Growing Pains: A Road Map for Chinese Companies Learning to Live with Complex US Litigation

By A. Robert Pietrzak, Joel M. Mitnick, and Henry Ding of Sidley Austin LLP*

As stated by a report by the Congressional Research Service, "since the initiation of economic reforms in 1979, China has become one of the world's fastest growing economies. From 1979 to 2005, China's real gross domestic product (GDP) grew at an average rate of 9.7%. Real GDP grew by 11.1% over the in 2006, and during the first quarter of 2007, it rose by 11.1% . . . If projected growth levels continue, China could become the world's largest economy within a decade or so."¹ Trade and foreign investment plays a significant role in China's booming economy and, to date, more than 200 Chinese companies are listed on US stock exchanges. China's economic growth has turned Chinese industries into attractive US litigation targets, both because these industries are finding themselves in a thicket of unfamiliar Western commercial rules and because they have increasingly deep pockets.

Being sued in the US is not, in and of itself, a new phenomenon for Chinese companies. Certainly, legal disputes between Chinese manufacturers and their US buyers of goods sold and delivered have been resolved in US courts for many years. But in general, Chinese companies face an additional challenge as compared to their US counterparts in that they are relatively unfamiliar with the process of large-scale US litigation. Indeed, such law suits can come as a shock to Chinese companies more familiar with discrete contract disputes. The complaints in such suits may contain personal allegations of fraud and misconduct. In addition, the extensive and invasive process of pre-trial discovery in complex commercial litigation will surprise many Chinese companies. Most of these matters will be resolved by a ruling from the judge that the claims should be dismissed without the need for trial or through a settlement.