Managing Risks in China - Bribery, Corruption, and Little Red Packets

By Brandon Kirk of China Law & Practice

So you're coming to China. Unperturbed by warnings from colleagues at home, you decided to boldly step forth into the market that everyone has talked so much about with stories of overwhelming wealth and success. As luck would seem to have it, you meet someone on the plane ride over who runs a factory in the area you were looking to set up shop. Excited by the prospect, 'irrational exuberance' gets the better of you and you tell him all about your business. Later, the two of you set up a venture, and, as you're quite sure that the usual due diligence isn't necessary in such an emerging market, you end up being less careful than you perhaps should have been.

Later on down the road, assuming that the new partner didn't steal your intellectual property and simply disappear, you may or may not find mysterious payments on the balance sheets. Or you may find that there simply aren't any proper balance sheets, but nonetheless you suspect that money is going somewhere that it shouldn't, such as to a local official, or into your partner's pocket and those of his 'friends'.