When it comes to negotiating, Chinese companies view American companies as easy marks: impatient, unfocused and too willing to compromise to avoid losing out. Accordingly, Chinese companies often employ the following three negotiating techniques:
1. Wear down the American side down with endless issues. This tactic actually has two variants. In the first variant, the Chinese side raises a series of issues. Once these initial issues are resolved, the Chinese side then raises a series of unrelated new issues. This process never stops, because the list of issues is endless. The second variant is for the Chinese side to make several unreasonable demands and then refuse to address the American company’s concerns at all. Both variants are designed to induce the American side to concede on all major points out of a desire to keep the deal moving forward….
2. The artificial deadline. This is my favorite tactic because the manipulation is so blatant, and yet it works surprisingly often. The Chinese side starts by scheduling a date for a public signing ceremony, at which high-level officers from both sides will participate amidst much pomp and circumstance. The date is set far enough in advance to make the American side confident that parties negotiating in good faith will be able to reach agreement on the contract. The Chinese side then delays, stalls, and otherwise ensures that no agreement is reached, while simultaneously pressuring the American side by talking about the massive loss of face the Chinese company will suffer if it has to call off the signing ceremony. The Chinese company then uses the deadline to extract concessions from an already exhausted American negotiator. This tactic also has two variants. The first involves the Chinese side simply refusing to concede on key points in the belief that the American side will crumble when faced with the fixed signing deadline. The second variant is more subtle. In this variant, the Chinese side initially concedes on key points, while still holding its ground on numerous minor points, consistent with the “wear them down” tactic. Then, just a day or two before the signing ceremony, the Chinese side announces that one or more key issues must be revised in a way that entirely benefits the Chinese side. The Chinese side usually justifies this by referring to the demand of a government regulator or a relevant third party like a bank or insurance company. The Chinese side defends its action by saying that other people have forced them to go back on their word.
3. Sign a contract and then come back a few weeks or a few months later and seek to renegotiate key points. Though this too is an obvious technique, it works pretty well. The Chinese side waits until the project has started and the American side has committed money or personnel to the project, and then announces that certain key provisions of the contract must be changed. The Chinese side usually claims this change is mandated by law, by government regulators or by banks or insurance companies. At this point, the only people left on the American side are “committed parties” with a strong incentive to allow the project to proceed. Often, these people do not even fully understand the implications of the changes the Chinese side is demanding. These committed parties on the American side then present the changes to busy upper level management as “minor technical revisions” and the revisions get signed without any lawyer scrutiny. Everyone remembers how the initial negotiation was so troublesome and nobody wants to bring in “legal” to start the process over again.
Because these three tactics tend to work so well, Chinese companies do not hesitate to employ them. Happily, each tactic has a simple antidote:
1. When the Chinese side tries to wear you down with endless issues, refuse to participate. Firmly state your position and do not bend unless and until the Chinese side moves closer to your position.
2. Never agree to a fixed signing date. Make it clear that you will agree to a signing only after you have completed negotiations. Do not fall into the trap of believing that you must say yes to a signing ceremony to avoid causing offense. The Chinese hold suckers in contempt, so your refusing to go along on this tactic will, if anything, earn the Chinese side’s respect.
3. Make clear that there will be no changes to the contract after signing and that you will treat any attempt to change the contract as a material breach that will precipitate a lawsuit for damages. Chinese companies are well known for using the signing of a contract as the start of a new negotiating process, so if you find this happening to you, get your legal team involved (again) right away.
Negotiating a good contract with Chinese companies is difficult and time-consuming, but less so if you know how to handle Chinese negotiating tactics. There is no reason to make the situation worse by falling for any of the negotiation tactics discussed above.
Dan Harris is a founding member of Harris Moure, an international law firm with lawyers in Seattle, Chicago, Beijing, and Qingdao. He is also a co-editor of the China Law Blog. You can reach him by email at firstname.lastname@example.org.