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Tips for Handling Business Disputes in China

Nobody likes it when a business has a strong dispute with another business, especially when it involves international entities. Disputes can be between a business and another business, a business and an individual or even a dispute with the Chinese government. Business and individual disputes are much more common than a problem with the government of China.

Although the statistics in this article deal with US companies, many other western countries will be able to use the information here. The United States Department of Commerce suggests three primary ways to handle commercial disputes involving an entity in China. Those are negotiation, arbitration and litigation.

Negotiation should be the first consideration whenever possible as it involves less expense and can help both sides to save face in the process. Most contracts in China contain the stipulation that negotiation should be the first step in handling problems. Although negotiation does not always succeed, it is the reasonable initial attempt to clear the problem. Many foreign companies ask the Chinese government to encourage the Chinese company to honour its contract. Usually, there is a time limit for the Chinese business to do as it has promised in the contract.

If negotiating does not bring about an answer, the next step is usually arbitration. When one of the parties in a dispute is a foreign company, China has two commissions to handle the disputes. One is the China Maritime Arbitration Commission (CMAC) for maritime disputes. The other is China International Economic and Trade Arbitration Commission (CIETA). This is the one which most foreign contracts include in their written contracts. Two of the three arbitrators in a CIETA arbitration must be non-Chinese.

The final and least desirable dispute-handling situation involves litigation in Chinese courts. A foreign individual or a foreign company has the same ability to bring action to litigation as Chinese companies or Chinese citizens.

A well-written and well-planned contract is the best business tool when doing business in China. Getting every page initialled or signed is important so that each part of the contract is legal.

Another good piece of advice is to know your business partner well. Do not sign contracts before meeting the partner and understanding his motivations. A part of 'knowing' your partner is being sure of his solvency. Specify the currency to be used in all business dealings. Make sure that the partner can afford his part of the contract.

Avoid shady deals. If it violates WTO rules or is a prohibited activity, you have little recourse when problems arise.

As much as you may trust your Chinese partner, you should do occasional research as to how the contract is being honoured. Your money is at stake so keep an eye on what each partner in your contract is doing.

Pre-planning is a major element in your international business partnerships. Pre-planning may keep you from having to resort to negotiation, arbitration or litigation later on.

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