Quick Question Friday: China Law Answers, Part 77

Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments or phone calls as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a quick general answer and, when it is easy to do so, a link or two to a blog post that provides some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.

As regular readers have no doubt discerned, enthusiasm for China has very much waned on this blog. Not surprisingly, this has led to an onslaught of emails, some exceedingly angry, some merely asking us to further explain our position and the basis for the same. The following email, sent to me by an experienced China lawyer (and a good friend), is representative of many that our China lawyers have received:

What is going on with your blog these days? It seems you now believe nobody should be doing business with China. Is this true? Why would you say this when so much of your own law firm’s business depends on China? Are you pushing for foreign companies to decouple from China because you think that is best for them, for the United States or for your own law firm? I know you will give me an honest answer and I look forward to hearing from you.

My response was as follows:

I am definitely not of the view that nobody should be doing business with China. That would be an absurd position. I am simply of the view that foreign companies need to realize that in many (most?) instances they should at least consider having their products manufactured somewhere other than China (for reasons of quality, cost, tariffs, etc.) and they also should realize that doing business in China just keeps getting more expensive and more difficult and maybe they would be better off seeking to sell their wares or their services in Canada or Europe or in Latin America instead of China. You would be surprised how often we have conversations like the below with clients:

Client: We have a new widget and we are looking to have it made in China and we need your help with this, basically the same sort of contracts and IP protection you gave us the last time.

Me: Aren’t these widgets being hit by tariffs right now? And couldn’t you have these widgets made in Thailand or Vietnam for less? Have you  looked into this?

Client: They are covered by the tariffs and we would love to be done with China but I guess we don’t really even know where to start outside China.

Me:  We can help you.

And then within months they are having their widgets made in Thailand for 20% less than if in China, not counting that they are tariff free and not counting that few people don’t prefer to visit their factories in Thailand over their factories in China. So yes, our goal is to get people to realize that they are not required to do business with China. So yes, we think it is “best for them” to seriously consider countries other than China.

As for our own law firm’s business, we are pretty agnostic about that sort of thing in that we have for years been diversifying beyond China and we are still growing at warp speed (I think we’ve doubled in size in the last two years and we are bringing in a new international corporate lawyer in May and we are also on the verge of hiring a new international trade lawyer and yet we still need more so if you know of anyone right for us, please let us know). There are far more law firms with substantial experience with China than there are law firms with substantial experience with Thailand and Vietnam and Latin America, so I guess I’m not terribly worried. But even if I were, there are two additional reasons why we are not going to stop trying to get people to see beyond China. One is that when we started this blog we vowed to always tell the truth as best we could, largely because if readers were to doubt our veracity they’d flee in droves. So to a certain extent we have no choice. Equally important is that no matter how much we stress the benefits of looking beyond China, we are just one blog and it is just not very likely that our posts will change enough minds to make much of a dent in anyone’s business. So yes, we think it is best for this blog and for our law firm to get companies to seriously consider countries other than China.

As for what is best for the United States, I cop to that also. I view US values and goals as more closely aligned to Canada, Mexico, Europe, Thailand, etc. than to China and I would personally would like to see those places thrive. So it does please me to be able to write a post like The China-US Trade War and the Winner is….MEXICO, where I openly expressed my personal desire to see more companies choose Mexico over China:

I am writing this from Mexico right now — my law firm does a lot with Mexico and we have a ton of lawyers and staff fluent in Spanish — and I have always believed the United States should be doing more business with Mexico, not less. The US economy overall is likely to end up net negative from this trade war, but in my view, business going from China to Mexico should go into the “win” column for the United States.

So my answer is essentially yes to all your questions.

I will in the next few days write about how American companies are decoupling from China and why that decoupling will continue, whether or not the United States and China reach agreement on trade.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.