Navigating China
California Lawyer

Navigating China

June 2012

TRUE or FALSE
1. Mooncakes are called mooncakes because they are made out of green cheese. 2. Tomb Sweeping Day is the day before the "Day of the Dead" in Mexico. 3. Bo and the Chongqing Model is a novel about a steamy affair between a Chinese industrialist and his mistress.

If you answered false to all three (and know why each is false), congratulations - you can skip reading this article. As for the rest of you, read on.

As an American lawyer who has been general counsel of two European companies, I must confess that up until a few years ago my knowledge of what it takes to do business in China was extremely limited. In my present job that had to change.

I have now traveled to Hong Kong, Beijing, and other cities in China several times. I have also worked extensively with our China team. More important, I have taken the time to develop my knowledge of China from various resources. And one of the first things I learned was how important it is to understand the role of the Communist Party.

Of all the books I have read, by far the most informative and interesting was The Party: The Secret World of China's Communist Rulers by Richard McGregor (2010). The book is an excellent discussion of the party's strong continuing role in Chinese life and business, and how officials at various levels are motivated. The author's discussion of the party's role in the selection and removal of some senior corporate executives was especially striking (e.g., the party's decision to shift Wang Jianzhou from China Unicom to manage rival China Mobile).

Getting into the daily flow of news in China is also extremely helpful. I have found the South China Morning Post's RSS feed to be especially good for updates. And on my last trip to Hong Kong I was, over dinner, able to have a great conversation with one of our sales execs about Hong Kong politics. He was pleasantly surprised by how up-to-speed I was on the latest doings in Hong Kong, and I think that's helped our working relationship.

Of course, to do business in China I also needed a trusted advisor on Chinese law. A few years ago, my assistant helped me pull together a list of potential counsel in both Beijing and Hong Kong. We did some online research and also got referrals to the China offices of the firms that we were already using in the United States and Europe. I then set off on my trip, with meetings scheduled in each city, and fully expected to find the perfect fit. That confidence, however, proved to be misplaced. In fact, as I went from one meeting to the next it became quite clear to me that, for one reason or another, none of the candidates would work out.

For one thing, many of the non-Chinese law firms that have set up outposts in China were simply not interested in the type of business I had to offer. Instead, they were in China to ride the wave of large transactions - public offerings, mergers, and the like. They were not equipped - as they freely admitted - to handle the mundane, day-to-day issues facing a GC with operations in China.

Meanwhile, the Beijing firms presented a very different challenge. Although they were accustomed to working with English-speaking, Western trained Chinese lawyers, I wasn't able to assess their level of competence very well, nor for that matter whether we could work well together as a team. Language was definitely part of the problem. (Even though they spoke English, I often had difficulty understanding them.) Then, almost as an afterthought, while I was sitting in the Beijing office of King & Wood (now called King & Wood Mallesons), which is the largest homegrown law firm in China (don't be fooled by the Western-sounding name), I asked about who their representative was in Hong Kong.

Two days later in Hong Kong I met with Wing-on Chui and concluded almost immediately that I had found the right attorney. For one thing, although Chui was originally from Beijing, we had no problem communicating. I could also tell straightaway that he was the type of no-nonsense, highly competent lawyer that I always look for when I'm hiring an outside counsel. So, with a little perseverance, problem solved.

ANSWERS

1. False. Mooncakes are a traditional Chinese pastry given to family and friends during the Mid-Autumn Festival. That is fairly innocent. For a GC, however, giving mooncakes as gifts to customers needs to be monitored for potential issues under the Foreign Corrupt Practices Act (as well as the U.K. Bribery Act). Failure to keep an eye on the cost of "mooncakes" given as gifts can result in a simple bakery item morphing into a "cake" stuffed with expensive watches, gift cards, and other valuable goodies.

2. False. Tomb Sweeping Day, or the Qingming Festival, is a time for Chinese families to visit the graves of their departed. It usually occurs in April.

3. False. Bo is Bo Xilai, and the Chongqing Model is a term sometimes used to describe the programs he implemented in his capacity as party chief of Chongqing. Newspapers recently have been filled with stories about Chongqing Police Chief Wang Lijun fleeing to a U.S. consulate, Mr. Bo's removal as party chief of Chongqing, and then his wife's arrest on suspicion of murdering a British business partner. And, as if all of that weren't interesting enough, the saga also has implications for the shifts in China's senior leadership, which are expected to occur later this year.

Rich Gray is the Silicon Valley - based vice president and group general counsel of Spirent Communications.

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