China

US china flagsThis is Part 4 of this series on how to sue a China company. This is the final post explaining what you can do to try to secure redress against a Chinese company that owes you money or has wronged you.

Part 1 of this series focused on how to effect service of process on a Chinese company under Hague Convention rules and on jurisdictional issues involved in suing a Chinese company. Part 2 was on conducting discovery against a Chinese company. Part 3 discussed overall litigation strategies and how to enforce a judgment against a Chinese company. This final post will focus on arbitrating against Chinese companies in the United States and in China and on litigating against Chinese companies in China’s courts…

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US china flagsThis series of posts addresses how to seek redress against a Chinese company that owes you money or has wronged you. Part 1 was on how to effect service of process on a Chinese company under the Hague Convention and on the jurisdictional issues involved in suing a Chinese company. Part 2 dealt with conducting discovery (or not) against a Chinese company. This post discusses litigation strategies against Chinese companies and enforcing judgments against them.

double red triangle arrows Continue reading “How To Sue A China Company (Part 3)”

This series of posts is on seeking redress against a Chinese company that owes you money or has wronged you. Part I was on Hague Convention service of process on a Chinese company and jurisdiction. This post is on how to conduct discovery against a Chinese company.

Once you have served a Chinese company in a U.S. lawsuit, it will be bound by the court’s normal discovery rules. China, however, prohibits depositions on its soil, even if the deponent consents. In its declaration on accession to the Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters, China stated it would not be bound by those provisions granting consular officers the right to oversee depositions. In 1989, China allowed a deposition in U.S. v. Leung Tak Lun, et al., 944 F.2d 642 (9th Cir. 1991), but advised that its grant of authority for that particular deposition should not be considered precedent, and it has not permitted a deposition since. Conducting a deposition in China may lead to arrest or expulsion. Even a telephonic deposition of a witness in China likely violates Chinese law, and would not be a good idea for anyone planning to go to China.

The easiest way to depose a China‐based witness will usually be to have that witness go to the United States or to Hong Kong for deposition…

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What should you do if you are owed money by or have been wronged by a Mainland Chinese company? Bring a lawsuit against the Chinese company, of course. But how?

Mainland Chinese courts do not enforce U.S. judgments. Therefore, it will probably be a waste of time for you to bring a lawsuit in a U.S. court against a Chinese company that does not have assets in either the United States or in a country that enforces U.S. judgments. However, it is important that you research where the “Chinese” company is actually based because Mainland China, Hong Kong, Taiwan, and Macao are different jurisdictions entirely.

This series of posts will discuss the challenges of litigating against Mainland Chinese companies and will offer guidance in overcoming these challenges, both in the United States and in China.

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American companies often come to us with a “great business idea” that turns out to be prohibited for foreign companies in China. When we give them the bad news, their first response is usually: “But that makes no sense.” Some then suggest that all we need to do is meet with the “right people” in the Chinese government to explain how their business will create jobs and boost China’s economy. We tell them that will never work.

China has deliberately limited foreign involvement in certain industries (e.g., publishing and the Internet) to be able to control those industries. The Chinese government is more concerned with social harmony and the contentment of its citizens than with economic numbers, and you should always factor this into your China business decisions. China’s slowing economy only heightens the government’s focus on contentment.

If you are doing business in China, or even just considering it, you should be mindful of the following…

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I am often asked what foreign companies doing business in China need to know to stay out of legal trouble. I usually respond as follows:

  • Are You Operating Legally?  Generally speaking, if you are doing business in China for more than a few weeks, you need to form a legal entity there (i.e., a Wholly Foreign Owned Entity (WFOE), a joint venture, or a representative office. Assuming, of course, that your business scope is permissible; some businesses that are perfectly legal in the United States or in Europe are proscribed in China.

There are five more things you need to know in order to stay out of legal trouble in China…

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My firm’s clients often ask how their contracts with Chinese companies should be signed and/or chopped (affixed with the company seal). We typically respond with something like the following:

Each Chinese company has only one “legal representative” (a term of art under Chinese law), who is identified as such on the company’s business license. Any agreement signed by a Chinese company’s legal representative is binding on the company, whether or not a chop is affixed. However, to enforce a contract that is not chopped, you must prove that the signature on the contract really belongs to the Chinese company’s legal representative. Therefore, if you can get the contract chopped, you should.

Larger Chinese companies often do not have their legal representative sign their contracts. In this situation, you need to be particularly vigilant about securing a proper chop.

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Whenever one of our China lawyers drafts an agreement for a client doing business in China, one of the first things we ask is the identity of the Chinese counterparty. This is a complicated question.

The typical Chinese company is composed of multiple entities, with a complicated ownership structure. One entity may run the factory, another entity may run the office, and a third entity may serve as a holding company — and is probably based in Hong Kong or Taiwan. And every single person on the Chinese side ignores corporate formalities and behaves as if all the entities are interchangeable.

But the entities are not interchangeable, and the party with whom you contract matters. How it matters depends on your goals and the Chinese side’s corporate structure.

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When I give speeches on China law, I am often asked what the best way is to keep up with Chinese law in a particular industry. I usually answer by saying somthing like the following:

Great question. But you probably can’t. To succeed in China, you need a China team, and that team needs to include someone who can read and understand Chinese laws/regulations in Chinese and someone who is in touch with the relevant government authorities.

I then usually describe a conference call from a few years ago, when three lawyers from my firm (including me) were discussing the law relating to a particular matter. One lawyer said the law was “X”, another said it was “Y”, and I said it was “Z”. I then very confidently stated that the other lawyers must be looking at older versions of the law, because I was looking at the one that had come down three weeks ago. One lawyer quickly admitted defeat. The other lawyer said his version had just come out the day before….

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You can invest in China on your own by forming a Wholly Foreign Owned Entity (WFOE) or by partnering with an existing Chinese business through some form of joint venture. China is fairly open to foreign investment and in the past several years WFOEs have become the most common vehicle for foreign investment, partly due to investor skittishness as stories about past problems with Chinese equity joint venture partners have made the rounds.

Yet many foreign investors still choose to enter the Chinese market through an equity joint venture, and the particular risks involved with this type of arrangement require careful planning.

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