a lot of need for lawyers in these scenarios.

All this leads Chinese companies to view the law as random and to be avoided and when Chinese companies go overseas, their views and actions do not change. They fail to realize that the law can actually help them and so they see no point in using lawyers unless and until they are in trouble, and even then they do not know how to use them.

I have seen this many times. Chinese clients have sought help from our FDI lawyers in the US or in Spain and for a very small amount of money, we could have saved them considerable risk, hassle and/or penalties, but the Chinese companies will not pay it. They view law as something to be ignored or avoided. The idea of confronting one’s legal issues and dealing with them so as to lay a strong foundation for the future seems almost alien to them. At least a half dozen times we have had Chinese companies walk away from spending less than $5,000 to try to avoid a problem and then later come back to us and pay us $25,000+ to get them out of the exact situation for which they contemplated hiring our lawyers previously.

Another factor influencing Chinese company aversion to lawyers is that they tend to view business/market competition as very much focused on price. This makes sense since the overwhelming majority of Chinese companies gain their advantage exclusively from their low cost structures, and spending money weakens that advantage. This is why Chinese companies tend to be so cheap and acquire reputations for being cheap and micro-managing their employees, trying to extract every little bit of time and value out of them.

In the long-term, this hurts the reputation of Chinese companies as a whole.

Our firm has tried getting past these cost hurdles with Chinese companies by telling them how many top international companies have more than 500 lawyers in their in-house legal departments and of how many companies spend around 1.5% of their gross revenues in legal fees each year. The Chinese companies tend to remain resolute.

But things do change and they will change. Our best corporate clients are those who have been through litigation and once Chinese companies start getting sued in the United States they will come to realize the importance of preventative lawyering. I have seen this with our Russian and Mexican and Spanish and Korean and Malaysian clients and I expect it will eventually happen with Chinese companies as well, though I have to admit that it does seem to be taking a lot longer for them.

What are you seeing out there?