China is becoming more and more internationalised and English is becoming a common lauguage tool. English-speakers will find it is very convenient to do business with Chinese enterprises, however, one still must pay attention to the slightest difference between Chinese English and native English, as even one false step could make a great difference. If English is not your mother tongue, you might have to use English as a medium when communicating with Chinese enterprises, in which case, the chance of mutual misunderstanding might be even larger.

For example, a businessman from the Middle East flew to China to negotiate a matter with a Chinese enterprise five times in three months. However, when his Chinese lawyer came to assist in the matter after the meetings, the businessman found out that he and the Chinese enterprise were referring to two totally different matters during the whole five negotiations.

One of the factors mentioned above could alone put the business negotiations in danger. The best way to solve this difficult situation is to have someone on your team who is very familiar with both your country's and China's culture, customs and legal systems. But, if this is too rigorous a requirement, at least have someone who is familiar with China on your side. His or her knowledge of China will greatly assist your decision-making and substantially improve your understanding of China-related business. It will help you avoid future troubles.

You can find such a person in China, possibly one of your Chinese friends, or an expert in a special field, like a Chinese lawyer. If you opt for a legal practitioner as your negotiation guide, he or she should be an international business expert so that he or she can properly and professionally utilise the right languages and reduce any chances of misunderstanding between you and the Chinese enterprise. Moreover, it is becoming increasingly normal in all corners of the world to bring lawyers to the negotiation table because their professional knowledge and instincts for risks will facilitate the whole deal, and benefit both sides.

Steven Hsu
Partner
Zhong Yin Law Firm

The international perspective

Negotiating with the Chinese can be challenging, particularly for Western companies that do not have extensive experience doing business in China. Here are some tips on negotiating with the Chinese:

- Get both parties to sign a Non-Disclosure Agreement (NDA) to pre-empt any possible confidentiality leakage and to facilitate free-flow discussions – although it may be difficult to enforce the terms of the NDA.

- Wherever possible, do your due diligence well in advance. How extensively you should conduct this depends on the nature of your transaction. Due diligence for an acquisition deal is different from that of a sale and purchase or licensing agreement.

- Research the enterprise you deal with, including the Chinese personnel. State-owned enterprises (SOEs) are government-owned. Understanding what political functions the SOE serves will help you to appreciate the driving force behind the negotiations.

For example, some SOEs are keen to strike a deal if a transaction involves technology transfer, while others are keen to acquire management skills through joint ventures.

Yet others are simply interested in attracting foreign capital for job creation purposes. Find out who
the real decision-makers are as they have a big say on the deal even if they do not participate in the negotiations.

- Organise your team carefully. Pay special attention to hierarchy, ensuring that the seniority of your team members corresponds to that of their Chinese counterparts. Wherever possible, include someone who is fluent in Mandarin and knowledgeable in Chinese culture, although Chinese companies increasingly have personnel who can negotiate effectively in English.

- Cultural nuances can make or break a deal in China. The Chinese do not take kindly to “losing face”. Anyone on your team who is too aggressive a negotiator should remain at home. When in doubt, bring along an adviser who is experienced in doing business with the Chinese.

- The Chinese will play host and engage in small chat. This is their way of sizing you up. They value face-to-face meetings, so be prepared to make several trips to China.

- Be prepared also to make concessions.

- Do not rush through your negotiations; extend your stay in China, if necessary.

- A Memorandum of Understanding (MOU) or a Term Sheet (TS) is the prelude to a formal contract. Although the MOU/TS is not usually binding, it will be poor form if you deviate too much from it.

- Finally, enjoy your visit in China.

Peter Chow
Partner
Bryan Cave